Capitalism – Page 16 – artdiamondblog.com

Capitalism More about Creating New Markets than about Competing to Dominate Old Ones

(p. A21) As a young man, Peter Thiel competed to get into Stanford. Then he competed to get into Stanford Law School. Then he competed to become a clerk for a federal judge. Thiel won all those competitions. But then he competed to get a Supreme Court clerkship.
Thiel lost that one. So instead of being a clerk, he went out and founded PayPal. Then he became an early investor in Facebook and many other celebrated technology firms. Somebody later asked him. “So, aren’t you glad you didn’t get that Supreme Court clerkship?”
The question got Thiel thinking. His thoughts are now incorporated into a course he is teaching in the Stanford Computer Science Department. (A student named Blake Masters posted outstanding notes online, and Thiel has confirmed their accuracy.)
One of his core points is that we tend to confuse capitalism with competition. We tend to think that whoever competes best comes out ahead. In the race to be more competitive, we sometimes confuse what is hard with what is valuable. The intensity of competition becomes a proxy for value.
In fact, Thiel argues, we often shouldn’t seek to be really good competitors. We should seek to be really good monopolists. Instead of being slightly better than everybody else in a crowded and established field, it’s often more valuable to create a new market and totally dominate it. The profit margins are much bigger, and the value to society is often bigger, too.
Now to be clear: When Thiel is talking about a “monopoly,” he isn’t talking about the illegal eliminate-your-rivals kind. He’s talking about doing something so creative that you establish a distinct market, niche and identity. You’ve established a creative monopoly and everybody has to come to you if they want that service, at least for a time.

For the full commentary, see:
DAVID BROOKS. “The Creative Monopoly.” The Wall Street Journal (Tues., April 24, 2012): A21.
(Note: the online version of the article is dated April 23, 2012.)

The online Peter Thiel notes are at:
http://blakemasters.tumblr.com/post/21169325300/peter-thiels-cs183-startup-class-4-notes-essay

Economic Freedom and Growth Depend on Protecting the Right to Rise

(p. A19) Congressman Paul Ryan recently coined a smart phrase to describe the core concept of economic freedom: “The right to rise.”
Think about it. We talk about the right to free speech, the right to bear arms, the right to assembly. The right to rise doesn’t seem like something we should have to protect.
But we do. We have to make it easier for people to do the things that allow them to rise. We have to let them compete. We need to let people fight for business. We need to let people take risks. We need to let people fail. We need to let people suffer the consequences of bad decisions. And we need to let people enjoy the fruits of good decisions, even good luck.
That is what economic freedom looks like. Freedom to succeed as well as to fail, freedom to do something or nothing. . . .
. . .
But when it comes to economic freedom, we are less forgiving of the cycles of growth and loss, of trial and error, and of failure and success that are part of the realities of the marketplace and life itself.
. . .
. . . , we must choose between the straight line promised by the statists and the jagged line of economic freedom. The straight line of gradual and controlled growth is what the statists promise but can never deliver. The jagged line offers no guarantees but has a powerful record of delivering the most prosperity and the most opportunity to the most people. We cannot possibly know in advance what freedom promises for 312 million individuals. But unless we are willing to explore the jagged line of freedom, we will be stuck with the straight line. And the straight line, it turns out, is a flat line.

For the full commentary, see:
JEB BUSH. “OPINION; Capitalism and the Right to Rise; In freedom lies the risk of failure. But in statism lies the certainty of stagnation.” The Wall Street Journal (Mon., December 19, 2011): A19.
(Note: ellipses added.)

A&P Sold Consumers Better and Lower-Priced Food

Source of book image: online version of the WSJ review quoted and cited below.

(p. A15) Mr. Levinson’s history centers on the two Hartford sons who followed their father into the business. They would spend their entire working lives at the company being known simply as “Mr. George” and “Mr. John.” Thoughtful and studious, Mr. George’s idea of excitement was a good jigsaw puzzle; Mr. John, somewhat more outgoing, liked the horses but also a daily lunch of milk and crackers. Together the brothers, neither of whom had finished high school, built what would be, for 40 years, the largest retail outlet in the world.

