July 2009 – Page 3 – artdiamondblog.com

Government Regulators Again Suppress Entrepreneurial Innovation

Source of photo: http://images.quickblogcast.com/82086-71861/pedicurex_large.jpg

(p. A1) Until Mr. Ho brought his skin-eating fish here from China last year, no salon in the U.S. had been publicly known to employ a live animal in the exfoliation of feet. The novelty factor was such that Mr. Ho became a minor celebrity. On “Good Morning America” in July, Diane Sawyer placed her feet in a tank supplied by Mr. Ho and compared the fish nibbles to “tiny little delicate kisses.”

Since then, cosmetology regulators have taken a less flattering view, insisting fish pedicures are unsanitary. At least 14 states, including Texas and Florida, have outlawed them. Virginia doesn’t see a problem. Ohio permitted fish pedicures after a review, and other states haven’t yet made up their minds. The world of foot care, meanwhile, has been plunged into a piscine uproar. Salon owners who (p. A12) bought fish and tanks before the bans were imposed in their states are fuming.
The issue: cosmetology regulations generally mandate that tools need to be discarded or sanitized after each use. But epidermis-eating fish are too expensive to throw away. “And there’s no way to sanitize them unless you bake them for 20 minutes at 350 degrees,” says Lynda Elliott, an official with the New Hampshire Board of Barbering, Cosmetology and Esthetics. The board outlawed fish pedicures in November.
In Ohio, ophthalmologist Marilyn Huheey, who sits on the Ohio State Board of Cosmetology, decided to try it out for herself in a Columbus salon last fall. After watching the fish lazily munch on her skin, she recommended approval to the board. “It seemed to me it was very sanitary, not sterile of course,” Dr. Huheey says. “Sanitation is what we’ve got to live with in this world, not sterility.”
. . .
State bans have disrupted Mr. Ho’s plans to build a nationwide franchise network. Currently, he has four active franchises, in Virginia, Delaware, Maryland and Missouri. But others have terminated franchise agreements. In Calhoun, Ga., Tran Lam, owner of Sky Nails, says she paid Mr. Ho $17,500 in exchange for fish and custom-made pedicure tanks. A few weeks later, in October, the Georgia Board of Cosmetology deemed fish pedicures illegal. “I’m very mad,” says Ms. Lam. “I lost a lot of money and the economy is so bad.”

For the full story, see:
JOHN SCHWARTZ. “Ban on Feet-Nibbling Fish Leaves Nail Salons on the Hook; Mr. Ho’s Import From China Caught On, But Some State Pedicure Inspectors Object.” Wall Street Journal (Mon., MARCH 23, 2009): A1 & A12.
(Note: ellipsis added.)

“Entrepreneurship is the Creation of Surprises”

(p. 297) Because he started in rebellion against established firms, he bears a natural skepticism toward settled expertise. Because he had to make scores of decisions before all the information was in, he recognizes that enterprise always consists of action in uncertainty. The entrepreneur prevails not by understanding an existing situation in all its complex particulars, but by creating a new situation which others must try to comprehend. The enterprise is an aggressive action, not a reaction. When it is successfully launched, all the rest of society–government, labor, other businesses–will have to react. In a sense, entrepreneurship is the creation of surprises. It entails breaking the looking glass of established ideas–even the gleaming mirrors of executive suites–and stepping into the often greasy and fetid bins of creation.
In the entrepreneur’s contrarian domains, he needs most of all a willingness to accept failure, learn from it, and act boldly in the shadows of doubt. He inhabits a realm where the last become (p. 298) first, where supply creates demand, where belief precedes knowledge. It is a world where expertise may be a form of ignorance and the best possibilities spring from a consensus of impossibility.

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

Medoff Swimming Naked

Bernie Medoff, and friends, swimming naked. Source of caricature: online version of the NYT article quoted and cited below.

The article quoted and cited below, is most notable for the wonderful illustration of the famous Warren Buffett quote on how hard times reveal who has been prudent and who has not been prudent.

(p. 19) Though we may be caring less, we’re hearing a lot more about Ponzi schemes lately, perhaps because the scams tend to fall apart when markets drop. As Warren Buffett so memorably put it, “You only find out who is swimming naked when the tide goes out.”

For the full commentary, see:
JOHN SCHWARTZ. “Lost in Bernie Madoff’s Shadow.” The New York Times, SundayBusiness Section (Sun., April 11, 2009): 19 & 24.

