Hawala

Since Abram roamed the Levant, a banking system for transferring money existed today called hawala, and such an agent is a hawaladar.  A California lawyer explains it, as does wikipedia.  In a free market, banks do two things:  1. Store money (usually gold or silver) for a fee, and 2. transfer money, also for a fee.  A hawala performs function #2. Charging interest, if defined as making money on lending money, is not part of a hawala.

In essence, Abdul just made $1000 in Seattle he wants to send to his mom in Addis Ababa.  He could try to do this through bank of America, or he could go to a hawaladar.  With a hawala, he gives the hawaladar the $1000, and the hawaladar contacts another hawaladar in Addis Ababa who gives his mom $1000, less fees.  Here is the trick: no money is transferred. Hawala send and receive money transfer orders from all over the world.  The Seattle hawala puts the $1000 with all of the other money "transferred," and uses it to pay out incoming hawala transfers.  Should an inbalance of payments form, then money is moved en masse to effect a balance.  In any event, no records are kept of who moves what money to whom, only records of what each hawaladar owes the other.

This is another example of the free market in action: voluntary, no licenses, no reporting, trustworthy and dirt cheap.  If you use a bank, with all of its reporting overhead and fancy offices, you have to pay a huge fee to move money.  A hawala you meet for coffee in the front of one of those Somali bodegas that offer halal groceries, travel arrangements, fax service, tailoring, tax advice, goat milk and pizza.

I know what you are thinking: but terrorists will use that system to move money for terroristic activities.  Sorry, the money for 9-11 was transferred to Sun Trust Bank of Florida, where they duly paid it out.  A Hawala, being in a free market, relies solely on reputation.  They would never cooperate with criminals, since criminals say "crime does not pay," as in criminals refuse to pay.

Just think of a hawaladar, with some tens of thousands at hand, considering the prospect of a meeting with a terrorist or other criminal.  if not robbed, the hawaladar will never work again.  Since a livlihood depends on a hawaladar's reputation, a hawaladar cannot work with terrorists or criminals.

Nonetheless, in spite of the fact that Sun Trust was easier to use to transfer money for 9-11 than a hawaladar,  the government cracked down on hawala after 9-11.  In Seattle, as part of a nationwide assault, Maka Mini Mart and Halal Meats was raided, ruining their business.  There was no evidence of wrongdoing, but the US Government lashes out from fear, not warrant.  To his credit, US Attorney John McKay was displeased to find the FBI and other agencies had raided such clearly unlikely 9-11 participants.

Now, once where there was a legitimate, useful and law-abiding business, which was terrorist proof, there are people out of work (and on welfare) and others with no means to support their families back home.  Imagine escaping the government in Somalia only to be oppressed unjustly by the government here.  (Note to USA citizens planning to bug out overseas - what makes you think they will love you overseas?  What makes you think Uncle Sam will continue to send money to you?)

If we can carve out a New Hong Kong within the USA, the first "banks" should be hawaladar.

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Cool New Trade Data Resources

Check out  http://www.zepol.com/  where you can input a 10 digit HTS number such as 6205202026 and get http://www.zepol.com/HTS-Import/6205202026.aspx.  It is not as detailed as what I suggest in my class, but it is a powerful tool for quickly running down the commodities, and gives a preview snapshot before you do a 3 or 4 hour spreadsheet analysis.

Next, you can go to customs and search by name, such as "shirts" in plain English, (click on archives to search those too) and get all sorts of customs rulings on your topic.

http://www.cbp.gov/xp/cgov/trade/legal/rulings/downloadable_rulings/

http://rulings.cbp.gov/detail.asp?ru=n023541&ac=pr

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Why No IPR

At  22 in 1977 I de-trained at Lo Wu to walk, as required, from Hong Kong territory into Red China to alight a Communist train for business in Canton.  From day into night, from Hong Kong to Maoist China.  How could cousins, on each side of the border, end up as those with no resources (Hong Kong side) wealthier than their colonial masters, but the communist side with limitless resources, were dirt poor?  It took a while to find out, but it was merely ideas, and the most advance explication of the ideas was the Austrian school. Thirty years later I was in Auburn for the week long “university,” hearing what any Cantonese businessman would tell you was just so.  It is not lawlessness that explains Chinese uninterest in “intellectual property rights,” it is common sense.

We all know in natural law property rights form when labor is mixed with material, whether land or tools, each according to his abilities.  Private property may yield an artichoke or a lawnmower for sale. But a product is the result of ideas mixed with ideas: my own predilections, customers’ ideas and designers’ input.   Material, whether land or tools, are limited to one person at a time, given physical limitations.  Ideas, like candle light, can be used at once by all within sight, and are endlessly replicable at no cost to the source.  In a neat trick, IPR mocks natural law, but is grounded in positive law. Free candle light defies monopoly, hence the pretense of “rights” must be backed up with violence.

