Michael Lewis has an excellent, long (16 pages) article about Iceland in Vanity Fair — Wall Street on the Tundra (via Paul Kedrosky). Read it all:

…you can’t help but notice something really strange about it: the people have cultivated themselves to the point where they are unsuited for the work available to them. All these exquisitely schooled, sophisticated people, each and every one of whom feels special, are presented with two mainly horrible ways to earn a living: trawler fishing and aluminum smelting. … At the dawn of the 21st century, Icelanders were still waiting for some task more suited to their filigreed minds to turn up inside their economy so they might do it. Enter investment banking.

And don’t miss the little gem about Iceland’s huldufolk (hidden people) tucked away in there:

[Iceland's President] Olafur Ragnar Grimsson theorizes that the surfeit of spirit-beings stems from Icelanders’ abiding sense of loneliness and isolation … Public opinion polls and academic studies show more than half of all inhabitants think it possible or probable — 10 percent call it “certain” — they share their island with otherly beings, ranging from grumpy glacier-dwelling trolls to occasionally gregarious hidden people. … Earlier this year, Iceland’s highway agency had to change the course of a new road leading out of Reykjavik after citizens protested that the original route would disturb an elf’s lair under a big rock. “There are people who believe in elves, and we try to show respect for people’s beliefs,” said Viktor Ingolfsson, an official of the department. “If that means building around an elf stone, we try to accommodate.”

As superstitions go, huldufolk are pretty innocuous. But you have to wonder if the commonplace acceptance of illusory beings made it slightly easier for them to believe in illusory wealth.

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That the new 20 pound note would feature Adam Smith is old news. What I hadn’t known is that his pin-manufacturing ‘case study’ would be immortalized on banknotes as well:

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Aneel Karnani and CK Prahalad lock horns on whether hawking Fair and Lovely cream to India’s poor constitutes socially responsible selling (argument, counter-argument, counter-counter-argument) (via Salon).

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• Transparent composite concrete (via John Robb)
• Bollywood experiments with Internet releases
• The French 35-hour work week had “no significant impact” on aggregate employment
• Do red light cameras make roads less safe?
• Body piercings are injurious to health (via Instapundit)

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Instapundit talks about how easily accessible bits are changing the fundamentals of several industries, and finds the creeping hand of Karl Marx. For example in computer software

the first indication came when the falling price of computers crossed the point where the average programmer could afford to own a computer capable of producing the code from which he typically earned his living. This meant that, for the first time since the beginning of the Industrial Revolution, the ownership of the most critical tool of production in the most critical industry of the world’s leading economy was readily affordable by the individual worker. Throughout the first three decades of the Information Age, the individual worker was still dependent on his employer for his means of production, just as any textile worker in Manchester or Lawrence was in 1840.

Suddenly, this changed. Now it is as if a steelworker could afford his own blast furnace or rolling mill, an automobile worker his own assembly line.

It is hardly surprising that the nascent free software movement exploded in the early 90s, especially after Linus’ success with Linux — powered by cheap x86 processors and a cheap data network (the Internet) the share-alike academic ideal of MIT AI Lab became a practical reality for millions of users.

As pointed out, there are lots of interesting implications for webloggers (free news/opinion creators) and audio- and video-casters (free broadcasters): the entreched media will find it hard to compete in an environment where one-man shops can reach out as much as they do. Like the computer software industry, entrenched media will not die, but it will have to change.

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The Business Standard writes: “Your favourite car [and] laptop [are] cheaper in New York than in New Delhi.” No kidding. The India-is-cheap meme holds true only as long as you talk about human services. For anything else, it’s not. Pizzas are cheaper in Sofia, microwaves are cheaper in Taiwan, laptops are cheaper in the US, and even relatively highly-taxed England puts India to shame when you compare prices for automobiles and non-grey-market RAM.

For cheaper-to-import items like RAM, cellphones and laptops, the unusually high prices — in a country where the cost of retailing is much lower — can be blamed on the mindset of Indian retailers.

Still thinking along supply-driven market lines, they sell globally substandard items at “affordable Indian prices” and are astonished when they see demand is not high — and why should it be, given that all but the most desperate customers can see what’s on offer isn’t good value for money? Why would one buy, say, 3 megapixel digital cameras for INR 6500-8000 when one can get 4 megapixel cameras for this price abroad? Yet, Indian vendors insist on pricing 4 megapixel cameras at over INR 15000.

To confound things, they sell globally entry-level items at 2X+ markups, thus ensuring that value-conscious buyers stay away or shop abroad. Most egregious example: the $300 Bose noise cancellation headphones cost INR 23000 ($500) at the Bose store in Madras.

For bigger-ticket items, the lack of end-to-end local manufacturing is probably the biggest bottleneck in price reduction. You’d think the big players would build local capacity in a country that has the potential to be a huge market. Think again. The article quotes a GM manager whining about the high duties and “distance” from manufacturing hubs like Mexico. Well, whatcha doin’ importing stuff from Mexico for cars in India? Oh wait, this is the Chevrolet Optra (Suzuki Forenza in the US, Daewoo Nubira in Europe) we’re talking about, and supply-driven markets again indicate that GM can safely pitch it as a luxury family sedan to impoverished Indians; after all you have to earn something like 44X of India’s per capita income to be able to afford one. Hence, especially given that India’s rich are numerous enough for GM to meet their low sales targets, there is no real incentive for them to optimize on price.

I am not going to expect India’s marketplace to improve anytime soon: red tape on the government’s side and lack of a genuine desire to give a good deal to the customer on vendors’ side together conspire to make sure that India is years away from being a consumer nirvana like the US or even China.

I am not an economist; these are my off-the-cuff observations on a Saturday night. Feel free to flame correct me in the comments.

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For this year’s US Presidential Election, the graph to watch is the Iowa Electronic Markets Winner-takes-all market prices graph. Interestingly, it’s been running close to a dead heat these past two weeks. What does the market know that we don’t? (For those interested, the IEM’s 2000 Elections markets have some fascinating data as well.)

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(Via Slashdot) Slate on Macroeconomics and Olympic Destiny:

The model projects such big losses for established Olympic powers — and such big gains for nobodies — largely because of the influence of GDP growth. In the past four years, France and Germany have had comparatively little growth compared with, say, India and Mexico. So, France and Germany are projected to lose medals, while India’s total is expected to rise from one to 10 (!) and our neighbor to the south could win 11 medals, up from six in 2000.

This is all good, but given the paltry sums budgeted for our athletes ($30,000 per athlete actually budgeted — and rampant corruption ensures that what actually reaches them is far less), I’ll eat my words if India’s medals count exceeds five (yes, I know India won its first silver today in double-trap shooting).

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Joshua Allen: Education is not a passive thing that happens to a student, and the more that students realize that their ultimate competitiveness lies within themselves, the more they will be prepared to push the value curve instead of falling for scarcity thinking — and ultimately that benefits everyone.

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Clay Shirky on the NEC list: don’t take products with vanishingly small marginal cost and make them too expensive for your target audience to want to use.

In other news, as I wrote on Sep 5, starting Sep 10, inter-city SMSes will now cost Rs 2 a pop, up 2x the previous price of Rs 1. I wonder what the GSM marketers had in mind: India’s price-sensitive teens/college student market — the biggest users of SMSes — can’t be very happy about this.

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