March 2016 – Page 3 – artdiamondblog.com

The Wealth of Project Entrepreneurs Is Fragile

The stories of Alfred E. Mann (below) as well as that of Malcom McLean, the entrepreneur behind standardized shipping containers, support George Gilder’s point that innovative project entrepreneurs have most of their wealth tied up in their projects. Their wealth only stays large as long as the projects continue to go well.

(p. A20) Alfred E. Mann, who started medical device companies that pioneered in the development of pacemakers for erratic hearts, insulin pumps for diabetics, cochlear implants for the deaf and retinal implants for the blind, died on Thursday [February 25, 2016] in Las Vegas. He was 90.
. . .
Mr. Mann, who spent most of his career in the Los Angeles area, became a billionaire from his entrepreneurial activities. His biggest success was MiniMed, which became the leader in insulin pumps, wearable devices that deliver insulin throughout the day, allowing people with diabetes to more precisely control their blood sugar levels.
. . .
In all, Mr. Mann started and largely financed 14 companies, nine of which were acquired for a total of almost $8 billion, according to MannKind.
. . .
In 1979, while running Pacesetter, Mr. Mann was visiting a cardiac ward and was challenged by a doctor there to work on diabetes, which caused many of the heart problems in patients. That led to the creation of MiniMed and later to MannKind, which developed a form of insulin that is inhaled instead of injected.
MannKind, Mr. Mann’s last big venture, may also have been his Waterloo, eating up much of his fortune.
The pharmaceutical giant Pfizer suffered a costly marketing flop with an inhaled form of insulin in 2007. After that, other big insulin manufacturers dropped their own plans for similar products.
But Mr. Mann, who was chief executive of MannKind for many years, would not give up. He insisted MannKind’s inhaler was better than Pfizer’s and that its insulin had desirable medical characteristics beyond being inhalable. He put about $1 billion of his own money into the company he had named for himself, keeping it afloat through years of setbacks.
“I believe this is one of the most valuable products in history in the drug industry, and I’m willing to back it up with my estate,” Mr. Mann told The New York Times in 2007.
The inhaled insulin, called Afrezza, was finally approved by the Food and Drug Administration in 2014, but sales have been dismal. In January, Sanofi, the big French drug company, pulled out of an agreement to market the product. MannKind is now in danger of going out of business, though it is vowing to survive.
“Our resolve is now stronger than ever to continue Al’s legacy of medical innovation, as a tribute to this remarkable man, who did so much to help mankind,” Matthew Pfeffer, chief executive of MannKind, said in a statement Friday.
Mr. Mann, who worked seven days a week even when he was in his 80s, was divorced three times.

For the full story, see:
ANDREW POLLACK. “Alfred E. Mann, 90, Pioneer in Medical Devices, Is Dead.” The New York Times (Sat., FEB. 27, 2016): A20.
(Note: ellipses, and bracketed date, added.)
(Note: the online version of the story has the date FEB. 26, 2016, and has the title “Alfred E. Mann, Pioneer in Medical Devices, Dies at 90.”)

Gilder defends entrepreneurial wealth in:
Gilder, George. “The Enigma of Entrepreneurial Wealth.” Inc. 14, no. 10 (Oct. 1992): 161-64, 66 & 68.

Proletariat Loses Money Investing in Ponzi Scheme Supported by Chinese Communists

