Author: Art Diamond

Netflix Flourished by “Unplanned” Leaps

(p. A17) Starting a business is tough enough. Why would any sane person choose to start a business in a dying industry?

One answer to that question can be found in “That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea,” a charming first-person account of the early days of one of the most successful tech startups ever.

. . .

Most of Netflix’s early business came from sales of DVDs, not rentals. The struggling company even considered selling to Amazon in 1998, but passed on the offer.

In desperation, Netflix tested monthly subscriptions. To its surprise, customers eagerly forked over their credit-card details. The little company turned on a dime, dropping sales and one-off rentals almost immediately. “If you had asked me on launch day to describe what Netflix would eventually look like, I never would have come up with a monthly subscription service,” Mr. Randolph claims. Netflix’s innovation with a subscription model would point many other internet-based companies to a reliable source of revenue.

Another unplanned leap soon followed: a predictive algorithm that offered to each user individualized recommendations based on reviews by customers with similar preferences. This feature helped hook customers, but it had a less obvious benefit for Netflix: By directing the user to a less popular film that happened to be in Netflix’s inventory, it allowed the company to buy fewer of the most popular DVDs. Yet profits were elusive. Video-store giant Blockbuster, unconvinced about the online business model, turned down a chance to buy the company in 2000, and the dot-com meltdown short-circuited a public offering. In September 2001, Netflix had its first layoffs, cutting costs and steadying the ship.

Mr. Randolph himself left in 2003, not long after Netflix finally went public. By then, he says, he had figured out that he loved starting companies, not running them. “I missed the late nights and early mornings, the lawn chairs and card tables. I missed the feeling of all hands on deck, and the expectation that every day you’d be working on a problem that wasn’t strictly tied to your job description,” he writes. The chaos of a startup enthralls him. A company with hundreds of employees and the demands of quarterly reports to investors is not his thing.

For the full review, see:

Marc Levinson. “BOOKSHELF; Streaming Ahead.” The Wall Street Journal (Monday, Sept. 23, 2019): A17.

(Note: ellipsis added.)

(Note: the online version of the review has the date Sept. 22, 2019, and has the title “BOOKSHELF; ‘That Will Never Work’ Review: Streaming Ahead.”)

The book under review is:

Randolph, Marc. That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea. New York: Little, Brown and Company, 2019.

STEM Skills Are Quickly Obsolete

(p. B8) In a recent working paper with a Harvard doctoral student, Kadeem Noray, I calculated how much the skills required for different jobs changed over time. Help-wanted ads for jobs like software developer and engineer were more likely to ask for skills that didn’t exist a decade earlier. And the jobs of 10 years ago often required skills that have since become obsolete. Skill turnover was much higher in STEM fields than in other occupations.

We can also see this by looking at changes in college course catalogs. One of the largest and most popular courses in the Stanford computer science department is CS229 — Machine Learning, taught by the artificial intelligence expert and entrepreneur Andrew Ng. This course did not exist in its current form until 2003, when Professor Ng taught it for the first time with 68 students, and very little like it existed anywhere on college campuses 15 years ago. Today, the machine learning courses at Stanford enroll more than a thousand students.

. . .

Liberal arts advocates often argue that education should emphasize the development of the whole person, and that it is much broader than just job training. As an educator myself, I agree wholeheartedly.

But even on narrow vocational grounds, a liberal arts education has enormous value because it builds a set of foundational capacities that will serve students well in a rapidly changing job market.

For the full commentary, see:

David Deming. “Engineers Start Fast, but Poets Can Catch Up.” The New York Times, SundayBusiness Section (Sunday, September 22, 2019): B8.

(Note: ellipsis added.)

(Note: the online version of the commentary was last updated on Oct. [sic] 1, 2019, and has the title “In the Salary Race, Engineers Sprint but English Majors Endure.”)

The working paper referred to above, is:

Deming, David J., and Kadeem L. Noray. “Stem Careers and Technological Change.” National Bureau of Economic Research, Inc, NBER Working Paper # 25065, June 2019.

Tropical Socialist Paradise Rations Basic Food Items

(p. A7) Cuba will ration sales of basic goods, officials said, as tighter U.S. sanctions and the economic implosion of key ally Venezuela puts further pressure on the Communist regime to import food staples.

Commerce Minister Betsy Díaz on Friday [May 10, 2019] said the government would ration items including eggs, cooking oil, chicken, sausage and soap amid widespread shortages that have caused anxiety and panic buying.

