Category: Books

Netflix’s Reed Hastings Was Blunt for the Sake of the Project

(p. B1) SANTA CRUZ, Calif. — Long before binge-watching, the streaming wars and “Netflix and chill,” there were two guys barreling down Highway 17 — the California roadway that connects Santa Cruz to Silicon Valley — trying to come up with the next big thing.

One was Marc Randolph, an entrepreneur and marketing specialist who had co-founded a start-up, Integrity QA. The other was Reed Hastings, then the head of the software company Pure Atria.

It was 1997. Mr. Randolph, whose start-up had been acquired by Pure Atria, did most of the pitching. Customized dog food, customized baseball bats, customized shampoo — all sold over the internet and delivered by mail.

Mr. Hastings was the one with the cash and the ability to shoot down ideas without worrying about hurt feelings.

They flirted with the notion of challenging Blockbuster Video with a mail-order videocassette business, only to decide that mailing VHS tapes would cost too much. Finally, they thought they had something: DVDs, sold and rented online and delivered to customers by mail.

Although few people had DVD players at the time, they forged ahead, with Mr. Randolph as the chief executive and Mr. Hastings (p. B5) as the chairman backing the operation.

. . .

Mr. Randolph describes an evening in 1998 when he got a big dose of Netflix’s radical honesty. It happened after a botched investor pitch and a promotion deal with Sony that went horribly wrong. Mr. Hastings asked to see Mr. Randolph alone and subjected him to a PowerPoint presentation detailing the reasons he was no longer fit to remain chief executive.

In the book, Mr. Randolph describes what he said in reaction to the surprise presentation: “‘There is no way I’m sitting here while you pitch me on why I suck.’”

Mr. Hastings closed his Dell laptop. By the end of the talk, Mr. Randolph was bumped down to president, and Mr. Hastings was the new chief executive. As part of the demotion, Mr. Hastings persuaded Mr. Randolph to give up some 650,000 stock shares, which reduced his Netflix stake to 15 percent.

“Doing it with a PowerPoint slide show perhaps wasn’t the most empathetic gesture,” Mr. Randolph said with a laugh. “But he was right.”

The episode, as described in the book, helps form a portrait of Mr. Hastings as someone whose bluntness results more from a sure sense of what a business needs than from an inner ruthlessness.

“What I really want from the book is to paint Reed as a real person,” Mr. Randolph said. “I hope it comes through that I have this tremendous respect and affection for him, as opposed to bitterness. Most people wouldn’t have had the strength to say that. But he recognized it was the right thing for the company.”

For the full review, see:

Nicole Sperling. “Pushing the Red Envelope: A Memoir of Netflix’s Birth.” The New York Times (Thursday, Sept. 19, 2019): B1 & B5.

(Note: ellipsis added.)

(Note: the online version of the review has the date Sept. 18, 2019, and has the title “Long Before ‘Netflix and Chill,’ He Was the Netflix C.E.O.”)

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.

Art Diamond Interviewed on the Small Business Advocate Radio Show

Yesterday morning, Jim Blasingame, the host of his nationally syndicated “The Small Business Advocate” radio show, interviewed me on issues related to my book Openness to Creative Destruction, and “A Disney Story for Young Socialists,” my Oct. 10 op-ed piece in the Wall Street Journal. You can click on the links below to listen to each segment of the interview.

Mott Joined Sloan in Methodically Avoiding Durant’s Entrepreneurial Hunches

(p. A13) Charles Stewart Mott never had his name on an American automobile, but he was on intimate terms with most of the men who did (he was godfather to Walter Chrysler’s daughters). He was also crucial to the rise and success of General Motors.

. . .

By the time Mott, a graduate of Stevens Institute of Technology in Hoboken, had returned from the Spanish-American War, his uncle Fred had added Weston-Mott, a company that manufactured wire bicycle wheels, to the family’s cider and vinegar operations. Charles went to work at Weston-Mott, soon becoming superintendent, just as the bicycle business entered into a sudden eclipse; the automobile had begun its imperial progress. Happily for Weston-Mott, most early cars ran on wire wheels, which Charles Mott supplied—$200,000 worth in 1903—many of them to the Buick Motor Co. of Flint, Mich.

