February 2009 – Page 2 – artdiamondblog.com

Christensen Book Re-Thinks Basic Assumptions About Health Care Innovation

Source of book image: http://images.barnesandnoble.com/images/34000000/34009038.jpg

Christensen’s new book hit the shelves in December 2008. His ideas on health care are promising, if the special interests don’t get in the way. (I have not yet read the new book, but have read earlier versions of his proposals on how disruptive innovations can improve health care.)

(p. R2) BUSINESS INSIGHT: Your coming book, “The Innovator’s Prescription,” takes a look at health care. How likely do you think it is we’ll see substantial innovation in the structure of the U.S. health-care system?
DR. CHRISTENSEN: Well, one great benefit of the current economic crisis is that it will create pressure to find a real solution to the health-care problem. Right now, emergencies exist at companies like General Motors, which has got to drive the cost of its health care down. Every city and town in America would be bankrupt if they kept their books the way private-sector companies keep their books — because of the obligation cities and towns have taken upon themselves to provide health care for their retirees.
And so we really are in an emergency where it’s likely that employers and health-care providers are open to completely rethinking some of the basic assumptions that made innovation seem impossible. What we’re hoping with this book is that we can just bring a way to frame the problem that can help people reach consensus around a course of action that otherwise, at another time, would have seemed quite counterintuitive.

For the full interview, see:
Martha E. Mangelsdorf, interviewer. “Executive Briefing; How Hard Times Can Drive Innovation.” Wall Street Journal (Mon., DECEMBER 15, 2008): R2.
(Note: ellipses added.)

Ending Capital-Gains Tax Would Encourage Funding for Entrepreneurial Ventures

(p. A15) In virtually all economics classes, including those taught by the many excellent economists on the Obama team, the idea of government spending as an engine for growth is not a popular topic. Yet despite their skepticism of Keynesianism in the classroom, when it comes to public policy, these economists happily endorse a large stimulus package that could bring our deficit to 10% of GDP. Why?
One explanation is that these economists think this recession is an extraordinary one.
. . .
But this particular recession is unique not in its dimensions, but in its sources. First, it is the result of a financial crisis that severely affected stock-market valuations. The bad equilibrium did not originate in the labor market, but in the credit market, where investors are reluctant to lend to risky firms. This reluctance is making it difficult for these firms to refinance their debt, forcing them to default on their credit, further validating investors’ fear. Thus, the problem is how to increase investors’ willingness to take risk. It’s unclear how the proposed stimulus package would help inspire investors to do so.
. . .
So how do we stimulate the economy without increasing the already large current-account deficit? It’s not easy, but here is an idea: Create the incentive for people to take more risk and move their savings from government bonds to risky assets. There is no better way to encourage this than a temporary elimination of the capital-gains tax for all the investments begun during 2009 and held for at least two years

For the full commentary, see:
ALBERTO ALESINA and LUIGI ZINGALES. “Let’s Stimulate Private Risk Taking.” Wall Street Journal (Weds., JANUARY 21, 2009): A15.
(Note: ellipses added.)

“Little Risk the Ice Sheet Will Collapse”

“To probe the underside of Greenland’s glaciers, NASA researcher Alberto Behar released 90 specially tagged rubber ducks into a fissure of the Jakobshavn Isbrae glacier in Greenland, tracking their progress along underground melt-water streams.” Source of caption: typed from print version of the WSJ article quoted and cited below. Source of photo: edited screen capture from the online version of the WSJ article quoted and cited below.

(p. A13) As researchers learn more about the mechanics of Greenland’s glaciers, they are becoming convinced that, by itself, the sub-surface water slide created by so much melting ice may be a short-lived seasonal effect, says University of Washington polar scientist Ian Joughin. The glaciers speed up in the summer but slow down in the fall. If that’s true, there may be little risk the ice sheet will collapse as some scientists recently feared — at least not for the foreseeable future.

