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

Competition from China reduced Innovation in the US

Via Tyler Cowen, here is a piece by David Autor, David Dorn, Gordon Hanson, Gary P. Pisano and Pian Shu.

Cowen quoted the most important part, so let me follow his lead:

The central finding of our regression analysis is that firms whose industries were exposed to a greater surge of Chinese import competition from 1991 to 2007 experienced a significant decline in their patent output. A one standard deviation larger increase in import penetration decreased a firm’s patent output by 15 percentage points. Using data from the 1975 to 1991 period and a regression setup that accounts for the diverging secular innovation trends in computers and chemical, we confirm that firms in China-exposed industries did not already have a weaker patent growth prior to the arrival of the competing imports.

…The innovation activity of US firms did not merely shift from the US to other countries. We estimate similar negative effects of import competition on patents by US firms’ domestic employees and by their foreign employees. Instead, our results are most consistent with the notion that the rapid and large increase in competition squeezed firms’ profitability and forced them to downsize along many margins, including innovation. Consistent with that interpretation, we find that the adverse impact of import competition on patent output was concentrated in firms that were already initially more indebted and less profitable.

Here’s what I think is happening. Chinese imports typically enter a market from the bottom, with a low price and a reputation for low quality. After a few years, the quality begins to improve, though it takes somewhat longer for the reputation to follow.

From the perspective of incumbent players, the Chinese don’t play at the top of the market where the high margin flagships are, but they take up a lot of market share in the lower end products. But, though broadline products have slim profit margins, they keep the plants operating at capacity, and that’s what covers capital costs.

So… the existential threat to the incumbents comes from having higher costs than the new competitor. The natural reaction then, is to cut costs. Fire people, idle plants and reduce expenses like marketing and R&D.

Despite Schumpeterian theory, many of the most innovative (large) companies in post-WW2 America were monopolies or awfully close to it. Think Bell Labs, Xerox Parc or Skunk Works (i.e., Lockheed’s Advanced Development Projects) for classic examples from back in the day. Ma Bell could afford the time and money needed to do world-class research.  Today’s phone companies cannot. Smaller companies have other dynamics, and often they are the source of innovation in many industries.  Smaller innovators whose technology proves successful end up being bought (and sometimes ruined) by the more established players.

Tags: , , , Comments (7) | | Coding Fail

I was going to write a post called “Barack Obama Fellates the Shark, then Wonders Why It Bites Off His Lower Half,” but decided instead to go for comedy instead of pointing out that the 2014 midterms are going to make 2010 look like the peak of LibDem activism. is “a place to share and follow research”; think JSTOR without the cachet of the Springer/Pearson/Addison/Blackwell/Wiley Publishing MAFIA, or maybe a low-rent, open-source NAP.  So when friend of this blog and professional Health Economist Michael Halasy signed on and reached out, I figured it only made sense that I would follow his postings as well.  (After all, he might actually write something. But I digress.)

So I clicked the link on the email and got this screen:


I do understand that maybe I don’t have the appropriate cookie on this machine. But look at the listing at the Connect with Facebook link.

Really, guys: I should connect with Facebook because people I know on Facebook–myself, for instance–connect with Facebook.

One has to laugh.  The alternative is to think about Obama’s attempt to destroy my childrens’s lives for No Good Reason.  Which someone else will blog about much more politely than I.

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Many types of tech, not just robots

by Mike Kimel

Many types of tech – not just robots – have been affecting and are going to affect the service sector. When someone develops an inexpensive sign you can stick on top of television sets, racks of clothes, or appliances that will change itself whenever someone in the headquarters decides to change the price of the product, its going to eliminate entire departments of people (or move them to doing something else), plus reduce the workload at every retail store in the system.

(The normal cadence for us is to enter prices more than a week before they take effect. We do have over-rides that allow the process to take place in 24 hours, but the amount of work needed to reduce errors
in that process is mind-boggling, not to mention wasteful given it results in hard printing of the wrong signs as well as the right signs.)