How does a free market work? A premise is small businesses are innovators and large businesses are conservators (following Drucker); small introduces innovation, subsequent iterations routinize and commoditize, and eventually conservators (big biz) "steal" the idea, apply the economies of scale (manufacturing, logistics, finance) to the item, and make material goods and services available to the widest possible demographics.  Innovators bring out (relatively) few, poor, expensive, and slow...  but desirable by enough people to launch a going concern...  conservators apply economies’ of scale and make the innovators’ product more better cheaper faster.  The free market at once introduces what is needed and then conservator gets the price down to where everyone has access to material goods and services, a symbiotic relationship between the innovator and conservator.  See the cell phone, 1980-2010.

In the measure a market is deregulated, the relative freedom produces the benefit.  Recall Jimmy Carter deregulating telephony, beer, transportation and normalizing trade with China.

This process generates division of labor, a real source of well being (following Dr. North, contra arch-anarchist Prince Kropotkin.)

In practice those who thrive in small business have not the slightest interest in IPR.  If someone "knocks off" my design, necessarily they are using 2nd rate factories, selling to 2nd rate customers...  literally none of my business.  My first rate customers are not interested in 2nd rate product.  I find 2nd rate customers not worth serving.  IPR solves a problem that does not exist, in relation to shoddy knock-offs.

Along these lines, when a conservator makes an excellent knock-off of my idea, and lowers the price through superior economies of scale, here again someone is using their factories, capital, etc, to reach customers I never could.  Where is the theft?  Where is the violation of my rights?  This is the flip side of Rothbard’s argument regarding who has the right to control my use of my photocopy machine?  What right do I have to complain of Big, Inc using their resources to reach customers I could not?

Marketing is the key to business, not control.  In essence, my relationship, is built on the degree to which I listen (oboedire) or obey, my customers.  That is marketing, that is what makes or breaks me.  My customers judge me and then tell me how I might best serve them.  I redesign accordingly, if I want a raise.

Something left out of IPR discussion is we innovators are constantly dropping items in favor of more profitable new items.  If I cannot increase sales by improving an item further, or someone has made my product irrelevant with a superior alternative, then I am on to something new, again in deference to customer feedback.  It is all about the customer.

Now, say my product gets to the point, after years of profitable iterations on my part,  a conservator decides to “steal” my idea.  This is not done lightly. The conservator has done the multimillion dollar MIT-expert statistics phd market study necessary to warrant knocking off my product. If it pencils out, Big, Inc knocks me off,  lowering the cost, and making my product available to everyone. But Big, Inc runs a risk.  Having carefully proved the obvious, that is I have a viable mass market item, I can simply do an IPO, raise the money to be the conservator, and become my conservator’s competitor.  See Apple IPO 1980, vs IBM (and everyone else).

After introduction, but before IPO (or not, the vast majority of innovators have not the slightest interest in becoming bigger than a few million per year in sales, life is too short, family is too important to spend it at the office) it is not uncommon for my peers around the world to see my product in the factory overseas.  For example a German may desire to try out my USA-proven item in the German market.  By prior agreement with the factory, the German will be charged a slight premium, which is paid to me by the factory, deposited locally in my account.  I have bank accounts in Canada and Hong Kong for this purpose.  In this way, I am compensated for my designs selling worldwide. It is not intellectual property rights, it’s just business. Rockefeller did it with the railroads, I do it with my USA based critical suppliers as well to assure they do not serve my competitors without me being pleased.

IPR poses a false dilemma and solves solves a problem that does not exist. Business challenges, in practice, are addressed in contract, not intellectual property rights. IPR inhibits justice in the distribution of goods and services.  It keeps the pie small, leaves ameliorants of wants and needs unavailable or nonexistent.  The world would be better off without IPR, but the entrepreneur has an advantage in the marketplace knowing IPR is spurious. Business objectives come faster and easier ignoring IPR.

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Trade Is Steady

The October trade data report is out from US Census, and it is steady as she goes...

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Consumer Debt Report

Bloomberg reports the happy, if untrue, news that we are coming out of the debt hole.  Apparently, going farther into debt is supposed to be good for the economy.   Mish isn't buying it. True, taxpayers are belt-tightening and paying down debt by economizing, but the government is borrowing much more.  Students are borrowing at record rates too, but many will not be able to pay back those loans, and will not be able to go bankrupt.  Within the next few years, homeowners facing foreclosure and students who cannot pay off their loans will be offered the chance to get the debt wiped out if they "volunteer" for the military.  Semper Fi!

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Entertaining Video on Wikileaks

Lots over a lewrockwell.com on wikileaks, including this video.

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Small Business and Non-Profit Cannot Co-exist

Non-profits usually are sustained by donation, not revenue from operations.  The estate tax, which destroys small businesses by making them impossible to bequeath, encourages donations to non-profits.  Thus, the nonprofit industry association lobbies long and hard to get the death tax lowered and maintained.

