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More on Creative Destruction in Science Fiction

On April 11, 2007 I posted an entry noting a new science fiction book with the title Creative Destruction. Not having read the book, I wondered aloud whether the book contained any reference to Schumpeter.

Yesterday (4/13/07), I was delighted to receive an email from the author of the book, answering my question. With his permission, I reproduce his email below:

Dr. Diamond,

I noticed your blog entry about Creative Destruction, my computer-themed SF collection. You asked: Does Schumpeter get a mention?

Absolutely. Here are the opening lines of the foreword:

     If the Internet bubble had a patron saint, he was an obscure economist named Joseph Schumpeter.

     Schumpeter owes his posthumous celebrity to two words: creative destruction. In 1942, he wrote of the "… Process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.

     "Creative destruction," he said, "is the essential fact about capitalism." Every dotcom, of course, claimed its new technology would sweep out the old in a frenzy of creative destruction. Occasionally — think Yahoo! and Amazon — they were even correct.

The stories in the collection are most definitely science fiction — I have degrees in physics and computer science — but I also have an MBA from the University of Chicago.

Best regards,

– Ed Lerner

(Note: I have changed the format of the email, a little. The ellipsis was in the original.)

Creative Destruction in Science Fiction

Source of book image: http://ec1.images-amazon.com/images/P/0809557487.01._SS500_SCLZZZZZZZ_V38973347_.jpg

There’s a new collection of science fiction stories entitled Creative Destruction (after one of the main stories in the collection that is also entitled "Creative Destruction"). I have not read the book, but used to enjoy reading science fiction, and hope to have a look before too long.

I welcome comments from anyone who has read the book. Does Schumpeter get a mention?

The reference to the book is:

Lerner, Edward M. Creative Destruction. Rockville, MD: Wildside Press, 2006.

Woodrow Wilson: The Automobile is “a Picture of the Arrogance of Wealth”

It is the common characteristic of new products from creative destruction that new products are first so expensive that only the rich can afford them, but then fairly soon, usually within a few years at most, the price falls to the level that ordinary people can afford. At that point, what the rich gets are added features, at a high premium, but the basic product is widely available. Consider the automobile:

(p. 193) The autos of the time were a luxurious novelty. One model even offered electric curlers in the back seat for on-the-go primping. They were unreliable and expensive, costing around $1,500, twice the average annual family income. And they were enormously unpopular. Anticar activists tore up roads, ringed parked cars with barbed wire, and organized boycotts of car-driving businessmen and politicians. Public resentment of the automobile was so great that even future president Woodrow Wilson weighed in, saying, "Nothing has spread socialistic feeling more than the automobile . . . a picture of the arrogance of wealth." Literary Digest suggested, "The ordinary ‘horseless carriage’ is at present a luxury for the wealthy; and although its price will probably fall in the future, it will never, of course, come into as common use as the bicycle."

Source:

Kim, W. Chan, and Renée Mauborgne. Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. Boston: Harvard Business School Press, 2005.

(Note: ellipsis in original. Also, the book provides sources for each quote in the passage above.)

Jim Collins on How Boeing Leapfrogged McDonnell Douglas

(p. 202) Wisely, through the 1940s, Boeing had stayed away from the commercial sphere, an arena in which McDonnell Douglas had vastly superior abilities in the smaller, propeller-driven planes that composed the commercial fleet. In the early 1950s, however, Boeing saw an opportunity to leapfrog McDonnell Douglas by marrying its experience with large air-(p. 203)craft to its understanding of jet engines.

Source:

Collins, Jim. Good to Great: Why Some Companies Make the Leap. And Others Don’t. New York: HarperCollins Publishers, Inc., 2001.

“Free” Parking Has Hidden Costs

Two views of the new parking meters in Redwood, California. Source of photos: online version of the WSJ article cited below.

Economists have long made the case that the solution to the parking crunch many cities face lies not in more free or cheap parking but in higher prices. The idea is that higher prices result in a greater churn — and get more people on buses and subways — which leads to more open spaces. But this notion has often run up against city planners and retailers arguing that cheap and plentiful parking results in more commerce and, thus, higher sales taxes and a vibrant economy.