As of yet, I’m not sure automation reduced white collar work. What it has done is created a race to efficiency. Now companies scrape competitor data. They analyze prices to try to determine which generate highest margins. They analyze floor plans for the same purpose. I cannot imagine that being done 10 years ago – both in my previous life as a consultant, and my current life working for a major retailer, we can barely get the data systems to provide the data for those types of analysis properly now. Ten years ago it would have been impossible anywhere outside the military. Ten years from now, data pulls that I need an analyst to spend a week and a half doing, and then another week and a half cleaning, will be spit out in minutes (I hope). That analyst won’t be pulling data and organizing it – I’ll have her doing analysis instead. Margins will be even tighter because all our competitors will be doing the same analysis, without which nobody survives.

Where the job losses will come from is not that my employer or its competitors will have fewer analysts, because, as I noted, more analysis will be needed just to stay competitive. Instead, it will come from shuttering some of the companies in the field. There will be fewer retailers – and they’ll all be bigger.


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Tech Bleg

Trying to upgrade an iMac from 10.4.11 to something in the 10.6.x range, but can’t seem to find any way to transition to 10.5.x (which is, apparently, required before 10.6.4 can be installed).

Apple presents files, but no instructions. Anyone done this? Or should I just keep treating 10.4.11 as something like Windows Vista–an OS without a future?

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The Case is Made Clearly

The only time I personally owned MSFT stock was just after Thomas Penfield Jackson’s second break-up ruling, when there might have been an upside.

I sold it shortly after the Appeals Court nixed the only good idea—breakup—in favor of “let them pay a fine to be determined, and let them dawdle long enough that the incoming Administration decides the fine, just so they’re really disincented from making money by developing good products.”

Barry Ritholtz Explains It All to You.

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We Beat the Germans in 1918/And They’ve Hardly Bothered Us Since Then

Brad DeLong culls the comments to this post at Crooked Timber to produce a “with notably rare exceptions” Greatest Hits package—his second post riffing on the original—in honor of The Maestro continuing to attempt to improve the reputations of Paul Volcker and Ben Bernanke, if not G. William (“I ran a company, I didn’t need to know about Finance”) Miller.*

I point you to Dr. DeLong on the off chance that you didn’t read any of the other three (one by Henry, two by Brad) posts, while we all wait for Patrick or Jim MacDonald to continue the riff with more variations.

Economics question of the day: whose productivity will be greater: someone who reads all (now four, counting this one) posts, someone who starts with Dr. DeLong’s second, someone who starts with Dr. DeLong’s first, or someone who only read Henry Farrell’s original post but kept clicking back to see the newer comments?

Explain your answer in terms of the value-added of aggregators and/or hedonic pricing. Best answers will be forwarded to Bill Dudley, the current leader of the FRB of New York, on the off chance he ever agrees to speak in Queens again.

*I refuse to believe that Alan Greenspan is stupid enough to believe the things he’s saying now. Next thing you know, he’ll be claiming that his Ph.D. thesis was so perfect that no one should ever read it, lest they despair of following in his giant footsteps.

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Students who Whine Like This are not Long for Class

The Battle of Late January has ended, as Amazon yields, gracelessly:

We have expressed our strong disagreement and the seriousness of our disagreement by temporarily ceasing the sale of all Macmillan titles. We want you to know that ultimately, however, we will have to capitulate and accept Macmillan’s terms because Macmillan has a monopoly over their own titles, and we will want to offer them to you even at prices we believe are needlessly high for e-books. Amazon customers will at that point decide for themselves whether they believe it’s reasonable to pay $14.99 for a bestselling e-book. We don’t believe that all of the major publishers will take the same route as Macmillan. And we know for sure that many independent presses and self-published authors will see this as an opportunity to provide attractively priced e-books as an alternative. [emphases mine]

Whenever a company talks about how it is looking out for your interested, Jim Henley’s consumer-surplus version of reality notwithstanding, check for your wallet; it’s probably missing.

The first italic is obvious: any firm that calls complete stopping of sales “expressed our strong disagreement” is either really stupid or exercising monopoly power—and no one thinks Jeff Bezos is stupid.