For the full story, see:
ROBERT LEE HOTZ. “The Sober Science of Migrating Rubber Duckies; An Armada of Tub Toys Sets Sail in New Research Discipline, ‘Flotsam Science,’ and Helps Unravel Enduring Planetary Mysteries.” Wall Street Journal (Mon., November 14, 2008): A13.

Stimulus Bill is “Big, Messy, Largely Off-Point and Philosophically Chaotic”

(p. A11) The final bill was privately agreed by most and publicly conceded by many to be a big, messy, largely off-point and philosophically chaotic piece of legislation. The Congressional Budget Office says only 25% of the money will even go out in the first year. This newspaper, in its analysis, argues that only 12 cents of every dollar is for something that could plausibly be called stimulus.

What was needed? Not pork, not payoffs, not eccentric base-pleasing, group-greasing forays into birth control as stimulus, . . .
. . .
I think there is an illness called Goldmansachs Head. . . . When you have Goldmansachs Head, the party’s never over. You take private planes to ask for bailout money, you entertain customers at high-end spas while your writers prep your testimony, you take and give huge bonuses as the company tanks. When you take the kids camping, you bring a private chef. Goldmansachs Head is Bernie Madoff complaining he’s feeling cooped up in the penthouse. It is the delusion that the old days continue and the old ways prevail and you, Prince of the Abundance, can just keep rolling along. Here is how you know if someone has GSH: He has everything but a watch. He doesn’t know what time it is.
. . .
But you don’t have to be on Wall Street to have GSH. Congress has it too. That’s what the stimulus bill was about–not knowing what time it is, not knowing the old pork-barrel, group-greasing ways are over, done, embarrassing. When you create a bill like that, it doesn’t mean you’re a pro, it doesn’t mean you’re a tough, no-nonsense pol. It means you’re a slob.
That’s how the Democratic establishment in the House looks, not like people who are responding to a crisis, or even like people who are ignoring a crisis, but people who are using a crisis.

For the full commentary, see:
PEGGY NOONAN. “OPINION; DECLARATIONS; Look at the Time.” Wall Street Journal (Sat., JANUARY 30, 2009): A11.
(Note: ellipses added.)

New Business Model for Promoting Disruptive Innovation

“Clayton M. Christensen” Source of caption and photo: online version of the WSJ interview quoted and cited below.

(p. R2) BUSINESS INSIGHT: . . . There must be, . . . , cases where concerns about the market cause companies to abandon their plans for new products or really retrench. Or do you see that happening less these days as companies realize the importance of keeping up with changing markets?
DR. CHRISTENSEN: In the next two years, I think the answer will hinge quite a bit on the role that hedge funds play in driving stock prices. By now, 95% of all trades on the stock exchange are executed by hedge funds, mutual funds or pension funds that you could not call shareholders. They’re share owners, but they don’t even hold the shares long enough, on average, to vote the proxy. And long-term shareholders are always better for innovation than the short-term people are.
BUSINESS INSIGHT: So we might see innovation more from private companies?
DR. CHRISTENSEN: Absolutely right. And there’s another business model toward which more and more companies need to move. It’s a business model you see with Li & Fung in Hong Kong, Tata Sons in India, and Cox Enterprises in Atlanta. In this model, the holding company is privately held, and then certain of the subsidiary companies that have the right characteristics take their shares public on the market.
What that allows those companies to do is, when they have a disruptive innovation that they need to launch, they can just do it under the private umbrella of the holding company, and not have it reduce the near-term performance of the publicly held subsidiaries.