Cuban officials blame the shortages on the Trump administration’s hardening of the trade embargo, but economists say the island’s economy has also been hit hard by reduced shipments of subsidized oil from Venezuela. The island’s agriculture sector has long been inefficient, some analysts said.

The rationing plans come as the country’s Cuba’s authoritarian regime cracks down on civil-society groups. Over the weekend, security officers blocked an unauthorized parade in Havana by gay-rights activists. Several activists were detained, Cubans said on social media.

Cuban officials acknowledged that the government had failed to meet production targets for food staples including eggs and pork, and said limits will be put on the amount of chicken and other products individuals could purchase. They urged Cubans to avoid panic buying.

For the full story, see:

José de Córdoba. “Cuba to Ration Sales of Basic Food Items.” The Wall Street Journal (Monday, May 13, 2019): A7.

(Note: bracketed date added.)

(Note: the online version of the story has the date May 12, 2019, and has the title “Cuba Plans to Ration Sales of Basic Food Items.”)

Humana Founding Entrepreneur Said Notion That Non-Profit Hospitals Are Better Than For-Profit Hospitals, Is “Baloney”

(p. 26) Mr. Jones was a genial but extremely competitive executive. During the years that Humana owned hospitals, several in Louisville, he vigorously defended the for-profit hospital model, contending that Humana’s facilities could deliver better care at lower costs.

“The notion that being nonprofit adds some weight to what you do is baloney,” he once said.

For the full obituary, see:

Richard Sandomir. “David Jones, Health Care Entrepreneur Behind Humana, Is Dead at 88.” The New York Times, First Section (Sunday, September 22, 2019): 26.

(Note: the online version of the obituary has the same date and title as the print version.)

Harvard President James Conant Helped Develop Mustard Gas in WWI

(p. C7) With America’s entry into World War I, Conant took a commission in the Chemical Warfare Service. His task was to develop poison gases—first mustard gas, then an even nastier brew called lewisite. Conant had Quaker branches on his family tree, but he had no qualms: What, he asked, was the moral difference between killing soldiers with explosives and killing them with gas?

. . .

The subtitle of Conant’s autobiography was “Memoirs of a Social Inventor.” He had invented poison gas; he had managed the invention of the Bomb; he had helped invent the modern Harvard; and he aimed to reinvent American education as a whole. But his greatest invention was himself: a new type of social being on the American scene—the scientist-administrator-social engineer. His granddaughter’s biography is an outstanding portrait of a technocrat, at work and at home.

For the full review, see:

Steven Shapin. “Citizen Conant.” The New York Times (Saturday, Oct. 28, 2017): C7.

(Note: ellipsis added.)

(Note: the online version of the review has the date Oct. 27, 2017, and has the title “Review: Citizen Conant.”)

The book under review is:

Conant, Jennet. Man of the Hour: James B. Conant, Warrior Scientist. New York: Simon & Schuster, 2017.

Entrepreneur Helped Firms Lower Costs of Firing Executives

(p. A6) James Challenger had tried law, advertising and manufacturing of gas heaters before dreaming up in the mid-1960s what he called a wild idea: persuading companies to pay him to help find new jobs for executives and middle managers they were laying off.

His firm, Challenger, Gray & Christmas, offered what came to be known as outplacement services. The initial reaction from companies, he said later, was why should we help people we’re firing?

The aptly named Mr. Challenger, who died Aug. 30 [2019] at age 93, struggled for years to persuade companies it was good business to be nice to people heading involuntarily out the door.

For the full obituary, see:

Hagerty, James R. “Wild Idea Created Outplacement Services.” The Wall Street Journal (Saturday, Sept. 21, 2019): A6.

(Note: bracketed year added.)

(Note: the online version of the obituary has the date Sept. 20, 2019, and has the title “James Challenger Helped Create Market for Outplacement Services.”)

Regulators Threaten App Startups That “Give People Access to Their Pay as They Earn It”

(p. B5) WASHINGTON—A growing industry of financial apps that allow workers to access their pay early is drawing scrutiny from regulators to prove they are different from payday lenders.

. . .

Last month, regulators from New York and 10 other states said they were investigating whether some payroll-advance firms violated payday-lending laws. In California, state lawmakers are debating a law that aims to set the legal foundation for the industry and provide consumer protections, the first such attempt in the country.

The moves by state officials come as the industry is growing. Leslie Parrish, an analyst for research firm Aite Group, said the industry is “poised for exponential growth.” Aite Group estimated the app companies handled 18.6 million early U.S. payroll transactions valued at more than $3.15 billion in 2018.

. . .