The brothers’ business philosophy was simple, writes Mr. Levinson: “If the company keeps its costs down and prices low, more shoppers would come through its doors, producing more profits than if it kept prices high.” The more stores they could open, the greater the take.
But the Hartfords had a public-relations problem. Since the nation’s earliest days, small family stores had served as community anchors. There were thousands across the country. Mom and pop knew every customer who came through their door; they extended credit to families down on their luck. If low-priced chains drove out such stores, what would happen to small-town America?
In fact, many mom-and-pop operations were inefficiently and incompetently run. A&P might be coldly corporate by comparison, but it offered consumers far more variety and fresher, better-quality goods at less cost to the family budget.

For the full review, see:
PATRICK COOKE. “BOOKSHELF; How a Grocer Bagged Profits; At its peak, the chain had nearly 16,000 stores. Critics charged it with competing unfairly by offering too-low prices.” The Wall Street Journal (Mon., AUGUST 29, 2011): A15.
(Note: ellipsis added.)

The book under review is:
Levinson, Marc. The Great A&P and the Struggle for Small Business in America. New York: Hill and Wang, 2011.

Arabic Numerals Enabled Better Accounting Systems

Source of book image: online version of the WSJ review quoted and cited below.

(p. A13) Humans have been recording counts for at least 35,000 years, if the notches in a Paleolithic-era baboon’s fibula are an indicator.
. . .
Before the 13th century, European businessmen recorded figures in Roman numerals and computed with their fingers or a counting board. But these creaky accounting systems began to buckle under the growing complexity of regional and international finance. In 1202, Leonardo of Pisa–better known by his family name, Fibonacci–published the “Liber Abbaci,” or “Book of Calculation,” a 600-page tome detailing the rules of Hindu-Arabic arithmetic and algebra. Fibonacci’s volume was directed not to scholars but to merchants, the first work in the West to demonstrate the commercial utility of Eastern mathematics. The book was an instant success and propelled the Pisan maestro d’abbaco to fame.
The “Liber Abbaci” inspired a flood of regionally produced (and lesser) primers on the subject. Arithmetic schools sprang up throughout Italy and would eventually count among their pupils da Vinci and Machiavelli. German merchants flocked to Venice during the 1300s to learn the new accounting practices. In “The Man of Numbers,” mathematician Keith Devlin makes the case that Fibonacci’s book spearheaded the decline and fall of the Roman numeral and transformed scientific, technological and commercial calculation in the West.
At age 15, Fibonacci accompanied his father, a Pisan trade representative, to the North African port of Bugia (now Bejaia, in Algeria). In the preface to “Liber Abbaci,” Fibonacci writes of his early introduction to the “art of the nine Indian figures” and their computational power. After more than a decade of his own studies and tutelage under Arabic mathematicians across North Africa, he returned to Pisa to write his masterwork. Such was the acclaim that Fibonacci appeared before Emperor Frederick II–a colorful intellectual who referred to himself as Stupor mundi or Wonder of the World–and vanquished the emperor’s court mathematician in an arithmetic duel.
. . .
. . . as Mr. Devlin reminds us, even something as prosaic as a sequence of 10 numbers can remake an entire world.

For the full review, see:
ALAN HIRSHFELD. “BOOKSHELF; Counting On Progress; Roman numerals were fine for adding and subtracting. Fibonacci saw that complex math required a better system.” The Wall Street Journal (Thurs., JULY 7, 2011): A13.
(Note: ellipses added; italics in original.)

Book under review:
Devlin, Keith. The Man of Numbers: Fibonacci’s Arithmetic Revolution. New York: Walker & Company, 2011.

“Insanely Great” Entrepreneur Steve Jobs Wanted “a Chance to Change the World”

Steve Jobs died yesterday (Weds., October 5, 2011).
Jobs was an innovator of my favorite kind, what I call a “project entrepreneur.” He showed us what excitement and progress is possible if we preserve the institutions that allow entrepreneurial capitalism to exist.
When he was recruiting John Sculley to leave Pepsi and join Apple, Jobs asked him: “Do you want to spend the rest of your life selling sugared water or do you want a chance to change the world?” (p. 90).
Steve Jobs wanted to change the world. He got the job done.

Source of quote of Jobs’ question to Sculley:
Sculley, John, and John A. Byrne. Odyssey: Pepsi to Apple. paperback ed. New York: HarperCollins, 1988.