The second is even sillier: Amazon accuses Macmillan of exercising “monopoly power” and declares that they “will have to capitulate.” Someone ask the people at Hachette about how Amazon has to yield in a clash between it and publishers.

We’ve all seen the claim that starts this article: “On Christmas Day, for the first time in its history, (AMZN) sold more digital books than the old fashioned kind.” Not for the Xmas season; just on the day. And even there, it’s an Amazon declaration—not verifiable from the publishers, since e-book sales are confidential information. But Tobias Bucknell lays out the details from his royalty statements:

Well, I have my eBook sales figures of Crystal Rain, a book that has sold in the five figures in print, meaning people who have purchased in print, print online and in bookstores. That’s a nice run, it’s my bestselling book of the 3 Xenowealth books (Crystal Rain, Ragamuffin, Sly Mongoose), but leaves me still a midlist writer….

In 2008, for a brief while, Crystal Rain was available for free via download. Number of Kindle users who downloaded it: low thousands. Number who’ve purchased it for sale after that: low hundreds.

So five figures in volume compared to three figures. That’s an order of magnitude difference.

This magnitude difference holds steady. I sell hundreds of copies of eBooks, and thousands of paper copies.

The difference between Hachette and Macmillan isn’t one of size. It’s that the Amazon monopoly—the proprietary e-reader format of the Kindle—now has another viable rival: the poorly-named iPad, which uses the ePub format that is the standard among non-Kindle readers.

Apple is confident: the iPad will do more things than read books, so it can sell books that can also be read on other devices. Amazon, for all that it offers other products, lacks that ability, and is trying to protect itself through proprietary formatting.

It appears—given the speed with which they ended their ostracizing of Macmillan—that they may need a new business strategy soon.

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Cui Bono? The Kindle

John Scalzi makes a clear case that Amazon’s determination to subsidize the Kindle is coming at the expense of Authors’s and their Publishers:

This asinine jockeying over electronic book prices has very little to do with what’s actually good or useful for anyone other than the manufacturer of a piece of hardware… who also happens to be a book retailer.

Since this model is the same one as is used by cell phone providers, we come back to Stan Collender’s question of two weeks ago:

That begs an interesting question about my existing phone and contract: Since my existing phone was paid for over the past 24 months, why doesn’t my current Verizon bill fall by the monthly amount that was priced in to my payment 2 years ago? Isn’t that a rip-off as well?

Yes. It’s called monopoly profits.

UPDATE: Charlie Stross correctly piles on: can kiss my ass. Shorter version: they’re engaging in monopolistic practices that damn well ought to be illegal, in an attempt to use their near-monopoly position to fuck over authors and bring publishers to heel.

Which is more concise than what I said below. That’s why he gets, and earns, the Big Bucks (well, Quintessential Quid, in his case).

UPDATE 2: Via Felix’s Twitter feed, Marion Maneker at The Big Money corrects Henry Blodgett:

Books are, within reasonable limits, demand-inelastic. Just as movies are. Demand comes from the quality or popularity of the book, not the price. We know this because the great transformation of the book business over the last two decades has been to shift readers from mass-market paperbacks to hardcovers sold at discounted but still higher prices. Readers have been paying more for James Patterson and Dan Brown, not waiting for the cheaper mass market paperbacks.

Consumers trade money for time. And publishers should have the freedom to set their prices at what the market will bear, not what suits Amazon’s–or Apple’s–needs.

The pricing pressure in books comes not from customer demand but from retailers fighting over market share. That’s what Barnes & Noble (BKS) did to independent bookstores and Costco did to Barnes & Noble. Now Amazon’s doing it Costco with the Kindle.

Via Patrick, of course.

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The iPad is NOT a Computer, its a Briefcase w/Gizmos

by Bruce Webb

Geekery below the fold.

Steve Jobs was a little hyperbolic in his language yesterday which led some people to laugh. Well there are reasons he is a self-made billionaire and you are not.

