Relevant and even prescient commentary on news, politics and the economy.

Innovation, production, and infrastrucutre

Stormy, Movie Guy, and Dan Becker in 2009 have been writing about trade imbalances and consequences since 2006.

An excerpt from one of Dan’s posts:

I have written at AB that my thoughts about when the flash point was for our change to a focus on making money from money was the first Reagan election. I do believe this is the case however, having finished reading Richard J Elkus’ book, Winner Take All, I now have learned of a perspective as to why it flashed and why we are bailing out finance with more money and fewer questions than bailing out the auto industry. I also see just how back ass-ward this bailing out concern is.
 
You see, the thought that the purpose of business is to make money was not always the winner in the argument. The argument has been back and forth for ages. It is part of the class war. In fact, there was a movie in 1954 with William Holden looking at this issue called Executive Suite.

…McDonald Walling, who oversees the company’s manufacturing plant and is preparing to test a new molding process… process did not go well in his absence. On the way home, he complains to his wife Mary that financial analyst Loren Phineas Shaw focuses on the bottom line at the expense of the company’s creativity…McDonald speaks passionately about the company, condemning Shaw’s short-sighted emphasis on quick profits as “a lack of faith in the future.” After McDonald outlines his vision for restoring the company to its former high standards, the board unanimously elects him president.

We have not always thought that the purpose of business is just to make money.

Mr. Elkus’ (MBA) thesis is that in the 60’s, two laws of economic process were formalized and presented that were the guiding thoughts influencing economic development. Both lines of thinking came from viewing the same show: semiconductors. One is by Mr. Bruce Henderson (engineer and MBA degrees) the other by Mr. Gordon Moore (PhD chemistry). Both addressed the relationship of costs and production. I note the degrees of each just as a curiosity.

Mr. Henderson, watching Texas Instrument, came up with the Experience Curve. In it’s simplest form it states that unit cost goes down over time as experience increases.

But, this was just the bases for a broader concept, a “strategy” for guiding business development: Stars, Cash Cows and Dogs.

As a particular industry matures and its growth slows, all business units become either cash cows or dogs. The natural cycle for most business units is that they start as question marks, then turn into stars. Eventually the market stops growing thus the business unit becomes a cash cow. At the end of the cycle the cash cow turns into a dog.
The overall goal of this ranking was to help corporate analysts decide which of their business units to fund, and how much; and which units to sell.

This was and appears to still be a very big concept. Big as in influential. Via Wiki:

The Economist magazine stated that Henderson did more to change the way business is done in the United States than any other man in American business history. Well known to many now is the famous Growth Share Matrix (‘cash cow’) and the ‘Experience curve’. His books were published in 27 languages.

Huge influence. Taught throughout our business schools according to Mr. Elkus and Wiki. Came about in 1970.
Mr. Moore, being a founder of semiconductor manufacturing businesses, namely Intel, came up with Moore’s Law. In it’s simplest form, it states that there would be “a doubling of computing power per given area of silicon every year at basically the same cost…”

Mr. Elkus’s thesis is that both describe models, ultimately truths regarding making money. Both are used as strategies for basing an economy upon. Only one is truly sustainable and makes all of America’s dreams possible. Japan picked that one.

He comes to this by way of his involvement with Ampex. Ampex owned video recording “…controlling nearly 100 percent of the world’s video recording patents and more than 70 % of the market”. Mr. Elkus literally introduced the first video recorder for home use, September 2, 1970 in NY. In the next few days, Ampex stock climbed 50%. Only one VP attended, no other top/senior management. “It was not a good sign.”His lesson from the event: “The introduction of Instavideo set in motion a long chain of events, resulting not only in the explosion of consumer electronics into nearly every facet of daily life but in a global shift in economic power to Asia.”

In the same year, he saw a presentation of high definition video by Japan’s “primary” broadcasting company, NHK. It is at this point in the story Mr. Elkus relays the concept of convergence of technology. The ability to record video on a consumer level scale represented the ability to store and process massive amounts of data. This ability converging with digital video presentation meant that the entire information economy would be exponentially growing based on Moore’s Law. Mr. Henderson’s potential Star. Moore’s law also meant that as the ability to process ever larger amounts of data on ever smaller media, the cost would be ever greater. Mr. Henderson’s potential Dog. What to do?

Mr. Elkus knew Ampex needed a partner that could take the technology to the consumer. Coming up with the technology, he recognized is only part of the expertise and cost, the other is the ability to manufacture it such that technology, in short, is dummy proof in the hands of the consumer. It is an ability all of it’s own. Mr. Elkus wanted Magnavox or Motorola as partners; keep it in the country. The boss said no, feared competition so went with Toshiba. This gets us to the next part of Mr. Elkus’ thesis: Infrastructure. Which gets to the final cog in the process: investment.

