Issue 4, Spring 1992

William A. McEachern, Editor

The Evidence File

• Economic advice might be an example of an inferior good because the demand for such advice increases during recessions. For example, most state governments had much less use for economists during the booming 1980s, when tax revenues poured in, than now, when revenues are flat. And many more economists have appeared on Capitol Hill since the recession hit than before.

• There has been much talk about privatization in Eastern Europe but little action. Most large firms in Poland, Hungary, and Czechoslovakia are still owned by those governments. The world's most ambitious privatization program was recently announced by the Russian government. Through various schemes, about 40 percent of a firm's shares could go to its workers--more than any privatization program since Yugoslavia's. Firms will be auctioned off, but foreign bidders will be excluded. Russian officials fear that at current exchange rates, foreigners would be able to buy firms for very little. For example, the 100,000 shops and light industrial firms scheduled to be auctioned off over this year are expected to sell for a total of less than $1 billion. Soon thereafter, heavy industry will be privatized. Observers say the road to reform will be rocky, in part because the transition relies on the existing bureaucracy.

• An interesting example of privatization was just reported in "Rewiring a Nation," The Wall Street Journal (2/19/92, p.1). Telmex, until recently the state-run phone monopoly in Mexico, seemed hugely inefficient. Though Mexico is the 13th largest economy in the world, the country ranks 83rd in the number of telephone lines per capita. The average wait for a new phone is three years. Repairs take several months. Equipment suppliers charged Telmex triple the amount they charged phone companies in other countries. One maintenance center in Mexico City housed 300 repair trucks but had only one exit so it took an hour and a half to get the trucks on the street each morning. The privatization deal earned the Mexican government $5 billion so far and it still owns 10% of the company. This might be a good case to follow.

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