At that time, Buick was in the hands of William Durant, the future founder of General Motors. Cars were being assembled piecemeal, with parts delivered from many far-flung suppliers. Durant didn’t like that, so he asked Mott to move his wheel-building operation to Flint from Utica, N.Y. According to Alfred P. Sloan, who in 1923 became president of GM and whose fortunes would be tied with Mott’s for six decades, the move marked “the first step in the integration of the automobile industry.”

The years to come would see struggles for control of the ever-growing GM, a complex and tangy story that Mr. Renehan recounts with verve and lucidity. “I like to work with Mott,” Sloan wrote of his most valuable lieutenant in his 1941 memoir. “His training had made him methodical. When he was confronted by a problem, he tacked it as I did my own, with engineering care to get the facts. Neither of us ever took any pride in hunches. We left all the glory of that kind of thinking to such men as liked to be labeled ‘genius’ ”—by which Sloan meant Durant.

For the full review, see:

Richard Snow. “BOOKSHELF; Company Man.” The Wall Street Journal (Friday, Sept. 6, 2019): A13.

(Note: ellipsis added.)

(Note: the online version of the review has the date Sept. 5, 2019, and has the title “BOOKSHELF; ‘The Life of Charles Stewart Mott’ Review: Company Man.”)

The book under review is:

Renehan, Edward J., Jr. The Life of Charles Stewart Mott: Industrialist, Philanthropist, Mr. Flint. Ann Arbor, MI: University of Michigan, 2019.

Nick Ronalds Graciously Praises Art Diamond’s “Openness” Book and EconTalk Podcast Interview

After my EconTalk conversation with Russ Roberts, that was posted on Aug. 12, 2019, 49 comments were left in the Reader Comments section of the web site. I do not know Nick Ronalds, but I am grateful to him for boosting my morale. Below, I quote his comments in full:

Nick Ronalds
Aug 16 2019 at 7:59pm
I was just going to leave a quick comment that this was an entertaining podcast, but also that Diamond came across as unpretentious and totally non-defensive, which helped make the conversation entertaining. There were also some fascinating nuggets, such as the anecdote about the development of the internet at–but mainly after–DARPA.

But the fact that Diamond is responding to so many comments makes him much more interesting, and suggests, at the very least, that he has an abundance of energy and a love of the fray.

The last guest who was so active in the comments section was Eugene Fama, so Diamond is in pretty good company.

. . .

Nick Ronalds
Aug 22 2019 at 8:28pm
I am blown away by Arthur’s genial responsiveness. I already got an Amazon book sample of his book but I’ll now feel like a jerk if I don’t just go and buy it.

The EconTalk podcast can be found at: https://www.econtalk.org/arthur-diamond-on-openness-to-creative-destruction/

UNO MBA Blog Highlights Diamond’s Openness to Creative Destruction

The blog for the MBA program at UNO’s College of Business ran a nice entry on my Openness to Creative Destruction: Sustaining Innovative Dynamism book.

As of 10/11/19, the URL for the entry was: https://www.unomaha.edu/college-of-business-administration/mba/about-us/mba-blog.php

(My seminars on “Economics of Entrepreneurship” and “Economics of Technology” are electives in the MBA program, the economics masters program, and the undergraduate economics program.)

Broad Knowledge “Prepares Us for the Wickedly Unanticipated”

(p. A13) In his latest book, “Range: Why Generalists Triumph in a Specialized World,” Mr. Epstein makes a well-supported and smoothly written case on behalf of breadth and late starts.

. . .

The book blends anecdotal stories with summaries of academic studies. Many of these studies upend standard-issue advice about finding one’s way in life. We are introduced to the “Dark Horse Project,” based at the Harvard Graduate School of Education, which has collected the oral histories of highly accomplished individuals who took circuitous paths to achievement. The researchers were surprised by how many such individuals, in disparate fields, they were able to find. “What was even more incredible,” said one principal member of the project, “is that they all thought they were the anomaly.”

. . .

Not all of the chapters speak directly to range. In “Learning to Drop Your Familiar Tools,” we learn that many cardiologists are unwilling to forsake their use of stents, despite clear evidence that stents are not only ineffective in preventing cardiac events but also introduce fresh risks of complications. It’s sobering to learn that a 2015 study showed that patients suffering cardiac arrest were less likely to die if they were admitted to a hospital when such cardiologists were unavailable to install the devices.

. . .