(p. B1) HONG KONG — At every turn in his improbably rapid rise, Ding Ning, 34, went to great efforts to convey the image of strong government backing for his Internet financing business.
There was his company’s lavish annual meeting and banquet last year in Beijing’s Great Hall of the People, where China’s legislature meets and where top government leaders host official functions. Adding a splash of celebrity to the event were Zhou Tao, a nationally famous actress and host on the government’s main television broadcaster, and several mid-ranking officials, bureaucrats and lawmakers.
There were the positive profiles in state-controlled media, as well as the company’s advertising on official TV. There was the section of his company’s website devoted to building Communist Party spirit.
But it all came crashing down in dramatic fashion for Mr. Ding this week, when the police alleged that his financing business, Ezubao, was a $7.6 billion Ponzi scheme and announced 21 arrests, including of Mr. Ding. The company was shut down.
, , ,
(p. B7) In interviews, former staff and investors described the signals of strong state support as one of the keys to Ezubao’s rapid rise.
“Many people joined Ezubao because they saw the support from the government and from some government officials,” said Feng Zhe, 36, a Beijing resident who worked as a salesman at the company from June of last year until December.
Mr. Feng said a number of his friends and family members invested in Ezubao’s products and suffered losses. “Many people bought their products because the government has lent the company credibility,” he added.

For the full story, see:
NEIL GOUGH. “Feeling Twice Victimized.” The New York Times (Sat., Feb. 6, 2016): B1 & B7.
(Note: ellipsis added.)
(Note: the online version of the article has the date Feb. 5, 2016, and has the title “Ponzi Scheme in China Gained Credibility From State Media.”)

“Recyclers Around the Country Face Losses”

(p. B1) . . . recycling is a commodities business. The paper, metal, plastic and glass that recyclers collect, sort and sell competes against so-called virgin materials. And right now, many commodities are cheap.
Abundant oil is the latest headache for recyclers. New plastics are made from the byproducts of oil and gas production. So as plentiful fossil fuels saturate global markets, it has become cheaper for the makers of water bottles, yogurt containers and takeout boxes to simply buy new plastics. This, in turn, is dragging down the price of recycled materials, straining every part of the recycling industry.
In Montgomery, Ala., Infinitus Energy opened a $35 million recycling center in 2014. By last October, it was hemorrhaging (p. B5) money and shut down. Montgomery’s recyclables are now going to a landfill, and a once booming local business, United Plastic Recycling, filed for bankruptcy last year.
. . .
. . . as recyclers around the country face losses, they are passing their costs along to cities and counties. Increasingly, local governments are receiving nothing at all for their recyclables, or even having to pay companies to accept them.
Last year, the city government in Washington, D.C., paid Waste Management $1.37 million to accept the recyclables it collected from residents.

For the full story, see:
DAVID GELLES. “Losing a Profit Motive: A Skid in Oil Prices Pulls the Recycling Industry Down With It.” The New York Times (Sat., FEB. 13, 2016): B1 & B5.
(Note: ellipses added.)
(Note: the online version of the story has the date FEB. 12, 2016, and has the title “Skid in Oil Prices Pulls the Recycling Industry Down With It.”)

In India’s Public Education System, Teachers Are Often Truant

Matt Ridley has a chapter in his recent The Evolution of Everything, where he cites evidence the low quality of public education in much of the less-developed world. The quality is so low that many poor parents scrimp to pull together modest funds to send their children to modest private schools where the teachers actually show up.

(p. A1) DEORIA, India — The young man, having skipped school, was there to plead his case, but Manoj Mishra was having none of it. When the truant offered a letter from a relative of a government minister pleading for leniency, Mr. Mishra grabbed it and, with a frown, tore it in half and dropped it to the floor.