“A Splendid Birthday Present” for Charles Darwin

Source of the book image: http://images.barnesandnoble.com/images/34510000/34519930.jpg

(p. A13) . . ., on Feb. 12, biologists the world over will celebrate Charles Darwin’s 200th birthday. Throughout the year, at festivals galore marking his bicentennial, “On the Origin of Species,” a mere 150 years old, will be hailed as one of the greatest works in the history of the sciences.
. . .
Mr. Coyne begins with a succinct account of what is at stake. “Life on earth evolved gradually beginning with one primitive species — perhaps a self-replicating molecule — that lived more than 3.5 billion years ago; it then branched out over time, throwing off many and diverse species; and the mechanism for most (but not all) of evolutionary change is natural selection.”
Darwinism is thus a claim with several basic components, and the book is structured by carefully exhibiting the evidence for each. Making that structure explicit allows readers to recognize just where they are in the argument. As they follow Mr. Coyne’s parade of evidence — his discussions of the fossil record, of vestigial traits, of the ways in which living things constantly make novel use of the bits and pieces they have inherited, of the distribution of plants and animals — the components of Darwin’s thesis are sequentially supported. We have a list of things to be shown, they are shown and the truth of evolution is established.
. . .
Yet will any defense of Darwin, however painstaking and lucid, succeed in substantially modifying the public-opinion survey results? Mr. Coyne has seen the opposition first-hand, recounting his experience of talking to a group of businessmen about evolution and eliciting the reaction: “Very convincing — but I don’t believe it.” This sort of skepticism is often rooted in a sense that Darwinism somehow discredits morality — a perception that Mr. Coyne argues against, cogently, in a brief final chapter. But he does not seem to appreciate the depth of popular hostility toward Darwin.
. . .
Whether or not he succeeds in bringing Americans en masse to learn to love evolution, he has offered Darwin a splendid birthday present.

For the full review, see:
PHILIP KITCHER. “Bookshelf; Following the Evidence.” Wall Street Journal (Thurs., JANUARY 29, 2009): A13.
(Note: ellipses added.)

The reviewed book is:
Coyne, Jerry A. Why Evolution Is True. New York: Viking, 2009.

A classic paper on whether the speed of a scientist’s acceptance of evolution was related to the scientist’s age, is:
David L. Hull, Peter D. Tessner and Arthur M. Diamond. “Planck’s Principle: Do Younger Scientists Accept New Scientific Ideas with Greater Alacrity than Older Scientists?” Science 202 (November 17, 1978): 717-723.

Socialist Guyanese Government Welcomed Jonestown

(p. W3) We expect our killing fields to be marked a certain way, and with at least a certain rhetoric of rectitude. At Jonestown, in Guyana, there are no markers, no memorials noting what took place, no manicured clearings to mark how the site looked 30 years ago, when more than 900 Americans died there in a still hard-to-imagine moment of mass suicide and outright murder.
. . .
The Guyanese government had tried to develop a new and proud independent identity for the country that would serve as a model for postcolonial development — and initially welcomed Jim Jones as a blow to the American forces of imperialism. After the massacre, the country’s leaders opted to absolve themselves of the events, pointing to the Americans as if they had landed from Mars.
. . .
The idea of colonizing the interior, whether it be for its mineral promise or for imagining a new social reality and set of possibilities for future generations, has long enchanted — and frustrated — post-independence Guyanese politicians.
No political leader was more adept at exploiting the idea or realizing its failure than Forbes Burnham, who led the country from independence in 1966 until his death in 1985. His aspirations to create a unique Guyanese path to socialism — through a top-heavy program of massively nationalized industry and agriculture in the interior — aggressively chased off foreign investment.
Mr. Burnham welcomed not only Jim Jones but other soi-disant radical movements into Guyana, turning the country into an ideological Disneyworld for the charismatic and the disaffected in the late ’70s. After the Jonestown massacre, he hatched a clandestine scheme with a Christian evangelical group associated with Billy Graham’s son Franklin to repopulate the site with anti-Communist Hmong tribesmen exiled from Laos. Like most of Mr. Burnham’s pipe dreams of developing the bush, it failed.
In 1978, Mr. Burnham’s unpopularity was growing and his overconfident austerity economy was failing. Guyanese-style socialist development meant not only nationalization of foreign companies but strict laws against exports, which led to crippling food shortages.