Now, in places like Redwood City, some officials are finally listening. One reason is that after decades of losing people to the suburbs, many city centers are swelling again. Many of these new residents are bringing cars with them, creating the kind of traffic that makes them yearn for the suburbs again.

One of the most influential of the parking gurus is Donald Shoup, a professor at the University of California, Los Angeles who commutes on a bicycle. Since the publication in 2005 of Mr. Shoup’s "The High Cost of Free Parking," he has become something of a celebrity at academic gatherings and parking-industry meetings. Lines form at his book signings. "He’s a parking rock star," says Paul White, of Transportation Alternatives, a New York group that advocates for pedestrians and bicycles.

. . .

Dan Zack, downtown development coordinator for Redwood City, has bought in. A few years ago, his boss presented him with a problem. "He said, ‘We’re adding a million visitors every year, but only 600 new parking spots — make it work,’ " Mr. Zack recalls. After visiting neighboring cities and reading books like "The Dimensions of Parking," Mr. Zack was handed an article by Mr. Shoup.

The city recently raised rates to 75 cents for some prime downtown spots that had been free, and ditched its one-hour time limits, so cars can prepay for as long as they’d like. The move has helped steer more cars to underutilized parking garages away from the main drag.

. . .

San Francisco, perhaps more than any other city, shows how radically some cities are rethinking their parking. The city is one of the toughest places to find a meter spot in all of America, and there have been a spate of attacks by angry drivers, against parking enforcement officers. One block near the popular Fisherman’s Wharf has average stays of four hours — even though there’s a two-hour time limit — and some spots are filled for days at a time.

Recently, the city hired a company to lay hundreds of 4-inch-by-4-inch sensors along the streets in some areas. The sensors, which resemble reflectors, have recorded some 250,000 "parking events" across 200 parking spots. City planners can now tell you which spots are occupied the longest and how traffic flow affects parking supplies.

If the sensors get a wider rollout, the city has floated a number of ideas. When there’s a Giants baseball game at AT&T Park, the city could temporarily charge about the same as private lots near the stadium. The ground sensors are also connected to the Internet wirelessly, which creates the possibility that parking enforcement officers equipped with PDAs could get real-time information on parking violations beamed to them. It also means consumers could get information on which parking spots are open.

For the full story, see:

CONOR DOUGHERTY. "The Parking Fix; Free-market economists are overhauling a frustration of American life — and erasing what may be one of the last great urban bargains." The Wall Street Journal (Sat., February 3, 2007): P1 & P5.

(Note: ellipses added.)

Sensors such as the one embedded in the San Francisco street on the left, could eventually be used to help track parking violators, as imagined in the fictional picture on the right. Source of photos: online version of the WSJ article cited above.

Many Muslim Newcomers Did Not Embrace Dutch Tolerance

Source of book image: http://images.barnesandnoble.com/images/12210000/12213853.jpg

Two key moments in Ms. Hirsi Ali’s life stand out. One is her arrival in the West, a moment she considers to be her "real birthday." On the day her husband shows up at the refugee camp in Holland to claim his rights, Ms. Hirsi Ali finds that she can say "no" to a man stronger than she is, thanks to the protection of a democratic state, a protection made visible, in this case, by the presence of Dutch policemen. She thus experienced an imperative that to most of us is a mere abstraction: Individual freedom needs the rule of law.

The second pivotal moment in her life, Ms. Hirsi Ali says, was the 9/11 terrorist attack on the U.S. She understood what drove Mohamed Atta and his co-hijackers; she once shared their values and had known people like them in the Muslim Brotherhood. "Every devout Muslim who aspired to practice genuine Islam," she writes, "even if they didn’t actively support the attacks, they must have at least approved of them." With 9/11, Ms. Hirsi Ali’s religious doubts erupted into defiance of what she had known while growing up.