Industry executives and some consumer advocates say the services offer the potential to help lower- and moderate-income workers by providing low-cost tools, though they disagree on how businesses should be structured and regulated.

“It hasn’t solved the income inequality problem,” Todd Baker, a senior fellow at Columbia Business School, said. “What it does is replace, for a nominal cost, the $30, $40 people pay today for a single overdraft or a $200 payday loan.”

. . .

“In the U.S., we have this pay cycle that holds back people’s pay,” said Ram Palaniappan, chief executive of Earnin. “What we have been able to do is to give people access to their pay as they earn it.”

Earnin tracks users’ work and pay schedules using time sheets or location services and will deposit up to $500 per pay period in their bank accounts. Rather than charging fees for its service, Earnin asks users to consider voluntary tips of up to $14.

For the full story, see:

Yuka Hayashi. “Pay-App Startups Draw Scrutiny.” The Wall Street Journal (Tuesday, Sept. 3, 2019): B5.

(Note: ellipses added.)

(Note: the online version of the story has the date Sept. 2, 2019, and has the title “Pay-Access Apps Face Regulatory Test.”)

“No One Has the Stomach to Challenge the Status Quo”

(p. B14) Before precision-scheduled railroading, or PSR, locomotives had been run the same way for more than a century. Trains waited for cargo at the rail yard, then left when customers brought their shipments and loaded them up. It was an unreliable business with plenty of inefficiencies. But that started to change early this decade, when Mr. Harrison teamed up with William Ackman’s Pershing Square Capital to take control at Canadian Pacific Railway.

“No one has the stomach to challenge the status quo,” Mr. Harrison, who started his railroad career as a 19-year-old laborer in 1963, said several years ago.

Rather than leave the departure times up to clients such as factories, farms and mines, Mr. Harrison demanded they be ready or miss their trips, much like airline passengers. This didn’t win many friends among clients, but after successfully implementing the model in Canada, Mr. Harrison moved on to take the helm of Jacksonville, Fla.-based CSX in 2017. Tragically, his tenure this time was short-lived. Mr. Harrison died just a short time after joining the company.

For the full story, see:

Lauren Silva Laughlin. “Late Railroad Guru’s Legacy Is Losing Steam.” The Wall Street Journal (Saturday, Aug. 24, 2019): B14.

(Note: the online version of the story has the date Aug. 23, 2019, and has the title “Hunter Harrison’s Train Overhaul Starts Running Out of Steam.”)

Chinese Communist One-Child Policy Caused “Intense Suffering of Ordinary People”

(p. B12) Kay Ann Johnson, an Asian studies scholar whose adoption of an infant girl from China led her to spend years researching the impact of the country’s one-child policy on rural families, died on Aug. 14 [2019] at a hospital in Hyannis, Mass.

. . .

For more than 20 years, Professor Johnson focused her research on Chinese villages where birth parents found themselves in a lopsided clash with a state bent on controlling population. The policy was also applied in cities, but villagers were usually more daring about trying to resist it. Professor Johnson presented her research in often painful case studies based on interviews with birth parents who described facing the ruthless policy.

One of those parents, Jiang Lifeng, already had a son when she became pregnant. She planned to keep the child and hoped to have a daughter. She avoided detection (and possibly forced sterilization) during pregnancy tests imposed by the authorities by using a friend’s urine. She delivered a girl, Shengshi. But nine months later the infant was taken from her bedroom by seven men, presumably government representatives, and driven away in a van.

Ms. Jiang recalled that “she ‘felt the sky fall down’ on her as she staggered after them, shocked and aghast at what had just happened,” Professor Johnson wrote. Ms. Jiang somehow caught up to the van and rode with the men and Shengshi to a local birth planning office, where she and her husband, Xu Guangwen, pleaded for the girl’s return. Officials refused.

The couple were told that they could adopt her after she had been taken to an orphanage. But that, Professor Johnson said, was a lie.

“The government had taken their baby, stripped them of their parental rights, and left them heartbroken and powerless to do anything about it,” she wrote. “It had been nothing short of a kidnapping by the government, leaving them no recourse.”

In his review of “China’s Hidden Children” in Foreign Affairs magazine, Andrew J. Nathan, a professor of political science at Columbia University, praised Professor Johnson for debunking the myth that Chinese parents did not value girls, and for outlining the often terrible consequences of the one-child policy.

“Johnson’s extraordinary book conveys the intense suffering of ordinary people struggling to build families against the will of an implacable bureaucracy,” Mr. Nathan wrote.

Kay Ann Johnson was born on Jan. 21, 1946, in Chicago. Her father, D. Gale Johnson, was an agricultural economist and the chairman of the economics department at the University of Chicago.