The key to understanding why the iPad and similar devices can change the world it to understand that it is not a computer without a physical keyboard, or a multi-media player, or a portable display, sure all of those are built in but they don’t add up to what the iPad really is, which is a magic briefcase full of Gizmos.

What’s a Gizmo. Well the online dictionaries have boring definitions but for my purpose a Gizmo is something that does something for you. A Gizmo generally isn’t big and it mostly isn’t multifunctional, it just does what it does in a fun and efficient way. The iPad is designed to be a repository for Gizmos along with Games and Books and Music and allows you to use all of them anywhere you go. Now it sounds silly to put it this way but it doesn’t have to be, if you were a Building Inspector it might be nice to have one Gizmo to record your findings and another that allowed you to look up the International Building and Fire Codes on the fly, and maybe another to allow you to record your time on the job. And on a dirty, dusty or muddy job site it might be nice to have one in the same form factor as the clipboard you had been carrying rather than some clamshell lap top vulnerable to the environment.

A salesman needs a different set of Gizmos. Maybe a Travel Schedule and Ticket Booking Gizmo, maybe one that displays the companies entire product line with accompanying video and specs. And maybe some things to kill time while traveling, say maybe a Travel Chess Set or a book of Crosswords. But whatever you are and whatever you do it would be neat and at times necessary to always have with you your own collection of Gizmos. Me, I am a simple guy on a typical day all I would need is my Bus Schedule Gizmo, and a Gizmo that would display a full web page while allowing me to touch type posts and comments. But in an immediate past job as a Real Estate/Land Development Researcher it would have been nice to have a Road Map Gizmo for my area, another that had copies of County and City Land Development Codes and another with access to Interactive Permit and Zoning Maps for the various jurisdictions we dealt with. Oh and an aerial photo viewer. Now I had all that capability in my office and sort of via my laptop in my car, but there was very little magical about it.

We could go on. A tourist in a foreign country has a whole new set of needed Gizmos. Currency calculators, Maps, Guidebooks, Brochures, Travel Clock, and a Translation Gizmo and probably no desire to whip out a laptop at the souvenir stand in some street in Montmartre. A college student in turn has all kinds of different Gizmo desires, say movie and club schedules, maybe a University Library Catalog Gizmo, or for an athlete the playbook and training and practice schedule.

And that is the beauty of the iPad, it is not based on a model of the tablet computer, instead it is modeled on the iTouch a handheld Gizmo that delivers dozens of other Gizmo products that the user selects from literally tens of thousands of offerings. If you like, and a lot of people do, you could simply have your iTouch loaded to capacity with games, or songs, or videos, plus maybe a Facebook Gizmo. Or you could load it up with every Reference and Trivia resource in the land and bore all your friends for ever. Or just load it up with books and use it as a pretty-good e-readers, or use it as a repository of maps or photos or any combination of that. Of course along with that you can use it as an acceptable web browser and in a pinch as an input device to any cloud computing applications you have going, but in the end what keeps the iTouch a Gizmo Toy and not a Gizmo Tool is the screen size. I mean you could easily load the entire Snohomish County Development Code on an iTouch but absent a very specialized Gizmo indeed looking something up for a client and then sharing it would be a nightmare.

An iPad is built from the ground up to be a full screen screaming Gizmo Machine. Instead of storing a sub-set of your professional books and tools in your briefcase you simply load them on top of a machine. It is said that the magic of the dancing bear is not how well it dances but that it dances at all. And you can say the same about the traditional lap top computer, they have taught it to dance quite a few steps. The iPad instead IS a dance machine.

Okay I have an iPad in my hand. What do I want it to do for me?