If we must have taxes and nonprofits, we cannot have small for-profit businesses.  Either taxes or nonprofit orgs have to go, or some balance of the two.  Or small biz has to go.  Guess what the two wolves and a lamb will vote what is for dinner.

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Bugging Out

An Aussie asks an interesting question on bailing out of your home country...and as usual, when the article is intelligent, the comments section is better than the article.

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How Democracy Fails

Hans Herman Hoppe is the go-to anarchist on democracy, and can elucidate how we got to the mess we are in now.  Little noted is the USA was not created as a democracy, but a republic.  There is a big difference, the founders knew the difference, and there is a reason they made their choices.

In Washington state, there is the strange prohibition era anomaly in which the state distributes the booze.  Waste fraud corruption high prices blah blah blah.  I buy my booze in California, since I buy good stuff and its at least  1/3rd off.  Stolichnaya I can get for some 60% off.  I had a talk with a pilot who had a nice little side business running rum into Oregon.

Costco, Safeway and other heavy hitters backed a citizens initiative to repeal the laws, and make a freer trade in booze in Washington state.  It polled favorably.  It lost.  The numbers show state workers voted to retain state jobs.  Union solidarity and all that.

In-house unions are anathema in the labor movement.  Govt unions are in-house unions.  I am a free market anarchist, but I have no problem with free market unions.  No problem at all with workers organizing to advance their agenda vis a vis the management.  I abhor govt unions, but love a free market union.  Bbut, of course, the govt interfered with the free market unions, and they want bad.    Jimmy Hoffa fought govt interference, and was railroaded into prisons.  Nixon pardoned Hoffa, and Hoffa went back at injustice, so he ended up six feet below stall 311 in shopping mall parking lot.

I asked a govt union worker, a friend, why she voted against the initiative, in spite of the fact she enjoys a high quality tipple herself. Solidarity of course.  But doesn't she know that voting for govt is just making a worse mess of the economy?  Yes.  Doesn't she know that these bailouts and all other plans just kick the can down the road and make things worse.  "I kick the can down the road."

If structurally we cannot, in a democracy, rule ourselves, how can we do so in anarchy.  We cannot.  In a big country, it is always easier to vote for someone else to pay.  This is why freedom seems to thrive only in small countries, say about 5 million people, Switzerland, Hong Kong.  We need  Canton Helvitica, a New Hong Kong, within USA.

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Division of Labor

Arch-anarchist Prince Kropotkin condemned the division of labor, unaware of the free market.  In spite of the downturn,  Hong Kong is the #1 destination for luxury goods in Asia.  But what people miss is everything else is available too, at affordable prices.  Wealth is not a lot of money, it is more options than you can exploit. That is what the free market offers: division of labor.

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Strange Vengeance

Wikileaker Assange is accused of sex crime, I guess, and being held without bail.  This is so very strange.  But it is a favorite charge in free-wheeling USA, especially in political cases. The veteran US Marine WMD inspector Scott Ritter was accused of such, going back ten years.

I know, I know, he admitted it, but often people are fooled into admitting to false charges on promises they will go away, only to find them reappear.  It works like this:  you are innocent, but the powers that be promise to prosecute you anyway, but will not if you admit it and promise to never do it again.  There is the tricky part, you never did it before, so never do it again is easy.  So you cut the deal to save your reputation.  The problem is expecting indecent people to become decent.  The powers that be simply make another charge, allowing them to bring out the old one, since you "did it again."  Ouch.

I watched this kind of stuff go on in Wenatchee, Washington in the 1990s, and 45 innocent people went to prison.   Here is a film where a falsely accused cop get 25 years of hell, and how that turned out.  Because he did not do it, he got a harsher sentence.  There are countless cases of this in usa from the 90s alone.

And of course the only anti-war entity left is the Catholic Church, so its priests have endured countless false charges.  We need a better legal system.  Something free market.

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Bring Our Troops Home

Hulu.com has a distressing but balanced video on the war on Iraq, which can be viewed free here.  One does not have to read the wikileaks to find out what USA, we, are doing is wrong.  Right wing Christians love this war, ignoring the fact it is wiping out Christians.  Don't tell me it is terrorists doing the killing, because we never really know who is planting the bombs.  The fact is Christians were safer under Saddam.  In any case, Christians have remained safe in Iran, after Moslems themselves got rid of the Shah, and the Iraqis could have done themselves the same favor of ridding themselves of Saddam.

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Mudassir Checks In

Hello John,

Hope things are great at your end!

Would you please guide me which Corporation is superb? S or C ? Why I chose one over other? And what are the benefits?

Thanks,

- Mudassir

Hey Mudassir,

it is a common question...  but here is the surprise - this is a tax question, not a legal question.