For the full obituary, see:

Richard Sandomir. “Kay Ann Johnson, 73, Who Studied China’s Painful One-Child Policy, Dies.” The New York Times (Friday, August 30, 2019): B12.

(Note: ellipsis, and bracketed year, added.)

(Note: the online version of the obituary has the date Aug. 29, 2019, and has title “Kay Ann Johnson, 73, Who Studied China’s One-Child Policy, Dies.”)

Johnson’s book, mentioned above, is:

Johnson, Kay Ann. China’s Hidden Children: Abandonment, Adoption, and the Human Costs of the One-Child Policy. Chicago: University of Chicago Press, 2016.

Top 0.1% Have 15% of U.S. Wealth

(p. A1) The income tax is the Swiss Army Knife of the U.S. tax system, an all-purpose policy tool for raising revenue, rewarding and punishing activities and redistributing money between rich and poor.

The system could change fundamentally if Democrats win the White House and Congress. The party’s presidential candidates, legislators and advisers share a conviction that today’s income tax is inadequate for an economy where a growing share of rewards flows to a sliver of households.

For the richest Americans, Democrats want to shift toward taxing their wealth, instead of just their salaries and the income their assets generate.

. . .

In the real world, a wealth tax would emerge from Congress riddled with gaps that the tax-planning industry would exploit, said Jason Oh, a law professor at the University of California, Los Angeles. For example, if private foundations were exempted, the wealthy might shift assets into them.

“We’ve never seen in the history of taxation a pristine tax of any form,” Mr. Oh said. “People who want to pursue a wealth tax for the revenue may be a little disappointed when we see the estimates roll in.”

European countries tried—and largely abandoned—wealth taxes. They struggled because rich people could switch countries and because some assets were exempt. Mr. Zucman said Ms. Warren’s tax would escape the latter problem by hitting every kind of asset, from artwork to stock to privately held businesses to real estate.

While he and fellow economist Emmanuel Saez assume 15% of the tax owed would be avoided, former Treasury Secretary Larry Summers and University of Pennsylvania law professor Natasha Sarin wrote a paper estimating the plan would raise less than half what Mr. Zucman projects, based on how much wealth escapes the estate tax.

A paper by economists Matthew Smith of the Treasury Department, Eric Zwick of the University of Chicago and Owen Zidar of Princeton University contends top-end wealth is overstated. Acccording to their preliminary estimate, the top 0.1% have 15% of national wealth, instead of the 20% estimated by Mr. Zucman. Their findings imply that Ms. Warren’s tax might raise about half of what’s promised.

For the full story, see:

Richard Rubin. “Democrats’ Tax Idea: Target Wealth, Not Just Income.” The Wall Street Journal (Wednesday, Aug. 28, 2019): A1 & A8.

(Note: ellipsis added.)

(Note: the online version of the story has the date Aug. 27, 2019, and has the title “Democrats’ Emerging Tax Idea: Look Beyond Income, Target Wealth.”)

The paper co-authored by Smith, and mentioned above, is:

Smith, Matthew, Owen Zidar, and Eric Zwick. “Top Wealth in the United States: New Estimates and Implications for Taxing the Rich.” Working Paper, July 19, 2019.

Lyft Driver Fears California Law Will Destroy Her Work Flexibility

(p. B4) California lawmakers have hailed the law signed by Gov. Gavin Newsom this week that could require drivers of ride-hailing companies to be labeled as employees rather than independent contractors, saying the measure could raise wages and provide new workplace benefits.

But the drivers are divided about how it will affect them.

For Rachel Hudson, a 43-year-old driver for Lyft Inc. who struggles with arthritis and an anxiety disorder, the bill’s passage is unwelcome. Ms. Hudson has driven for Lyft for about five years and fears employment status could mean having to work in scheduled shifts that would wipe out the flexibility she needs.

“Sometimes, I need a two- to three-hour break. I can’t always be relied upon to be at work at specific times,” Ms. Hudson said. Driving for Lyft “is the only way I can afford a car. It makes a huge impact on my life.”

Ms. Hudson, who lives alone in Stockton, Calif., said that besides federal disability benefits, the earnings from Lyft are her only income.

For the full story, see:

Sebastian Herrera. “Uber, Lyft Drivers Torn Over Law Meant to Protect Them.” The Wall Street Journal (Monday, Sept. 23, 2019): B4.

(Note: the online version of the story has the date Sept. 21, 2019, and has the title “Uber, Lyft Drivers Torn as California Law Could Reclassify Them.”)