Similar scenes played out repeatedly in Mr. Mishra’s fluorescent-lit office recently, as one truant after another appeared before him, trying to explain an absence from school.
But these were not students who had been pulled in for truancy. They were teachers.
Mr. Mishra, a district education officer in India’s most populous state, Uttar Pradesh, is fighting one of the biggest obstacles to improving the largest primary school system in the world: absent teachers. His tough punishments and refusal to back down, chronicled in the local newspapers, have turned him into a folk hero. As he walks along the dusty streets of the wheat-farming villages a couple of hours’ drive from Nepal, older people touch his feet in a sign of respect. Young women pull out their phones and take selfies by his side.
When Mr. Mishra arrived in Deoria in 2014, 40 percent of the district’s teachers were absent on any given day from its 2,700 schools, he said in a recent interview. Nationwide, nearly 24 percent of rural Indian teachers were absent during random visits for a recent study led by Kar-(p. A6)thik Muralidharan at the University of California, San Diego. Teacher absences run as high as 46 percent in some states.
. . .
With the largest population in the world under the age of 35, India is trying to grow by leveraging what is often called the “demographic dividend.” To prepare more than 200 million primary school children for jobs in a modern work force, India passed legislation a decade ago that more than doubled education spending, increased teacher salaries and reduced class sizes.
But children’s already low performance has fallen. Pratham Education Foundation, a nonprofit that conducts an annual household survey, reported that in 2005 about 60 percent of fifth graders in rural India — where most people live — could read at a minimum second-grade level, but that in 2014 less than 50 percent could.
Teacher truancy is among the more prominent causes of that failure, experts say. Teaching jobs pay well and are sometimes obtained through political connections. But those who get them often do not want to travel to the remote areas where many schools are. In areas with weak local governance, not showing up has become the norm, and people feel powerless to complain.

For the full story, see:
GEETA ANAND. “Saturday Profile; Truant India Teachers, Meet Your Nightmare.” The New York Times (Sat., FEB. 20, 2016): A1 & A6.
(Note: ellipsis added.)
(Note: the online version of the story has the date FEB. 19, 2016, and has the title “The Saturday Profile; Fighting Truancy Among India’s Teachers, With a Pistol and a Stick.”)

The Ridley book mentioned above, is:
Ridley, Matt. The Evolution of Everything: How New Ideas Emerge. New York: Harper, 2015.

New Middle-Skill Jobs Combine Technical and Social Skills

Source of graph: online version of the NYT article quoted and cited below, based on Deming paper cited further below.

(p. 4) For all the jobs that machines can now do — whether performing surgery, driving cars or serving food — they still lack one distinctly human trait. They have no social skills.

Yet skills like cooperation, empathy and flexibility have become increasingly vital in modern-day work. Occupations that require strong social skills have grown much more than others since 1980, according to new research. And the only occupations that have shown consistent wage growth since 2000 require both cognitive and social skills.
The findings help explain a mystery that has been puzzling economists: the slowdown in the growth even of high-skill jobs. The jobs hit hardest seem to be those that don’t require social skills, throughout the wage spectrum.
“As I’m speaking with you, I need to think about what’s going on in your head — ‘Is she bored? Am I giving her too much information?’ — and I have to adjust my behavior all the time,” said David Deming, associate professor of education and economics at Harvard University and author of a new study. “That’s a really hard thing to program, so it’s growing as a share of jobs.”
. . .
“If it’s just technical skill, there’s a reasonable chance it can be automated, and if it’s just being empathetic or flexible, there’s an infinite supply of people, so a job won’t be well paid,” said David Autor, an economist at the Massachusetts Institute of Technology. “It’s the interaction of both that is virtuous.”
Mr. Deming’s conclusions are supported by previous research, including that of Mr. Autor. Mr. Autor has written that traditional middle-skill jobs, like clerical or factory work, have been hollowed out by technology. The new middle-skill jobs combine technical and interpersonal expertise, like physical therapy or general contracting.
James Heckman, a Nobel Prize-winning economist, did groundbreaking work concluding that noncognitive skills like character, dependability and perseverance are as important as cognitive achievement. They can be taught, he said, yet American schools don’t necessarily do so.

For the full commentary, see:
Claire Cain Miller. “The Upshot; The Best Jobs Require Social Skills.” The New York Times, SundayReview Section (Sun., OCT. 18, 2015): 4.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date OCT. 16, 2015, and has the title “The Upshot; Why What You Learned in Preschool Is Crucial at Work.”)

The Deming paper referred to above, is:
Deming, David J. “The Growing Importance of Social Skills in the Labor Market.” National Bureau of Economic Research, Inc., NBER Working Paper # 21473, Aug. 2015.