Which form you should take is based on so many variables that you must talk to your CPA about which is best, for tax reasons.

You can find small business CPAs advertising in local newspapers, and certainly on the internet.

John

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Microsoft: How To Become a Billionare

Take a look at the growth of Microsoft, prox 1980 forward in dollars. Click to enlarge.

Take a look at growth of government employees, rough same time period. Click to enlarge, but consider from 1982 on.

Check out Apple as well, in the first chart, from the source.

So what do we see.  We see a coincidence, wherein the growth of government and growth in sales of Microsoft, track hand-in-hand from 1980 on.  Coincidence is not science, but I think it would not be too hard for someone in microsoft to report on how close microsoft sales track the growth of government.  A microsoft employee once told me the company gets 70% of its sales out of one box (microsoft works, and the majority of sales from government sources. What was happening?  As government grew exponentially, they handed every employee a legal copy of microsoft whatever.  Although these hires really had nothing to do, they must be kept busy.  Microsoft is most excellent make-work sandbox, especially since the internet.  See microsoft grow with windows, and again with MSIE.

So what?  Well, as microsoft became the govt OS of choice, those who ever more had to report to govt bought the software.  There was a downward spiral of necessity yet impracticality.  Microsoft was not working in a free market since the market was wildly distorted by its exponentially important customer: Uncle Sam.

Microsoft is notorious for poor security, and spam.  (Apple is not, more later.)  Since uncle Sam is MS #1 customer, the cost of security is borne by the taxpayers when US law enforcement is obliged to protect government interests against hackers.  What would have happened in the free market?

Apple is much more free market.  Look at the graph.  Although superior product in every way, their margins are narrower, since they have plenty of people who compete against them.   Although not perfect, Apple products are more secure, relative to microsoft.

Now, Bill Gate has made tens of billions from microsoft. Gates has put that money into a "charity" so it will be protected from taxes, and for his family, in perpetuity, at the expense of taxpayers who pay for "law enforcement.". At the same time, his father campaigns tirelessly for people with a mere 2 or 3 million to pass on to their kids to be taxed at 50% or more, destroying family businesses. He spends some of the protected "charity" money on putting chemicals in people brown and darker, and this is important as people around the world no longer trust US Govt to do so, since it was purposely poisoning US citizens in Tuskegee and Guatemala, two places they were caught red-handed..  His business partner, Paul Allen, is putting his "charity" money into putting chemicals into those peoples animals.

Never mind all that, their targets are on to them.  Let's go back to where they got their money in the first place.  By not having a free market to sell into, Gates never had to bother making his software secure.  Look at the profits of Apple, and the sales, and the profit margins: not so good if you actually make the software secure.  Resolved: Gate's billions that he has pocketed represents the money he conserved by making his software secure. Since his "customers" did not care, and others were obliged to buy the product, he harvested a tidy sum putting out a shoddy product. Some business phd candidate should study this, and get the facts. I suspect we would see, overall, Microsoft has been a net deficit on business in America. Excess wealth is always a function of working either with or against government policy.  It cannot be formed without market distortion from government policy, backed up by violence.

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New Biz Oppty: Birds-eye Videos

It would take passion, but for not much money there seems to be a business in birds-eye videos.  Here is one from NYC, but one dramatic point it is lessened since a raindrop blurs the people in the Statue of Liberty.  Re-take is called for.

Another add-on sale might be making the TSA look good, since, for some reason, he gives them high praise at the end of the video.

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Interesting Visualization

Economic progress of the last 200 years for 200 countries...  looks about right to me...  notice especially the point of "Shanghai = Italy"  ... click on to view youtube...

Just so.

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Joseph Checks In

I know the overseas suppliers are more interested in the US market because of its size. Do the overseas suppliers see Canada as a separate part of the US market? A product may sell well in Canada and then transfer over into US. If this is the case they would be eager to work with Canadian importers.

 

I have not been to US yet. Since you travel allot you probably know the differences in culture between Canadians and Americans.

 

 

Joseph

Joseph,

Thank you for your kind email.  Although USA and Canadians can tell the difference between each other, beyond North America there is no telling.

Canada is a rich country, and as for suppliers, that is enough.  Suppliers can make money with Canada.  If you are in Canada, forget about the USA market, you do not need it to start.  There is certainly enough business in Canada to launch any business.  In fact, in the entertainment field, there are very many Canadians who became popular in Canada long before they came to USA.   Just as a company may start in San Francisco and grow to cover all of USA, so can  company start in Calgary, grow to cover all of Canada, and then start selling South.

It is enough now to get started, your suppliers will take into account your market is Canada, never mention USA at first (You talk big, they will talk big), just focus on what customers you can reach, and how to serve them.  Your suppliers will happily help you do just that.

Let me know how things proceed.

John Spiers

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