Our “Patently Absurd” Patent System

(p. A15) The Founders might have used quill pens, but they would roll their eyes at how, in this supposedly technology-minded era, we’re undermining their intention to encourage innovation. The U.S. is stumbling in the transition from their Industrial Age to our Information Age, despite the charge in the Constitution that Congress “promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”
. . .

Both sides may be right. New empirical research by Boston University law professors James Bessen and Michael Meurer, reported in their book, “Patent Failure,” found that the value of pharmaceutical patents outweighed the costs of pharmaceutical-patent litigation. But for all other industries combined, they estimate that since the mid-1990s, the cost of U.S. patent litigation to alleged infringers ($12 billion in legal and business costs in 1999) is greater than the global profits that companies earn from patents (less than $4 billion in 1999). Since the 1980s, patent litigation has tripled and the probability that a particular patent is litigated within four years has more than doubled. Small inventors feel the brunt of the uncertainty costs, since bigger companies only pay for rights they think the system will protect.
These are shocking findings, but they point to the solution. New drugs require great specificity to earn a patent, whereas patents are often granted to broad, thus vague, innovations in software, communications and other technologies. Ironically, the aggregate value of these technology patents is then wiped out through litigation costs.
Our patent system for most innovations has become patently absurd. It’s a disincentive at a time when we expect software and other technology companies to be the growth engine of the economy. Imagine how much more productive our information-driven economy would be if the patent system lived up to the intention of the Founders, by encouraging progress instead of suppressing it.

For the full commentary, see:
L. GORDON CROVITZ. “OPINION: INFORMATION AGE; Patent Gridlock Suppresses Innovation.” Wall Street Journal (Mon., JULY 14, 2008): A15.
(Note: ellipsis added.)

The Middle Ages Were Poor Ages (and, Yes, Dark Ages Too)

Source of book image: http://images.barnesandnoble.com/images/11610000/11613340.jpg

(p. A19) . . . some excellent books for general readers in the past few years, notably Brian Ward- Perkins’s “The Fall of Rome and the End of Civilization” (2005), have shown how devastating was the economic and human cost paid between 450 and 900. It is still unfashionable to speak of the Dark Ages (there was continuing cultural life), but these were certainly the Poor Ages, in which protection for the weak and vulnerable, from roaming killers and even from the weather, was much more precarious than it had been under Roman rule.

For the full review, see:
SCOTT PATTERSON. “Bookshelf; The Emperor Left Town.” Wall Street Journal (Tues., APRIL 21, 2009): A19.
(Note: ellipsis added.)
(Note: the book mainly under review by Patterson, is NOT the book featured in this blog entry.)

The reference for the Ward-Perkins book, is:
Ward-Perkins, Bryan. The Fall of Rome: And the End of Civilization. Oxford, UK: Oxford University Press, 2005.

Entrepreneurs Learn “Not in the Classroom Where Old Ways are Taught, But in the Factories and Labs, Where New Ways Are Wrought”

Gilder’s rhyme about the classroom is cute, and maybe mainly true. In an important paper, Baumol has more prosaically (in the literal sense) expressed a similar view.
But there are counterexamples. Gilder himself, in his Microcosm, notes how what was taught in some classrooms was crucial to progress in information technology.

(p. 296) Entrepreneurs can be pompous and vain where it doesn’t count; but in their own enterprise, the first law is to listen. They must be men meek enough–and shrewd enough–to endure the humbling eclipse of self that comes in the process of profound learning from others.
In all the history of enterprise, most of the protagonists of major new products and companies began their education–and (p. 297) discovered the secrets of their later breakthroughs–not in the classroom, where the old ways are taught, but in the factories and labs, where new ways are wrought.

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

The important Baumol paper mentioned above, is:
Baumol, William J. “Education for Innovation: Entrepreneurial Breakthroughs Versus Corporate Incremental Improvements.” In Innovation Policy and the Economy, edited by Adam B. Jaffe, Josh Lerner and Scott Stern, 33-56. Cambridge, Mass.: MIT Press, 2005.

Berkshire BYD Technology Bet Based on Munger’s View of BYD Manager

“BOOK VALUE: Berkshire Hathaway’s Charles Munger reads businesses well — and, as a bibliophile, he goes through several books a week.” Source of caricature and caption: online version of the WSJ article quoted and cited below.