The chapter titled “Deliberate Amateurs” is a delight, permitting us to spend time with some exemplars in science and medicine who have stepped outside of their cozy professional nests. One such exemplar is Arturo Casadevall, the chair of the molecular microbiology and immunology program at the Johns Hopkins Bloomberg School of Public Health. A much-cited scientist, Dr. Casadevall has led an overhaul of the curriculum at his school to help broaden the education of specialists. Philosophy, history, logic and ethics are incorporated into interdisciplinary classes. “How Do We Know What Is True?” is one of the course offerings. On the wall in Dr. Casadevall’s office, along with the certificate commemorating his election to the National Academy of Medicine, hangs a community-college degree in pest control, the “practical” expertise his father pressed Dr. Casadevall to acquire.

The advice that Dr. Casadevall dispenses to junior colleagues is “read outside your field, everyday something.” If the world were a kinder learning environment, this would not be needed. But as David Epstein shows us, cultivating range prepares us for the wickedly unanticipated.

For the full review, see:

Randall Stross. “BOOKSHELF; Late Bloomers Bloom Best.” The Wall Street Journal (Wednesday, May 29, 2019): A13.

(Note: ellipses added.)

(Note: the online version of the review has the date May 28, 2019, and has the title “BOOKSHELF; ‘Range’ Review: Late Bloomers Bloom Best; Late specialization demonstrably helped Roger Federer, Vincent van Gogh and Charles Darwin. It can serve the rest of us well, too.”)

The book under review is:

Epstein, David. Range: Why Generalists Triumph in a Specialized World. New York: Riverhead Books, 2019.

“Bureaucratic Madness Is Choking Growth”

(p. A21) Jean Tirole, who won the Nobel Prize in economics in 2014, says that the study of economics is “simultaneously demanding and accessible.”

. . .

“Economics for the Common Good” offers an ambitious yet accessible summary of his ideas on the proper role of economists and the value of their ideas in informing government, business and social life.

. . .

One of the best chapters in the book deals with the issue of employment law in France. Successive governments have tried to micromanage the agreements between companies and employees to ensure fair treatment and low unemployment. But France’s unemployment rate has remained high, entrepreneurship has been stifled, and companies have become loath to hire people because of the prohibitive costs of firing them. Even if an employee proves useless, it’s nearly impossible to sack him.

On the employee’s side, even if you want to resign, it is more lucrative to wait to be fired, since you get both severance pay and unemployment insurance. To resolve the stand-off between workers who want to quit and companies that want to cut staff, employers and employees now collude through a legal formula called “termination by mutual consent.” The employee resigns and receives unemployment benefits as if he has been dismissed, and the company is spared the legal ramifications and costs of dismissal. In Mr. Tirole’s view, such bureaucratic madness is choking growth.

. . .

Mr. Tirole has a patient, explanatory style. But when riled, he lashes out. The French education system, he writes, purports to be non-selective but favors the affluent and well-educated. It “is a vast insider-trading crime.”

For the full review, see:

Philip Delves Broughton. “BOOKSHELF; What Good Is An Economist?” The Wall Street Journal (Tuesday, December 19, 2017): A21.

(Note: ellipses added.)

(Note: the online version of the review has the date Dec. 18, 2017, and has the title “BOOKSHELF; Review: What Good Is an Economist?; A French Nobel laureate and public intellectual discusses the proper role of the dismal science in government, business and the life of the mind.”)

The book under review is:

Epstein, David. Range: Why Generalists Triumph in a Specialized World. New York: Riverhead Books, 2019.

“Our Creative Yield Increases with Age”

(p. C1) . . . precocious achievement is the exception, not the norm. The fact is, we mature and develop at different rates. All of us will have multiple cognitive peaks throughout our lives, and the talents and passions that we have to offer can emerge across a range of personal circumstances, not just in formal educational settings focused on a few narrow criteria of achievement. Late bloomers are everywhere once you know to look for them.

. . .

What about creativity and innovation? That realm must belong to the young, with their exuberance and fresh ideas, right? Not necessarily. For instance, the average age of scientists when they are doing work that eventually leads to a Nobel Prize is 39, according to a 2008 Northwestern University study. The average age of U.S. patent applicants is 47.

Our creative yield increases with age, says Elkhonon Goldberg, a clinical professor of neurology at New York University. Dr. Goldberg thinks that the brain’s right and left hemispheres are connected by a “salience network” that helps us to evaluate novel perceptions from the right side by comparing them to the stored images and patterns on our left side. Thus a child will have greater novel perceptions than a middle-aged adult but will lack the context to turn them into creative insights.