For the full commentary, see:
ERIC BANKS. “Essay; The Legacy of Jonestown; Thirty years after the murder-suicides in Guyana, the country struggles with memories of the event.” Wall Street Journal (Sat., DECEMBER 13, 2008): W3.
(Note: ellipses added.)

Leeuwenhoek’s Great Discovery Was at First Rejected by the “Experts”

In the passage quoted below, Hager discusses the reception that Leeuwenhoeck received to his first report of the “animalcules” seen under his microscope:

(p. 42) He hired a local artist to draw what he saw and sent his findings to the greatest scientific body of the day, the Royal Society of London.

(p. 43) Van Leeuwenhoek’s raising of the curtain on a new world was greeted with what might kindly be called a degree of skepticism. Three centuries later a twentieth-century wit wrote a lampoon of what the Royal Society’s secretary might well have responded:

Dear Mr. Anthony van Leeuwenhoek,
Your letter of October 10th has been received here with amusement. Your account of myriad “little animals” seen swimming in rainwater, with the aid of your so-called “microscope,” caused the members of the society considerable merriment when read at our most recent meeting. Your novel descriptions of the sundry anatomies and occupations of these invisible creatures led one member to imagine that your “rainwater” might have contained an ample portion of distilled spirits—imbibed by the investigator. Another member raised a glass of clear water and exclaimed, “Behold, the Africk of Leeuwenhoek.” For myself, I withhold judgement as to the sobriety of your observations and the veracity of your instrument. However, a vote having been taken among the members—accompanied, I regret to inform you, by considerable giggling—it has been decided not to publish your communication in the Proceedings of this esteemed society. However, all here wish your “little animals” health, prodigality and good husbandry by their ingenious “discoverer.”

The satire was not far from the truth. Although very interested in the Dutchman’s discoveries, so many English scientists were doubtful about his reports that van Leeuwenhoek had to enlist an English vicar and several jurists to attest to his findings. Then Hooke himself confirmed them. All doubt was dispelled.

Source:
Hager, Thomas. The Demon under the Microscope: From Battlefield Hospitals to Nazi Labs, One Doctor’s Heroic Search for the World’s First Miracle Drug. New York: Three Rivers Press, 2007.

Google and Lessig Finally See that So-Called “Network Neutrality” Delays Progress

Source of graphic: online version of the WSJ article quoted and cited below.

(p. A1) The celebrated openness of the Internet — network providers are not supposed to give preferential treatment to any traffic — is quietly losing powerful defenders.

Google Inc. has approached major cable and phone companies that carry Internet traffic with a proposal to create a fast lane for its own content, according to documents reviewed by The Wall Street Journal. Google has traditionally been one of the loudest advocates of equal network access for all content providers.
At risk is a principle known as network neutrality: Cable and phone companies that operate the data pipelines are supposed to treat all traffic the same — nobody is supposed to jump the line.
But phone and cable companies argue that Internet content providers should share in their network costs, particularly with Internet traffic growing by more than 50% annually, according to estimates. Carriers say that to keep up with surging traffic, driven mainly by the proliferation of online video, they need to boost revenue to upgrade their networks. Charging companies for fast lanes is one option.
One major cable operator in talks with Google says it has been reluctant so far to strike a deal because of concern it might violate Federal Communications Commission guidelines on network neutrality.
“If we did this, Washington would be on fire,” says one execu-(p. A6)tive at the cable company who is familiar with the talks, referring to the likely reaction of regulators and lawmakers.
(p. A6) Separately, Microsoft Corp. and Yahoo Inc. have withdrawn quietly from a coalition formed two years ago to protect network neutrality. Each company has forged partnerships with the phone and cable companies. In addition, prominent Internet scholars, some of whom have advised President-elect Barack Obama on technology issues, have softened their views on the subject.
. . .
. . . Lawrence Lessig, an Internet law professor at Stanford University and an influential proponent of network neutrality, recently shifted gears by saying at a conference that content providers should be able to pay for faster service. Mr. Lessig, who has known President-elect Barack Obama since their days teaching law at the University of Chicago, has been mentioned as a candidate to head the Federal Communications Commission, which regulates the telecommunications industry.

