July 2009 – Page 2 – artdiamondblog.com

Durant and Studebaker Made Transition from Carriage to Car

Christensen’s theory of disruptive innovation predicts that incumbents will seldom survive a major disruption. So it is interesting that Durant and Studebaker, appear to have been exceptions, since they made the transition from producing carriages to producing cars. (Willie Durant founded General Motors in 1908.)

(p. 189) In 1900, fifty-seven surviving American automobile firms, out of hundreds of contenders, produced some 4,000 cars, three-quarters of which ran on steam or electricity. Companies famous for other products were entering the fray. Among them were the makers of the Pope bicycle, the Pierce birdcage, the Peerless wringer, the Buick bathtub, the White sewing machine, and the Briscoe garbage can. All vied for the market with stationary-engine makers, machine-tool manufacturers, and spinoffs of leading carriage firms, Durant and Studebaker. Among the less promising entrants seemed a lanky young engineer from Edison Illuminating Company named Henry Ford, whose Detroit Automobile Company produced twenty-five cars and failed in 1900.

. . .
(p. 191) Willie Durant, who knew all about production and selling from his carriage business, decided it was time to move into cars after several months of driving a prototype containing David Buick’s valve-in-head engine–the most powerful in the world for its size–through rural Michigan in 1904. Within four years, Durant was to parlay his sturdy Buick vehicle into domination of the automobile industry, with a 25 percent share of the market in 1908, the year he founded General Motors.

Source:
Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.
(Note: ellipsis added.)

Christensen’s theory is most fully expressed in:
Christensen, Clayton M., and Michael E. Raynor. The Innovator’s Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

Individual Independent “Biohackers” Hope to Advance Science

“Katherine’s Aull’s closet laboratory in her apartment.” Source of photo and caption: online version of the WSJ article quoted and cited below.

The individual independent scientist used to play an important role in the advance of science, but over time mainly disappeared as the academic scientist, supported by large institutions, became dominant. The dominance of funding from incumbent institutions may constrain major innovations, and so I have speculated that it might be beneficial to find ways for it again to be possible for independent individual scholars to play important roles in science.
Astronomy is one area in which this still happens. The article quoted below points to another domain in which individual scholars might be able to make contributions.

(p. A1) In Massachusetts, a young woman makes genetically modified E. coli in a closet she converted into a home lab. A part-time DJ in Berkeley, Calif., works in his attic to cultivate viruses extracted from sewage. In Seattle, a grad-school dropout wants to breed algae in a personal biology lab.

These hobbyists represent a growing strain of geekdom known as biohacking, in which do-it-yourselfers tinker with the building blocks of life in the comfort of their own homes. Some of them buy DNA online, then fiddle with it in hopes of curing diseases or finding new biofuels.
. . .
Ms. Aull, 23 years old, is designing a customized E. coli in the closet of her Cambridge, Mass., apartment, hoping to help with cancer research.
She’s got a DNA “thermocycler” bought on eBay for $59, and an incubator made by combining a styrofoam box with a heating device meant for an iguana cage. A few months ago, she talked about her hobby on DIY Bio, a Web site frequented by biohackers, and her work was noted in New Scientist magazine.
. . .
(p. A14) Phil Holtzman, a college student and part-time DJ at dance parties in Berkeley, Calif., is growing viruses in his attic that he thinks could be useful in medicine someday. Using pipettes and other equipment borrowed from his community college, he extracts viruses called bacteriophage from sewage and grows them in petri dishes. Mr. Holtzman’s goal: Breed them to survive the high temperatures of the human body, where he thinks they might be useful in killing bad bacteria.
He collects partly treated sewage water from a network of underground tunnels in the Berkeley area, jumping a chain-link fence to get to the source. But Mr. Holtzman says his roommates are “really uncomfortable” with him working with sewage water, so he’s trying to find another source of bacteriophage.

For the full story, see:
JEANNE WHALEN. “In Attics and Closets, ‘Biohackers’ Discover Their Inner Frankenstein; Using Mail-Order DNA and Iguana Heaters, Hobbyists Brew New Life Forms; Is It Risky?” Wall Street Journal (Tues., May 12, 2009): A1 & A14.
(Note: ellipses added.)

“Build a Wall Around the Welfare State”

For a long time, I’ve been meaning to post a pithy comment on immigration policy from the Cato Institutes’s Bill Niskanen.
The comment was related to the proposal to erect a wall between the United States and Mexico, in order to reduce illegal immigration. Some libertarians favor open immigration. Others believe that so long as we have a large welfare state, open immigration would impose high costs on the taxpayer, and thereby reduce economic growth. (I believe that I read Milton Friedman supporting this latter position, in the year or two before he died in 2006.)
In this context, Niskanen’s pithy comment has appeal:

“Build a wall around the welfare state, not around the country.”

Source:
William A. Niskanen on 11/19/07 at the meetings of the Southern Economic Association in New Orleans.