From that day onward, Ms. Hirsi Ali became a public voice in the Dutch post-9/11 debates. Eloquently, she made bruising, sometimes inflammatory, arguments. Islam was backward, she said, and needed its Voltaire. She declared that, considered by modern standards, the Prophet was a "pervert" because he had married a 9-year-old girl. Elected an MP for the market-oriented VVD Party in 2003, she became a politician in the grand, passionate style, breaking with Dutch habits of consensus and accommodation.

A nation of 16 million people, with a Muslim minority of about one million (mostly Moroccan and Turkish immigrants), the Netherlands was at the time (and is still) trapped by its carefully nurtured sense of tolerance and hospitality. The trouble was that its newcomers did not necessarily embrace tolerance, women’s rights, free speech and other core Dutch values. Ms. Hirsi Ali knew that she was courting danger by openly addressing such concerns. Nonetheless, she pushed ahead and began working with director Theo van Gogh on "Submission," the film about the mistreatment of Muslim women. When van Gogh was murdered on Nov. 2, 2004, the police found a knife stuck in his body — the weapon was holding in place a letter threatening Ms. Hirsi Ali.

For the full review, see:

LUUK VAN MIDDELAAR. "BOOKS; Out of Europe How a prominent African refugee confronted Islam — then fled to the U.S." The Wall Street Journal (Sat., February 3, 2007): P12.

Reference to the book:

Ayaan Hirsi Ali. INFIDEL. Free Press, 2007. (353 pages, $26)

“Market Research Rarely Reveals New Insights”

Source of book image: http://images-eu.amazon.com/images/P/1591396190.01.LZZZZZZZ.jpg

(p. 69) Competition in an industry tends to converge not only on an accepted notion of the scope of its products and services but also on one of two possible bases of appeal. Some industries compete (p. 70) principally on price and function largely on calculations of utility; their appeal is rational. Other industries compete largely on feelings; their appeal is emotional.

Yet the appeal of most products or services is rarely intrinsically one or the other. Rather it is usually a result of the way companies have competed in the past, which has unconsciously educated consumers on what to expect. Companies’ behavior affects buyers’ expectations in a reinforcing cycle. Over time, functionally oriented industries become more functionally oriented; emotionally oriented industries become more emotionally oriented. No wonder market research rarely reveals new insights into what attracts customers. Industries have trained customers in what to expect. When surveyed, they echo back: more of the same for less.

Source:

Kim, W. Chan, and Renée Mauborgne. Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. Boston: Harvard Business School Press, 2005.

Guns Deter Crime

Knoxville, Tenn.

IT’S a phenomenon that gives the term “gun control” a whole new meaning: community ordinances that encourage citizens to own guns.

Last month, Greenleaf, Idaho, adopted Ordinance 208, calling for its citizens to own guns and keep them ready in their homes in case of emergency. It’s not a response to high crime rates. As The Associated Press reported, “Greenleaf doesn’t really have crime … the most violent offense reported in the past two years was a fist fight.” Rather, it’s a statement about preparedness in the event of an emergency, and an effort to promote a culture of self-reliance.

. . .

Criminals, unsurprisingly, would rather break into a house where they aren’t at risk of being shot. As David Kopel noted in a 2001 article in The Arizona Law Review, burglars report that they try to avoid homes where armed residents are likely to be present. We see this phenomenon internationally, too, with the United States having a lower proportion of “hot” burglaries — break-ins where the burglars know the home to be occupied — than countries with restrictive gun laws.

Likewise, in the event of disasters that leave law enforcement overwhelmed, armed citizens can play an important role in stanching crime. Armed neighborhood watches deterred looting in parts of Houston and New Orleans in the aftermath of Hurricanes Katrina and Rita.

For the full commentary, see:

GLENN REYNOLDS. "A Rifle in Every Pot." The New York Times (Tues., January 16, 2007): A31.

Glenn Reynolds is a professor of law at the University of Tennessee, and is the blogger of Instapundit.com. In 2006, he published:

Reynolds, Glenn. An Army of Davids: How Markets and Technology Empower Ordinary People to Beat Big Media, Big Government, and Other Goliaths. Nashville, TN: Nelson Current, 2006.