For the full story, see:
VISHESH KUMAR and CHRISTOPHER RHOADS. “Google Wants Its Own Fast Track on the Web.” Wall Street Journal (Mon., DECEMBER 15, 2008): A1 & A6.
(Note: ellipses added.)

A Toast to Schumpeter on His Birthday (February 8, 1883)

Source: scan (and crop) of the cover of the May 23, 1983 issue of Forbes .

In the May 23, 1983 issue of Forbes there appeared a now-famous essay by the late and great management guru Peter Drucker in which he pointed out that 1983 was the centennial of the birth of both John Maynard Keynes and Joseph A. Schumpeter. He noted that in the decades since the great economists’ passing, the academic and policy worlds worshiped at the feet of Keynes, and all but ignored Schumpeter (hence the many candles in front of the Keynes portrait on the cover, and the single, small candle in front of the Schumpeter portrait).

But Drucker argued that the world had gotten it wrong. Schumpeter was more important because he had understood a crucial truth: the process of creative destruction is indeed the essential fact about capitalism.

The reference for the original Drucker essay is:
Drucker, Peter F. “Modern Prophets: Schumpeter or Keynes?” Forbes, May 23, 1983, 124-28.

The reference to the reprint of the Drucker essay is:
Drucker, Peter F. “Modern Prophets: Schumpeter or Keynes?” In The Frontiers of Management New York: Penguin Putnam, Inc., 1999, 104-15.

A typo-laden version of the essay has been posted on the web at:
http://www.peterdrucker.at/en/texts/proph_01.html

(Note: I thank Aaron Brown for alerting me to the neat cover that appears at the top of this entry).

Economic Freedom Correlated with “Every Indicator of Well-Being”

Source of table: online version of the WSJ article quoted and cited below.

(p. A17) For 15 years, The Wall Street Journal and The Heritage Foundation have been measuring countries’ commitment to free-market capitalism in the “Index of Economic Freedom.” The 2009 Index, published this week, provides strong evidence that the countries that maintain the freest economies do the best job of promoting prosperity for all citizens.

The positive correlation between economic freedom and national income is confirmed yet again by this year’s data. The freest countries enjoy per capita incomes over 10 times higher than those in countries ranked as “repressed.” This year, for the first time, the Index also correlates economic freedom with important societal values like poverty reduction, human development, political freedom and environmental protection. The linkages are robust, with economically freer countries performing significantly better on every indicator of well-being.
. . .
In a special chapter in this year’s Index, the Journal’s Stephen Moore chronicles the critical role that tax cuts, particularly cuts in corporate taxes, have played in economic growth in Eastern European countries and others like Ireland. The citizens of those countries lived for decades with state-directed economic planning and regulation, which many now advocate for the U.S. and other advanced economies. They remember the clumsiness of socialism and the government missteps that fostered economic disaster. To switch dance partners now that they have adapted to the quick step of capitalism and are enjoying its many benefits would be a tragic mistake.
It would be ironic indeed if the world’s advanced economies, in seeking to address current woes, abandoned the system that has brought them and others around the world the amazing levels of prosperity experienced over the last half century. The “Index of Economic Freedom” provides a record of that progress. It charts the path to economic advancement and proves that the best way forward is to hang onto our partner and step to the music of the market.

For the full commentary, see:
TERRY MILLER. “Freedom Is Still the Winning Formula.” The Wall Street Journal (Tues., January 13, 2009): A17.
(Note: ellipsis added.)