Time Diary Studies Show Most Work Fewer Hours than Reported

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

(p. W13) Sociologists have been studying how Americans spend their time for decades. One camp favors a simple approach: if you want to know how many hours someone works, sleeps or vacuums, you ask him. Another camp sees a flaw in this method: People lie. We may not do so maliciously, but it’s tough to remember our exact workweek or average time spent dishwashing, and in the absence of concrete memories, we’re prone to lie in ways that don’t disappear into the randomness of thousands of answers. They actually skew results.

That’s the theory behind the American Time Use Survey, conducted annually by the Bureau of Labor Statistics. The ATUS, like a handful of previous academic surveys, is a “time diary” study. For these studies, researchers either walk respondents through the previous day, asking them what they did next and reminding them of the realities of time and physics, or in some cases giving them a diary to record the next day or week.
Time-diary studies are laborious, but in general they are more accurate. Aggregated, they paint a different picture of life than the quick-response surveys featured in the bulk of America’s press releases. For instance, the National Sleep Foundation claims that Americans sleep 6.7 hours (weekdays) to 7.1 hours (weekends) per night. The ATUS puts the average at 8.6 hours. The first number suggests rampant sleep deprivation. The latter? Happy campers.
The numbers are equally striking with work. Back in the 1990s, using 1985 data, researchers John Robinson and his colleagues compared people’s estimated workweeks with time-diary hours. They found that, on average, people claiming to work 40 to 44 hours per week were working 36.2 hours — not far off. But then, as estimated work hours rose, reality and perception diverged more sharply. You can guess in which direction. Those claiming to work 60- to 64-hour weeks actually averaged 44.2 hours. Those claiming 65- to 74-hour workweeks logged 52.8 hours, and those claiming workweeks of 75 hours or more worked, on average, 54.9 hours. I contacted Prof. Robinson recently to ask for an update. His 2006-07 comparisons were tighter — but, still, people claiming to work 60 to 69 hours per week clocked, on average, 52.6 hours, while those claiming 70-, 80-hour or greater weeks logged 58.8. As Mr. Robinson and co-author Geoffrey Godbey wrote in their 1997 book “Time for Life,” “only rare individuals put in more than a 55-60 hour workweek.”

For the full commentary, see:
LAURA VANDERKAM. “Overestimating Our Overworking.” Wall Street Journal (Sat., May 29, 2009): W13.

The “Chief Desire” of Entrepreneurs is the “Power to Consummate Their Entrepreneurial Ideas”

(p. 305) Entrepreneurs understand the inexorable reality of risk and change. They begin by saving, forgoing consumption, not to create an ersatz security but to gain the wherewithal for a life of productive risks and opportunities. Their chief desire is not money to waste on consumption but the freedom and power to consummate their entrepreneurial ideas.

Source:
Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.

Milton Friedman’s Legacy Was the “Remarkable Progress of Mankind”

(p. W13) With each passing week that the assault against global capitalism continues in Washington, I become more nostalgic for one missing voice: Milton Friedman’s. No one could slice and dice the sophistry of government market interventions better than Milton, who died at the age of 94 in 2006. Imagine what the great economist would have to say about the U.S. Treasury owning and operating several car brands or managing the health-care industry. “Why not?” I can almost hear him ask cheerfully. “After all, they’ve done such a wonderful job delivering the mail.”
. . .
I’ve been thinking a lot lately of one of my last conversations with Milton, who warned that “even though socialism is a discredited economic model and capitalism is raising living standards to new heights, the left intellectuals continue to push for bigger government everywhere I look.” He predicted that people would be seduced by collectivist ideas again.
. . .
A few scholars are now properly celebrating the Friedman legacy. Andrei Shleifer, a Harvard economics professor, has just published a tribute to Friedman in the Journal of Economic Literature. He describes the period 1980-2005 as “The Age of Milton Friedman,” an era that “witnessed remarkable progress of mankind. As the world embraced free market policies, living standards rose sharply while life expectancy, educational attainment, and democracy improved and absolute poverty declined.”

For the full commentary, see:
Moore, Stephen. “Missing Milton: Who Will Speak for Free Markets?” The Wall Street Journal (Sat., May 29, 2009): W13.
(Note: ellipses added.)

The full reference to the article by Shleifer, is:
Shleifer, Andrei. “The Age of Milton Friedman.” Journal of Economic Literature 47, no. 1 (March 2009): 123-35.

The Case for Patent System Reform

(p. A13) The Patent Office now gets some 500 million applications a year, leading to litigation costs of over $10 billion a year to define who has what rights. As Judge Richard Posner has written, patents for ideas create the risk of “enormous monopoly power (imagine if the first person to think up the auction had been able to patent it).” Studies indicate that aside from the chemical and pharmaceutical industries, the cost of litigation now exceeds the profits companies generate from licensing patents.