Take Ken Fisher, who today runs Fisher Investments, a stock fund with $100 billion under management and 50,000 customers. After graduating from high school, he flunked out of a junior college. “I had no particular direction,” he said. He went back to school to study forestry, hoping for a career outdoors, but switched to economics and got his degree in 1972. In his early 20s, he hung out his shingle as a financial adviser, following his father’s career. To bring in extra money, he took construction jobs, and he played slide guitar in a bar. But he also read and read: “Books about management and business—and maybe thirty trade magazines a month for years,” he says. By the time he reached his 30s, an idea had gelled that would make him his fortune. As he puts it, during that period of reflection, “I developed a theory about valuing companies that was a bit unconventional.”

For the full commentary, see:

Rich Karlgaard. “It’s Never Too Late to Start a Brilliant Career; Our obsession with early achievement shortchanges people of all ages. Research shows that our brains keep developing deep into adulthood and so do our capabilities.” The Wall Street Journal (Saturday, May 4, 2019): C1-C2.

(Note: ellipses added.)

(Note: the online version of the commentary has the date May 3, 2019, and has the same title as the print version.)

The the passages quoted above, are from a commentary that is adapted from:

Karlgaard, Rich. Late Bloomers: The Power of Patience in a World Obsessed with Early Achievement. New York: Currency, 2019.

The research by Elkhonon Goldberg, mentioned above, is described in:

Goldberg, Elkhonon. Creativity: The Human Brain in the Age of Innovation. New York: Oxford University Press, 2018.

Higher Education Is a Lumbering “Dinosaur”

(p. A15) We are at the end of an era in American higher education. It is an era that began in the decades after the Civil War, when colleges and universities gradually stopped being preparatory schools for ministers and lawyers and embraced the ideals of research and academic professionalism. It reached full bloom after World War II, when the spigots of public funding were opened in full, and eventually became an overpriced caricature of itself, bloated by a mix of irrelevance and complacency and facing declining enrollments and a contracting market. No one has better explained the economics of this decline—and its broad cultural effects—than Richard Vedder.

. . .

“Restoring the Promise: Higher Education in America” is a summary of the arguments he has been making since then as the Cassandra of American colleges and universities.

. . .

At Mr. Vedder’s alma mater, Northwestern, tuition rose from 16% of median family income in 1958 to almost 70% in 2016. Over time, armies of administrators wrested the direction of their institutions away from the hands of faculties and trustees.

. . .

Though Mr. Vedder’s critique concentrates on the economic mire into which higher education has tumbled, he is not alone in his more general criticism. Over the past 20 years, analysts as diverse as Derek Bok, Alan Kors, Richard Arum and Josipa Roksa, Jeffrey Selingo, and Benjamin Ginsberg have warned that higher education, in its current form, is a dinosaur—an over-built, under-achieving creature whose chances of survival are increasingly dim. But on it lumbers. . . .

What may, . . ., bring about some kind of change is the dramatic fall-off in American birth rates since the Great Recession of 2008, as highlighted in Nathan Grawe’s “Demographics and the Demand for Higher Education” (2018). No amount of federal student loans, or tuition increases, will do colleges and universities any good when, over the next decade, the pool of age-eligible students shrinks by 13% (by Mr. Grawe’s estimate). Inventing online alternatives and attracting full-tuition students from abroad is one way of paying the bills, but colleges have been trying both strategies for the past two decades, so the yield may not increase by much.

For the full review, see:

Allen C. Guelzo. “BOOKSHELF; High Cost, Low Yield; A college degree is ever more common these days, but it comes with ever heavier loan burdens and, in many cases, only limited job prospects.” The Wall Street Journal (Tuesday, June 25, 2019): A15.

(Note: ellipses added.)

(Note: the online version of the review has the date June 24, 2019, and has the title “BOOKSHELF; ‘Restoring the Promise’ Review: High Cost, Low Yield; A college degree is ever more common these days, but it comes with ever heavier loan burdens and, in many cases, only limited job prospects.”)

The book under review is:

Vedder, Richard. Restoring the Promise: Higher Education in America. Oakland, CA: Independent Institute, 2019.