1. I want it to be a full page web browser.
2. I want it to be an acceptable blog posting tool.
3. I want a full page version of the Transit Schedule for my area
4. I want it to play my music.
5. I want it to play my movies.
6. I want to be able to update and share my Facebook Wall with someone in the room.
7. I want a functional replacement for my Thomas Guide Map Book
8. I want a useable Guide Book to Western Birds
9. I want a useable Tide Table and opening and closing date/time for fishing runs and shellfish seasons.
10. I want a photo album of all my nieces and nephews
11. I want one click access to my Investment Portfolio’s current prices
12. I want one click access to Professional Books and Codes relevant to my job
13. I want a repair manual for my car.
14. I want a traveling chess board with interactive capability
15. I want the Oxford English Dictionary
16. I want the complete run of Astounding Magazine from 1935-1942

Actually I would be happy with items 1-3, I am kind of a simple guy, but this is a reasonable set of Gizmos for a simple guy, other people would layer on any number of items. But note one thing. With the exception of the web browser none of this is built around the standard Office Suite. And none of it around Graphic Design. Or Application Development. Or building websites. If I was looking to add some functionality to the above it would probably start with the iLife Suite (which would give me some web tools) and then some sort of Writing Program. And probably add some interactive Language modules to allow me to brush up on my neglected French, Latin and Welsh and maybe add back in Italian. But in any event the iPad is already optimized to deliver all of these Gizmos and more, you just need to possibly pay for some of the actual content

When you buy a laptop there is kind of a sense of ‘Well there it is’, it has whatever software package you ordered, and maybe you go online and order and install some more or try to find the disks so as to reload things. The iPad is not like that. Instead it asks you what you want to do with it and you start by visiting the App Store and browsing among the free and trial Apps. And there are literally tens of thousands of them. Then you simply start adding and rearranging Gizmos that do the kinds of things you want them to do.

At $499 and no need for a contract the price point is excellent or anyone who has reliable access to WiFI, which these days often means the Library or Starbucks and there are certainly enough free Apps and free document sources out there to justify getting one. Plus there are a good number of Gizmos built in to the unit. But I think the question will come to this. Pick up a piece of 8 x 11 paper, fold it down an inch at top and side and ask yourself this: “What are the top 25 things I would like a magic piece of paper to deliver to me anywhere any time?” and then follow up with: “How much of that potential functionality do I lose by trying to access that through the 3″ screen on my phone?” and “How much functionality do I really lose if I left my laptop at home and relied on this on a typical day?”

Finally a little note about sociality. Laptops aren’t social. You are not going to whip one out at a party or at the bar or while hiking with friends, nor are they something you would generally just hand to a friend. They aren’t particularly cool even when you are out on your own, sitting on a bench in front of an exhibit at the art museum with an open lap top just screams dork. On the other hand the iPad with out without its case more or less looks like a small portfolio. If you turned it on and did a quick web search on the artist, it would look as natural as could be. As it would be navigating some narrow aisles looking for treasure in an old book store or antique store, who looks at a guy with something the size of a clipboard in his hand? When people I know are talking around me I like to do a quick look up on my iPhone pull up a picture and then show it, but it is a little awkward sometimes I am walking up to them and giving them a phone which since we are all over 50 means them dragging out a pair of glasses. With the iPad instead I can do the equivalent of laying out an 8 x 10 glossy photo by their elbow. “Look know that’s a (whatever they are trying to describe)”. I think this ability to share, to be able to on the spot pull something up and then physically hand the display to another person or to hold it up for sharing is going to open new horizons in personal computing.

This BTW may make this product the must-have for teenagers. It is right at the same price level of buying them a smartphone and a dedicated MP-3 player and I can see the girls passing their Facebook Walls back and forth as they walk down the hall or sit in the lunch room, its a natural. I don’t know how many High Schools provide Wi-Fi but it has to be a lot, this thing just flat out works in the teen, twenty-something social environment.

So the iPad is big. Not because it is in a category of its own, it was proceeded there by both the iTouch and the iPhone, but because it takes that category to a level of real world functionality that transforms a pretty cool toy into what can be developed by each individual into a lifestyle tool. It simply makes the handbook, the guidebook, the catalog, the manual, the route schedule potentially obsolete, People who bitch about its maybe lack of markup tools ignore the fact that we interact with text and information in all kinds of ways in daily life plus we use all kinds of information Gizmos in the process. I guess we will see how his one goes.

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