The Autor paper referred to above, is:
Autor, David. “Polanyi’s Paradox and the Shape of Employment Growth.” National Bureau of Economic Research, Inc., NBER Working Paper # 20485, Sept. 2014.

The Heckman paper referred to above, is:
Heckman, James J., Jora Stixrud, and Sergio Urzua. “The Effects of Cognitive and Noncognitive Abilities on Labor Market Outcomes and Social Behavior.” Journal of Labor Economics 24, no. 3 (July 2006): 411-82.

Technology Extends Capabilities of Older Japanese

(p. A1) TOKYO–At an office-building construction site in the center of Japan’s capital, 67-year-old Kenichi Saito effortlessly stacks 44-pound boards with the ease of a man half his age.
His secret: a bendable exoskeleton hugging his waist and thighs, with sensors attached to his skin. The sensors detect when Mr. Saito’s muscles start to move and direct the machine to support his motion, cutting his load’s effective weight by 18 pounds.
“I can carry as much as I did 10 years ago,” says the hard-hatted Mr. Saito.
Mr. Saito is part of an experiment by Obayashi Corp. , the construction giant handling the building project, to confront one of the biggest problems facing the company and the country: a chronic labor shortage resulting from a rapidly aging population. The exoskeleton has allowed Mr. Saito to extend his working life–and Obayashi to keep building.
. . .
(p. A14) The Fujisawa Aikoen nursing home about an hour outside Tokyo started leasing the “hybrid assistive limb,” or HAL, exoskeletons from maker Cyberdyne Inc. in June.
In Hokkaido, 60-year-old potato-pickers use rubber “smart suits” making it easier to bend over. Baggage handlers at Tokyo’s Haneda airport employ similar assistance.
In cases where older people simply can’t do the job or aren’t available, Japanese manufacturers are turning to robots, which help them keep costs down and continue growing.
Bank of Tokyo Mitsubishi UFJ, Japan’s largest bank, employs a small robot speaking 19 languages to greet customers, while a Nagasaki hotel staffed mainly by robots opened in July. Komatsu Ltd. is developing self-driving vehicles for construction sites, while industrial robot maker Fanuc Corp. is designing machines that repair each other.
Toyota Motor Corp. is testing in homes its “human support robot,” a videophone/remote-controlled android that allows family and friends to perform tasks for distant elderly people as if they were in the same home. In one demonstration, a young man uses a tablet to look around a bed-bound older man’s room, then directs the robot to open the curtains and bring the older man a drink.
SoftBank Group Corp. earlier this year drew global attention when it put on sale in Japan an automaton called Pepper, which it called the world’s first robot capable of understanding emotions. One of the earliest uses for the 4-foot-tall white humanoid is as a nursing helper.
In a Kanagawa Prefecture test, Pepper entertained a room of 30 80- to 90-year-olds for 40 minutes. He led them in light exercises and tested their ability to recognize colors and letters. Women patted his head like a grandchild.
Showing a video of Pepper with a dementia patient on another occasion, Shunji Iyama, one of the developers, says the robot may sometimes work better than people. “That man keeps repeating himself over and over again,” Mr. Iyama said. “If Pepper were human, he’d get fed up, but he just repeats the same reaction and doesn’t get tired.”

For the full story, see:
Jacob M. Schlesinger and Alexander Martin. “Graying Japan Tries to Embrace the Golden Years.” The Wall Street Journal (Mon., Nov. 30, 2015): A1 & A14.
(Note: ellipsis added.)
(Note: the online version of the story has the date Nov. 29, 2015, and has the title “Graying Japan Tries to Embrace the Golden Years.”)