Boston Brahmins Invested in Western Industrialization

(p. A13) One of history’s ironies is that, even though New England birthed the abolition movement, many of Boston’s most prominent families offered less than total support for freeing the slaves. Their prosperity required a steady supply of cotton to feed New England’s growing textile industry. Even after slavery ended in 1865, wealthy Bostonians were reluctant to abandon their traditional business. Henry Lee Higginson, 30 years old and freshly discharged from the Union Army, bought with his partners a 5,000-acre plantation in Georgia with the goal of turning a profit by growing cotton. But the 60 former slaves living on the plantation thought the wages and terms offered to be grossly inadequate; the land they had worked in chains for generations, they believed, should belong to them. The enterprise soon collapsed.

As similar episodes played out across the South, Boston’s business elites looked for new places to invest their money. “They began to reenvision American capitalist development, not in modifying and salvaging the arrangements of earlier decades but in a far more ambitious program of continental industrialization,” Noam Maggor writes in “Brahmin Capitalism.” “They retreated from cotton and moved into a host of groundbreaking ventures in the Great American West—mining, stockyards, and railroads.”

. . .

Especially representative of the Bostonians’ transformative influence was Higginson’s next enterprise. Far removed from Georgian cotton, his interests landed on a copper mine in northern Michigan’s remote Keweenaw Peninsula. Copper had been discovered there 20 years earlier, but extraction had been small-scale and labor intensive; the high cost per unit meant that mining was profitable only for veins that contained at least 40% copper. In a short time, high-yield mines in the area began to show signs of depletion. But with Higginson’s capital—alongside investments from other Brahmins—large-scale copper extraction could take place as a continuous operation, making mining profitable on belts that contained only 2%-4% copper. In this way, Higginson’s Eastern capital transformed Western mining and launched a career that would make him one of Boston’s leading financiers.

For the full review, see:

John Steele Gordon. “BOOKSHELF; Enterprising Bostonians; Contrary to stereotype, the Brahmins of New England crisscrossed the continent and took bold risks in search of higher yields.” The Wall Street Journal (Monday, June 26, 2017): A13.

(Note: ellipsis added.)

(Note: the online version of the review has the date June 25, 2017, and has the same title as the print version.)

The book under review is:

Maggor, Noam. Brahmin Capitalism: Frontiers of Wealth and Populism in America’s First Gilded Age. Cambridge, MA: Harvard University Press, 2017.

Stalin’s “Despotism in Mass Bloodshed”

(p. A13) In the aftermath of Lenin’s death in January 1924, Joseph Stalin—already secretary-general of the Communist Party—emerged as the outright leader of the Soviet Union. “Right through 1927,” Stephen Kotkin notes, Stalin “had not appeared to be a sociopath in the eyes of those who worked most closely with him.” But by 1929-30, he “was exhibiting an intense dark side.” Mr. Kotkin’s “Stalin: Waiting for Hitler, 1929-1941,” the second volume of a planned three-volume biography, tracks the Soviet leader’s transformation during these crucial years. “Impatient with dictatorship,” Mr. Kotkin says, Stalin set out to forge “a despotism in mass bloodshed.”

The three central episodes of Mr. Kotkin’s narrative, all from the 1930s, are indeed violent and catastrophic, if in different ways: the forced collectivization of Soviet agriculture; the atrocities of the Great Terror, when Stalin “arrested and murdered immense numbers of loyal people”; and the rise of Adolf Hitler, the man who would become Stalin’s ally and then, as Mr. Kotkin puts it, his “principal nemesis.” In each case, as Mr. Kotkin shows, Stalin’s personal character—a combination of ruthlessness and paranoia—played a key role in the unfolding of events.

For the full review, see:

Joshua Rubenstein. “BOOKSHELF; The Turn to Tyranny; We may never know what degree of personal obsession, political calculation and ideological zeal drove Stalin to kill and persecute so many.” The Wall Street Journal (Wednesday, Nov. 1, 2017): A13.

(Note: the online version of the review has the date Oct. 31, 2017, and has the same title “BOOKSHELF; Review: The Turn to Tyranny; We may never know what degree of personal obsession, political calculation and ideological zeal drove Stalin to kill and persecute so many.”)

The book under review is:

Kotkin, Stephen. Stalin: Volume 2: Waiting for Hitler, 1929-1941. New York: Penguin Press, 2017.