Using his experience with Ampex’s Instavideo, Mr. Elkus presents the counter to Mr. Henderson’s Stars, Cash Cow’s and Dogs: Investment, Convergence and Infrastructure. A relational model that follows the production law of Moore.

What the thesis of Investment, Convergence and Infrastructure means to a nation is presented in the tracing of the loss of our manufacturing base to initially Japan and ultimately to all of Asia. It is the counter to Mr. Henderson’s model which is basically just focusing on the money. It is the movie Executive Suite for real only for us, the story ending is looking different.

The relationship of Investment, Convergence and Infrastructure is presented early in the book via Zenith. There was a fight for control of the board as reported by the AP 11/1988. A couple Wall Streeters wanted Zenith to dump the “money-losing television business”. The dog. The article also noted: “for an outsider, jumping into the TV business would be like trying to hop onto a speeding train…” In the end, Zenith a company that “helped establish the standards for high definition television in the US,… contributing significant technology for the potential development of the industry” was gone by 1996 to LG of Korea “for a fraction of what it now costs to build a single display manufacturing facility”. We lost our infrastructure and thus the advantage of economic growth based on convergence and all the knowledge that is the result there of because of our focus on cash flow as the bases for deciding on where to invest.

Using a simpler example:

In 1964, one year before Gordon Moore wrote his prophetic article, semiconductor sales reached $1 billion. Today sales are in excess of $260 billion, it is projected that in a dozen years the number may reach $1 trillion. And growth in revenue has occurred while prices have dropped at an average compound rate of 29 % annually…But that is really chump change when you realize that $260 billion of silicon makes possible a $2 trillion electronic systems industry today…So it is possible to imagine an electronic systems market approaching $4 trillion to $5 trillion in the next twelve to fifteen years—an amount equal to the current GDP of Japan…

The error of US having followed Henderson, which if I understand Elkus properly, I conclude has lead to NAFTA, outsourcing jobs and ultimately the fight over whether to save our auto industry (which I noted is the last “infrastructure” we have that uses “convergence” via “investment”) verses little questioning to save the banks is summarized thusly:

The common denominator driving the world of information and its communications infrastructure was the need to store, process and distribute extraordinary amounts of digital information. [Store = Ampex. Process = Intel. Distribute = Zenith.] If one understands HDTV as the result of learning how to process massive amounts of digital information, as both a convergence and catalyst in the digital revolution, then it should be easy to see that the need to process that information is not limited to the HDTV display and a pretty picture….

It now costs upward of $10 billion to build just one semiconductor manufacturing plant. $3 billion to build a single display fabrication facility. Zenith was sold for $350 million. Based on Measuring Worth, 1996 to 2008 these money minds following Henderson, sold Zenith for 1/6th the cost required to build just one display panel plant in 2008. This number differential is the total fallacy in Henderson. How do you know? How do you know what really is the next big thing? How can you be sure that nothing else will come of what you have? It is the “The Guitar Player”. But worst of all as shown in the example of selling Zenith, is just how short sighted Henderson’s thinking and thus American business thinking is in general. If I may, Henderson’s thinking is analogous to watching your rear view mirror while driving forward as you decide whether to turn or drive straight. Henderson’s thinking is the point of thought that began the money from money economy. It is the thought that lead us to a purposeless existence of no substance because it leaves unanswered the question of why do we want to earn money or create wealth, for what purpose.

Mr. Elkus gave a talk at The Commonwealth Club in California on 9/3/08. It covers a time line of what he is writes in his book. It is one hour long, but well worth the time, especially the question at the end regarding Apple’s business arrangement regarding it’s Iphone as the questioner brings up “competitive advantage” and money from royalties. You know, that information/service economy model that has gotten us to the point that the biggest service sector (finance) took down the economy and the next largest is unaffordable(health care).
The most profound comment by Mr. Elkus during this lecture is: If you don’t have the infrastructure, then you don’t know what’s possible.

How far reaching is this persepctive of Investment, Convergence and Infrastructure? Mr. Elkus suggests that even our education system is influenced by it.

When a nation’s politics and economics fall out of step with its education system, the cost of reengagement is extraordinarily high.

Therefore any attempt to explain the plight of education in America must look first at the country’s current political and economic attitudes. They are directly linked.

Eventually, because of the exponential acceleration in convergence, infrastructure, and investment, there’s a cascading effect, and the loss of one industry begins to threaten the stability of others.

These events are noticed by the educational community, which must provide a measure of career guidance for its student population and thus looks to political, economic, and business leaders for answers.

We have Intel fortunately, but we don’t have the infrastructure of Zenith which would have been using Intels output to market Ampex’s technology which lead to the Iphone.

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Where’s Daniel Becker when you need him??

