Just prices, elephants and kings

Well I'm not going to get medieval on your rear ends. Yep just price is the old scholastic idea that there is a fair or ethical price that can be charged for a commodity, and beyond that the producer is obtaining unfair earnings. It was the basis for the attacks on usury. David Friedman (1987), in the old New Palgrave (the one edited by Eatwell, Milgate and Newman) argued that the dominant view suggested that the just price was "the price which allowed the producer to maintain his proper place in society."

I wouldn't expect The Economist to come on the side of ethics in market relations, but that's what they have done. The Economist already has a fair price for YPF (see here), the oil company that was partially nationalized by the government of Argentina.

"Argentina could presumably mollify Spain by paying a fair price for YPF—which would most likely be half of the $15 billion or so the company was worth before the Argentine government began harassing it."

Fairness is a strange argument to use in favor of Repsol (the Spanish firm that owned most of YPF). They bought it for $13 billion in 1999, made $15.7 billion in in dividends over the whole period, plus $6.2 billions for the selling of part of the assets. So they made approximately $8.9 billions. And the fair or just price would be another $7.5 billion according to The Economist.

Of course, this price is not connected to the value of the assets, or how well the firm was managed, which says how much it can produce (output in 2011 was at 61% of the 1999 level). It must be a way for Spain to maintain its proper place in the world. Or at least the King, who is apparently incapable of maintaining his elephant hunting hobby. God save the King, then.

The Economist: Innovation helps poor and rich countries alike

The latest issue of the Economist features a special report on innovation and the global economy which is well worth a look. In it you will read about the efforts of India's Tata motors to produce a $3,000 "people's car" and small biotech firms that are figuring out ways to produce generic drugs without trampling on Western patents.

"With manufacturing now barely a fifth of economic activity in rich countries, the “knowledge economy” is becoming more important. Indeed, rich countries may not be able to compete with rivals offering low-cost products and services if they do not learn to innovate better and faster. But even if innovation is the key to global competitiveness, it is not necessarily a zero sum game. On the contrary, because the well of human ingenuity is bottomless, innovation strategies that tap into hitherto neglected intellectual capital and connect it better with financial capital can help both rich and poor countries prosper. That is starting to happen in the developing world."

Click here to read about how so-called "open innovation" is transforming the corporate attitude toward intellectual property rights (in the public realm this is often referred to as "policy transfer").

See this graph for a nifty visual of the relationship between innovation, labor, capital and productivity growth in the US.