To Get the High-Hanging Fruit, Grow Shorter Trees

Dr. Gennaro Fazio, a plant breeder and geneticist with the USDA’s Agricultural Resource Service tells us . . . :

“In taller apple trees, the fruit that is high up, exposed to the sun, ripens the fastest. Low-hanging fruit doesn’t get much sun, and it’s not as ripe — not so delectable, you could say — as the higher fruit. You want to pick the low-hanging fruit last, so it has more time to develop.”

But according to Fazio none of this ultimately matters: the idiom “low-hanging fruit” has been rendered totally and utterly irrelevant by the changing nature of apple tree genetics.
When “low-hanging fruit” became a metaphor in the late 1960s, the majority of apple trees in the U.S. were 25- to 30-foot tall goliaths–and the only fruits within reach were those that lingered on lower branches. Today, however, the majority of apple trees are what arborists refer to as “dwarfs.”
. . .
Once hesitant that the smaller trees wouldn’t produce as much fruit, apple growers realized dwarf trees were actually far more profitable. “Farmers get a higher yield per acre,” says Heather Faubert, of the Rhode Island Fruit Growers Association. “With the taller trees, you could only plant about 20 trees per acre; now, you can get as many as 2,000 in the same space.”
The result of these smaller trees is that the lowest-hanging fruits are actually no longer the easiest to pick. In fact, picking them requires repeatedly bending over to knee-level, a maneuver that can prove incredibly straining on the lower back.
“The ergonomics of picking apples have completely changed,” says Fazio. “It really no longer makes sense to go for the low-hanging fruit. The phrase is irrelevant.”

For the full story, see:
Priceonomics.com, “Should You Literally Pick the Low-Hanging Fruit?,” Feb. 5, 2016, URL: http://priceonomics.com/should-you-literally-pick-the-low-hanging-fruit/.
(Note: ellipses added.)

The web page was excerpted in:
“Notable & Quotable: ‘Low-Hanging Fruit’.” The Wall Street Journal (Weds., Feb. 10, 2016): A11.
(Note: the online version of the article has the date Feb. 9, 2016.)

George Washington as Entrepreneur

(p. C7) While Washington was only an adequate battlefield general, Edward G. Lengel, who oversees George Washington’s papers at the University of Virginia, makes a strong case in “First Entrepreneur” that he was a superb military administrator–skills he learned as a young man serving in the French and Indian War as an aide-de-camp for commanding officers. By carefully monitoring all aspects of the complex business of running a military operation, he held his ragtag army together despite a frequent lack of money, clothing, weapons and food. Without Washington’s management, the Continental Army would likely have disintegrated and the Revolution fizzled out. Mr. Lengel brings needed attention to this vital and neglected aspect of Washington’s generalship.
Washington was also a superb administrator of his own assets. Born to modest wealth, he married into much more and worked hard and creatively to maximize his return on investment. By the end of his life he was one of the new country’s richest men.
Tobacco, the cash crop that had brought prosperity to Virginia, was declining in profitability by the mid-18th century. It exhausted the soil, and prices had been falling on the British market. Washington began to rotate and diversify his crops, import better seed, and exploit Mount Vernon’s other assets, such as the springtime fish runs up the Potomac.
By the end of his life, Washington was not only growing new crops but manufacturing as well, turning his wheat production into both whiskey and flour. When the American inventor Oliver Evans developed a new, more productive type of flour mill, Washington quickly installed one. When the king of Spain sent him a donkey, named Royal Gift, Washington put him to work fathering mules, which were more efficient than horses at farm work. As Mr. Lengel makes clear, Washington was always a bottom-line man, a fact that makes this often remote figure more human.

For the full review, see:

JOHN STEELE GORDON. “Washington Discovers America; Washington traveled through all 13 states to promote the newborn federal government.” The Wall Street Journal (Sat., Feb. 13, 2016): C7.

(Note: the online version of the story has the date Feb. 12, 2016.)

The book under review, is:
Lengel, Edward G. First Entrepreneur: How George Washington Built His–and the Nation’s–Prosperity. Philadelphia, PA: Da Capo Press, 2016.