At a Berkshire Hathaway annual meeting a few years ago, I remember hearing Warren Buffett say that he stays away from technology stocks because he does not know how to judge which technologies are likely to succeed in the long-run. So I was a bit puzzled by the news that Berkshire Hathaway was investing in BYD, a Chinese company producing an electric car.
The passages quoted below may partially solve the puzzle: the investment in BYD was pushed by Charlie Munger and David Sokol, and was based more on a judgment about the quality of BYD’s management, than the prospects for BYD’s technology.

(p. C1) Mr. Munger’s views have pushed Berkshire into some surprising directions. Several years ago, Mr. Munger learned of an obscure Chinese maker of batteries and automobiles called BYD Inc., which hopes to create a cheap, functional electric car.

A Chinese tech company is nothing like the shoe and underwear makers Berkshire had been buying. But Mr. Munger was enthusiastic, less about the technology than about Wang Chuanfu, who runs BYD. Mr. Wang, Mr. Munger says, is “likely to be one of the most important business people who ever lived.”
Mr. Buffett was skeptical at first. But Mr. Munger persisted. David Sokol, chairman of Berkshire utility MidAmerican Energy Holdings Co., paid a visit to BYD’s factory in China and agreed with Mr. Munger’s assessment. Last year, MidAmerican paid $230 million for a 10% stake in BYD.
“BYD was Charlie’s idea,” Mr. Buffett said. “When he encounters genius and sees it operating in a practical way, he gets blown away.”

For the full story, see:

SCOTT PATTERSON. “Here’s the Story on Berkshire’s Munger.” Wall Street Journal (Fri., MAY 1, 2009): C1 & C3.

If the Medici Had Not Intervened, Galileo “Would Have Been Killed”

(p. D7) The Franklin Institute and its aspiring blockbuster, “Galileo, the Medici & the Age of Astronomy,” are something of an odd couple — a circumstance explained, like so much else, by history.
. . .

Meanwhile, the exhibition leaves provocative questions — about the nexus of church and state, as well as science and faith — unanswered. If Galileo was still a court favorite, and science was so revered in Florence, why weren’t the powerful dukes able to prevent his 1633 trial, heresy conviction, and sentence of house arrest?
Galileo’s patrons did, in fact, intervene on his behalf, Filippo Camerota, vice director of the Institute and Museum for the History of Science and one of the exhibition curators, said in an interview. “If the Medici were not there,” Mr. Camerota said, “he would have been killed.” Good to know.

For the full commentary, see:
JULIA M. KLEIN. “Exhibition; What Galileo Saw.” Wall Street Journal (Tues., APRIL 28, 2009): D7.
(Note: ellipsis added.)

RIP Marjorie Grene, Who Helped Polanyi with Personal Knowledge

“Marjorie Grene in 2003.” Source of photo and caption: online version of the NYT obituary quoted and cited below.

The NYT reported, in the obituary quoted below, that philosopher Marjorie Grene died on March 16, 2009, at the age of 93.
Although I studied philosophy at the University of Chicago, my time there did not overlap with Marjorie Grene’s and I don’t believe that I ever met her, or ever even heard her speak (though I did occasionally walk past her former husband David Grene, on my way to talk to Stephen Toulmin).
I am increasingly appreciating Michael Polanyi’s book Personal Knowledge in which he introduced his view of what he called “tacit knowledge.” In particular, I am coming to believe that tacit knowledge is very important in understanding the role and importance of the entrepreneur.
So if Marjorie Grene was crucial to Personal Knowledge, as is indicated in the obituary quoted below, then she is deserving of serious consideration, and high regard.

(p. 23) In Chicago, she had met Michael Polanyi, a distinguished physical chemist turned philosopher; she ended up helping him research and develop his important book “Personal Knowledge” (1958). The book proposed a far more nuanced, personal idea of knowledge, and directly addressed approaches to science.

“There is hardly a page that has not benefited from her criticism,” Dr. Polanyi wrote in his acknowledgments. “She has a share in anything I may have achieved here.”
. . .
Her sense of humor sparkled when she was asked about being the first woman to have an edition of the Library of Living Philosophers devoted to her — Volume 29 in 2002. Previous honorees included Bertrand Russell and Einstein. “I thought they must be looking desperately for a woman,” Dr. Grene said.

For the full obituary, see:
DOUGLAS MARTIN. “Marjorie Grene, a Leading Philosopher of Biology, Is Dead at 98.” The New York Times, First Section (Sun., March 29, 2009): 23.
(Note: ellipsis added.)

The reference for the Polanyi book, is:
Polanyi, Michael. Personal Knowledge: Towards a Post-Critical Philosophy. Chicago: University Of Chicago Press, 1958.