For the full commentary, see:

L. GORDON CROVITZ. “OPINION: INFORMATION AGE; Why Technologists Want Fewer Patents.” The Wall Street Journal (Mon., JUNE 15, 2009): A13.

Justice Department is Creating Barriers to Companies Trying to Create New Technologies

Intel CEO Craig Barrett. Source of caricature: online version of the WSJ article quoted and cited below.

(p. A9) Craig Barrett is spending the last days of his tenure as Intel chairman the same way he spent his previous 35 years at the corporation: moving at a superhuman pace that leaves exhausted subordinates in his wake.

Mr. Barrett has maintained this lifestyle since he replaced Andrew Grove as CEO of Intel in 1998. “Was it hard to follow a legend?” he asks himself in his typical blunt way, adding, “What do you think?” Mr. Barrett barely broke pace when he became chairman in 2005, and shows no sign of slowing even now, at age 69, as he faces retirement.
. . .
The latest thing that has him animated is the record $1.45 billion antitrust fine levied against Intel by the European Union this week. Mr. Barrett shakes his head and says, “The antitrust rules and regulations seem designed for a different era. When you look at high-tech companies, with the high R&D budgets, specialization and market creation they need to hold their big market shares, it’s so very different from the old world of oil companies and auto makers that the antitrust regulations were designed for. They are out of sync with reality.
“And how do you reconcile European regulators, who don’t believe that any company should have more than 50% market share — even a market that company created — with the way we operate here? Of course, now it seems as if our Justice Department is preparing to march in lock-step behind Europe. In the end, all they are going to do is create barriers to companies growing, entering into new markets, and bringing new technologies into those markets. And when we stop being the land of opportunity, all of those smart immigrant kids getting their Ph.D.s here are going to start heading home after they graduate. Then watch what happens to our competitiveness.”

For the full story, see:
MICHAEL S. MALONE. “OPINION: THE WEEKEND INTERVIEW with Craig Barrett; From Moore’s Law to Barrett’s Rules; Intel’s chairman on antitrust silliness and the secrets of high-tech success.” Wall Street Journal (Sat., MARCH 16, 2009): A9.
(Note: ellipsis added.)

Small Companies Created 80% of Net New Jobs in 1970s

(p. 298) David L. Birch and his associates at MIT gained a glimpse of this topsy-turvy domain during the late 1970s when they themselves entered the statistical skunkworks of the economy by conducting the most comprehensive and detailed analysis ever performed on the facts of American small business. Using records from a Dun & Bradstreet sample of 5.6 million firms, the Birch team reached the highly publicized conclusion that companies with fewer than 100 employees created 80 percent of the net new jobs in the U.S. economy during the 1970s. Data from the early 1980s confirmed these findings. In launching jobs, the last were manifestly first in U.S. capitalism.

Source:
Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.

Drug Innovation Funding Slashed in Economic Crisis

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

(p. B1) Big pharmaceutical companies have spent billions of dollars to buy other drug giants lately, leaving behind small biotech companies that can no longer find investors.

The biotech industry had thrived as a new-drug incubator for big pharma companies, which poured money into acquisitions and partnerships to build up their biotech-drug product line. Some of that is still happening, but most sources of investment funding have dried up in recent months.
Since November, 10 biotechs have declared bankruptcy, says Ellen Dadisman, a spokeswoman for the Biotechnology Industry Organization. Meanwhile, 120 of the 360 publicly traded biotechs have less than six months of cash left, compared with just 12 companies in that position a year ago, according to Burrill & Co., a venture-capital concern in San Francisco that follows the industry.

For the full story, see:

KEITH J. WINSTEIN. “Cash Dries Up for Biotech Drug Firms.” Wall Street Journal (Mon., MARCH 16, 2009): B1.

Lomborg Warns of “Climate-Industrial Complex”

(p. A19) Some business leaders are cozying up with politicians and scientists to demand swift, drastic action on global warming. This is a new twist on a very old practice: companies using public policy to line their own pockets.

The tight relationship between the groups echoes the relationship among weapons makers, researchers and the U.S. military during the Cold War. President Dwight Eisenhower famously warned about the might of the “military-industrial complex,” cautioning that “the potential for the disastrous rise of misplaced power exists and will persist.” He worried that “there is a recurring temptation to feel that some spectacular and costly action could become the miraculous solution to all current difficulties.”
This is certainly true of climate change. We are told that very expensive carbon regulations are the only way to respond to global warming, despite ample evidence that this approach does not pass a basic cost-benefit test. We must ask whether a “climate-industrial complex” is emerging, pressing taxpayers to fork over money to please those who stand to gain.

For the full commentary, see:
BJORN LOMBORG. “OPINION: The Climate-Industrial Complex; Some businesses see nothing but profits in the green movement.” Wall Street Journal (Thurs., MAY 22, 2009): A19.