Spread of Dynamic Pricing Increases Economic Surplus

The theory of consumer and producer surplus implies that total economic surplus will be greater when pricing changes as supply and demand shift. Dynamic pricing increases the extent to which that is possible, and so should increase the total economic surplus (which is the sum of consumer surplus and producer surplus.) Dynamic pricing should also reduce the time consumers waste waiting for the product or service, when pricing is below the market clearing level (like when there are more people seeking a taxi, than there are taxis at the location).

(p. B1) Adult passes to the Indianapolis Zoo used to cost $16.95. Now they set customers back $8 or $30–or almost anywhere in between.
The zoo prices tickets like airfares, changing prices daily based on advance sales and expected demand. It discounts cold weekdays in February and boosts prices after school groups book dozens of tickets. Since introducing such dynamic pricing last year, the zoo’s admission revenue has grown 12%.
. . .
Backed by vast amounts of data and powerful software, more businesses are varying prices by the day, the hour, or even the minute. Online sellers have used such tactics for years, but frequent price (p. B4) changes are increasingly common in the physical world, amplifying the effects of supply and demand on everything from parking spots to golf-course greens fees.
. . .
Previously, a taxi at rush hour went to “the person who happened to be on the right street corner,” said Ian McHenry, the president of Beyond Pricing, which helps homeowners price their rented guest rooms like big hotels. Now, rides go to people willing to pay more, and fewer people “hit the jackpot and get that underpriced reservation or baseball ticket or open cab.”
. . .
“This is not a passing fad,” said Peter Fader, co-director of the University of Pennsylvania’s customer-analytics initiative. Amazon is making dynamic pricing the norm, he said, “and then it’s going to become imperative for the brick-and-mortar players to figure out how to do this.”
The trend is good for business, helping companies charge more for in-demand items and offload surplus goods. Caberfae Peaks ski resort in Cadillac, Mich., said its revenue per customer has surged 17.6% since it began dynamically pricing its advance-sale tickets five years ago.
Variable pricing can also influence behavior. Uber and Lyft raise prices during peak times in part to lure more drivers onto the road.
Highway operators use dynamic pricing to regulate traffic. Over the past two years, Ferrovial SA unit Cintra has opened several toll roads in the Dallas area that can change prices every five minutes to keep speeds above 50 miles an hour. The toll for one 7-mile stretch, for instance, fluctuated between 90 cents and $4.50 in a recent week.
The Indianapolis Zoo said it adopted dynamic pricing in part to limit crowds after opening a new orangutan center last year. The strategy worked: two-thirds of guests visited on weekdays this summer, compared with 57% in 2013.
And Gogo Inc. shifts the price of its in-flight Internet between $8 and $40 based on a flight’s route, day and time to limit the number of users and keep speeds high.
Andrew Sullivan, a products manager at a California manufacturer, recently paid $34 for the Wi-Fi. “It’s a drag as a consumer,” he said. “You’re not getting any additional value when you’re paying twice as much for the same commodity.”
Consumers typically resist dynamic pricing when it is introduced, but then quickly acclimate, Mr. Fader said. Five years ago, Major League Baseball teams caught flak when they began changing ticket prices based on factors such as date, opponent, weather forecasts and seats remaining.
“Now pretty much every one of them is doing it routinely, and doing it with a remarkable lack of backlash,” Mr. Fader said. “The first time, it’s ‘That ain’t right.’ The second time, it’s all right.”

For the full story, see:
JACK NICAS. “The Price You Pay Depends on Time and Day.” The Wall Street Journal (Mon., Dec. 14, 2015): B1 & B4.
(Note: ellipses added.)
(Note: the online version of the story has the title “Now Prices Can Change From Minute to Minute.” The three contiguous paragraphs quoted near the end above (on the orangutan center, on Gogo, and on Wi-Fi) appeared in the online, but not the print, version of the article.)