‘Small business representative’ still has some meaning for people, but of course the term is gamed constantly in the political arena. Via Alternet comes this example:

This morning, NPR’s Yuki Noguchi wanted to know how an ordinary small business owner feels now that the Obama health care law has been upheld. So she turned to this guy:

Well, as it turns out, Joe Olivo of Perfect Printing turns up quite a bit in public discussions of this and other issues. Here he is testifying against the health care law before House and Senate committees in January 2011. Here he is on the Fox Business Network around the same time, discussing the same subject. Here he is a few days ago, also on Fox Business, talking to John Stossel about the law. Here he is discussing the same subject on a New Jersey Fox affiliate.
And here he is in July 2010 discussing small business hiring with Neil Cavuto on Fox News. Here he is opposing an increase in the minimum wage in an MSNBC debate a couple of weeks ago.

Go to many of these links and you find out something about Joe Olivo that NPR and NBC didn’t tell you: he’s a member of the National Federation of Independent Business. NFIB’s site and YouTube page promote many of Olivo’s public appearances. He was the subject of an NFIB “My Voice in Washington” online video in 2011.

NFIB, you will not be surprised to learn, is linked to the ALEC and Karl Rove’s Crossroads GPS, and to the usual rogues’ gallery of right-wing zillionaires.

So Joe Olivo isn’t just some random business owner — he’s dispatched by NFIB whenever there’s a need for someone to play a random small business owner on TV.

The law will give some small businesses tax incentives to pay for employee health care. Starting in 2014, those with 50 or more employees will be required to provide it.

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Drugs, the US solution for all the pain

By: Daniel Becker

 

Just a little something that came across my desk. As you read it, think about the concept: War on Drugs.
“In the United States, the therapeutic use of opioids has exploded as witnessed by the increased sales of hydrocodone by 280% from 1997 to 2007, while at the same time methadone usage increased 1,293% and oxycodone increased 866% (5). In addition, the estimated number of prescriptions filled for controlled substances increased from 222 million in 1994 to 354 million in 2003 (5). Consequently, the milligram per person use of therapeutic opioids in the United States increased from 73.59 milligrams in 1997 to 329.23 milligrams in 2006, an increase of 347% (5). And, while hydrocodone is the most commonly used opioid in the United States, based on milligrams per person, oxycodone is the most commonly used drug with methadone use rapidly increasing the most… Consequently, Americans, constituting only 4.6% of the world’s population, have been consuming 80% of the global opioid supply, and 99% of the global hydrocodone supply, as well as two-thirds of the world’s illegal drugs (4-6,26-29).”
Read the whole study. There is a lot of info regarding the particular drugs. For instance, one researcher found that they had no effect on one’s ability to drive. Though another found there were cognitive issues. So, are they or are they not getting high?
I have all sorts of thoughts about it. Depression is highly associated with pain. That is, more pain is reported as depression is experienced and more depression is reported as pain is experienced. Emotional pain? Physical Pain? Are doctors just becoming more comfortable with such prescription practices, thus a kind of “heard” mentality? I mean, once you put them into happy land drug wise, there’s nothing left to do. Next patient please.

What does it say about our population? Our character? Our solutions we propose for all sorts of social issues? I don’t think it says much for the results we can expect if the increasing solution is to alter the brain chemistry. Can you say “framing”. Yes, I knew you could. Can’t imagine we have the character any more that produced things like the Hoover Dam (on time and budget with wealth creating benefit for all) which makes me cautious regarding any proposed “green economy” projects like a national high speed rail system. Was “hope” the drug for 2008?
Consumer confidence has been going steadily down since year 2000.  And here.    Consumer confidence is the highest in 3 years say the reports. Big whoop! Set the date for 1967. You’ll see we have managed to rise to the level of the bottoming for all the other recessions.   That’s a lot of pain…or depression. And, for a long time now. We are not kidding when we say “the good old day”. But then I’m told that the reason there seemed to be more snow when I was young is because I was shorter. It’s all relative.
There is real, as in non-virtual, pain increases being reported:

“Chronic pain’s prevalence and associated disability continue to increase. Harkness et al (181), in a 2000 publication, showed that there was a large difference in the prevalence of musculoskeletal pain over a 40- year period under investigation. The results showed that overall, the prevalence of low back pain increased from 8.1% in males to 17.8%, and in females, it increased from 9.1% to 18.2%. Similarly, Freburger et al (182) reported the rising prevalence of chronic low back pain following an evaluation of North Carolina (U.S.) households conducted in 1992 and repeated in 2006. The results showed a 162% increase in the prevalence of chronic impairing low back pain over the 14-year interval, going from 3.9% in 1992 to 10.2% in 2006 and an annual average increase of 11.6% associated with care-seeking and disability.”

I prescribe the “cold turkey” therapy in all it’s applications.   There was even a movie about it:

Reverend Brooks leads the town in a contest to stop smoking for a month, But some tobacco executives don’t want them to win, and try everything they can to make them smoke. If townspeople don’t go nuts, from wanting a cigarette, or kill each other from irritation and frustration, they will will a huge prize.

Oh the pain, the pain.
All I can say, is the war is in your head man.

 

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