Source of book image: http://ec1.images-amazon.com/images/P/1595550542.01._SS500_SCLZZZZZZZ_V1136930360_.jpg

Labor is “Responsible for the Consequences of Their Choice”

An early free-market economist claims that in a free-market economy, a worker’s happiness depends mainly on her own actions:

But whenever property is secure, industry free, and the public burdens moderate, the happiness or misery of the labouring classes depends almost wholly on themselves. Government has there done for them all that it should, and all in truth that it can do. It has given them security and freedom. But the use or abuse of these inestimable advantages is their own affair. They may be either provident or improvident, industrious or idle; and being free to choose, they are alone responsible for the consequences of their choice.

The passage was brought to my attention by an HES Posting from Michael Perelman. The thread was continued by Torsten Schmidt, and the final information on the pages where the passage may be found, was added by Masazumi Wakatabe.

The reference for the source of the passage is:

McCulloch, J.R. A Treatise on the Circumstances which Determine the Rate of Wages and the Condition of the Labouring Classes, second edition, corrected and improved, 1854, 16-17.

“Good to Great” is Good, but Not Quite Great

Source of book image: http://images.barnesandnoble.com/images/7770000/7775266.jpg

When Ameritrade founder Joe Ricketts spoke to my Executive MBA class a few years ago, I mentioned to him that I had heard from Bob Slezak that Ricketts was a fan of Clayton Christensen’s The Innovator’s Dilemma. Ricketts said that was true, but that the recent business book that he was most enthused about was Jim Collin’s Good to Great.

Ricketts is not alone. Good to Great has become a business classic since it came out. Recently I finally got around to reading it.

Well, I think it’s good, but not quite great. I like the empirical, inductive methodology mapped out at the beginning. And some of the conclusions ring true. For example the importance of facing the "brutal facts." And the importance of developing a thought-out "hedgehog" concept. And the importance of getting the right people on the bus. And the importance of slowly, consistently building momentum.

But I’ve got some big bones to pick, too.

Maybe the biggest "bone" is Collins’ assumption that our goal should be the survival and greatness of a firm. Instead of almost viewing firms as ends in themselves, why can’t we view firms as vehicles for getting great things done?

Maybe great things can be done through firms that last and are lastingly great. Or maybe great things can be done by shooting star firms, that are glorious while they last, but don’t last long. Collins says it must be the former. But either way works for me.

A smaller "bone" is the conclusion that "level 5" leaders tend to be modest. Well maybe. But some of that conclusion is derived from Collins’ defining "great" in terms of high growth of stock value. A modest leader will be unappreciated by Wall Street, and her company’s stock value will show higher growth when she succeeds. But has she thereby accomplished more than if she had built exactly the same company, but been more transparent and enthused about the company’s future prospects, and hence generated more realistic expectations from Wall Street? Remember, the value of a stock grows, not by the company doing well, but by it doing better than investors expected. (On this issue, Collins should read the first couple of chapters of Christensen and Raynor’s The Innovator’s Solution.)

But don’t get me wrong: this is a very good book. Those interested in how the capitalist system works, should read it, as should those who want to manage well.

The book is:

Collins, Jim. Good to Great: Why Some Companies Make the Leap. And Others Don’t. New York: HarperCollins Publishers, Inc., 2001.

New Book on Wiki (Quick) Process

Source of book image: http://ec2.images-amazon.com/images/P/1591841380.01._SS500_SCLZZZZZZZ_V37439749_.jpg

A new book is out on the wiki ("quick") phenomenon. Chris Anderson has some stimulating comments on this phenomenon in his The Long Tail. The Wikinomics book appears to be less profound, but may still be of interest. (It appears to be a quick-read, management guru-jargon type book.)

The wiki issue that interests me is how wiki collaboration processes might substitute for rigorous editing and peer-review, as a way to get a lot of high-quality information out there fast. (This is what Anderson claims, and the more I use the Wikipedia, the more plausible I find the claim.)

The reference to the book is:

Tapscott, Don, and Anthony D. Williams. Wikinomics: How Mass Collaboration Changes Everything. Portfolio, 2006.