“Coolidge Helped Americans Prosper by Letting Them Be Free”

(p. A15) Ronald Reagan, who grew up during the Coolidge presidency, admired “Silent Cal,” even going so far as to read a biography of the 30th president as he recovered from a surgery in 1985 and to praise him in letters to his constituents. To Reagan, Coolidge wasn’t silent, but was silenced by New Deal supporters, whose intellectual heirs control much of Washington today.
. . .
Unlike President Obama, President Coolidge didn’t want to “spread the wealth around,” but to grow it. He didn’t call for “shared sacrifice”–Americans had sacrificed enough during the great war–but for good character.
There “is no surer road to destruction than prosperity without character,” he said in a speech at the University of Pennsylvania in 1921. And from the White House lawn in 1924 he said, “I want the people of America to be able to work less for the Government and more for themselves. I want them to have the rewards of their own industry. That is the chief meaning of freedom.”
. . .
As Coolidge saw things in 1924, “A government which lays taxes on the people not required by urgent public necessity and sound public policy is not a protector of liberty, but an instrument of tyranny. It condemns the citizen to servitude.” Coolidge helped Americans prosper by letting them be free.

For the full commentary, see:
CHARLES C. JOHNSON. “How Silent Cal Beat a Recession; The late president inherited a bad economy, and he cut taxes and slashed spending to spur growth.” The Wall Street Journal (Thurs., August 4, 2011): A15.
(Note: ellipses added.)

We Tend to Ignore Information that Contradicts Our Beliefs

Source of book image: online version of the WSJ review quoted and cited below.

We learn the most when our priors are contradicted. But the dissonance between evidence and beliefs is painful. So we often do not see, or soon forget, evidence that does not fit with our beliefs.
The innovative entrepreneur is often a person who sees and forces herself to remember, the dissonant fact, storing it away to make sense of, or make use of, later. At the start, she may be alone in what she sees and what she remembers. So if we are to benefit from her ability and willingness to bear the pain of dissonance, she must have the freedom to differ, and she must have the financial wherewith-all to support herself until her vision is more widely shared, better understood, and more fruitfully applied.

(p. A13) Beliefs come first; reasons second. That’s the insightful message of “The Believing Brain,” by Michael Shermer, the founder of Skeptic magazine. In the book, he brilliantly lays out what modern cognitive research has to tell us about his subject–namely, that our brains are “belief engines” that naturally “look for and find patterns” and then infuse them with meaning. These meaningful patterns form beliefs that shape our understanding of reality. Our brains tend to seek out information that confirms our beliefs, ignoring information that contradicts them. Mr. Shermer calls this “belief-dependent reality.” The well-worn phrase “seeing is believing” has it backward: Our believing dictates what we’re seeing.
. . .
One of the book’s most enjoyable discussions concerns the politics of belief. Mr. Shermer takes an entertaining look at academic research claiming to prove that conservative beliefs largely result from psychopathologies. He drolly cites survey results showing that 80% of professors in the humanities and social sciences describe themselves as liberals. Could these findings about psychopathological conservative political beliefs possibly be the result of the researchers’ confirmation bias?
As for his own political bias, Mr. Shermer says that he’s “a fiscally conservative civil libertarian.” He is a fan of old-style liberalism, as in liberality of outlook, and cites “The Science of Liberty” author Timothy Ferris’s splendid formulation: “Liberalism and science are methods, not ideologies.” The “scientific solution to the political problem of oppressive governments,” Mr. Shermer says, “is the tried-and-true method of spreading liberal democracy and market capitalism through the open exchange of information, products, and services across porous economic borders.”
But it is science itself that Mr. Shermer most heartily embraces. “The Believing Brain” ends with an engaging history of astronomy that illustrates how the scientific method developed as the only reliable way for us to discover true patterns and true agents at work. Seeing through a telescope, it seems, is believing of the best kind.

For the full review, see:
RONALD BAILEY. “A Trick Of the Mind; Looking for patterns in life and then infusing them with meaning, from alien intervention to federal conspiracy.” The Wall Street Journal (Weds., July 27, 2011): A13.
(Note: ellipsis added.)

Book reviewed:
Shermer, Michael. The Believing Brain: From Ghosts and Gods to Politics and Conspiracies—How We Construct Beliefs and Reinforce Them as Truths. New York: Times Books, 2011.

Lunar Entrepreneurs

(p. A1) Now that the last space shuttle has landed back on Earth, a new generation of space entrepreneurs would like to whip up excitement about the prospect of returning to the Moon.
. . .
(p. A3) “It’s probably the biggest wealth creation opportunity in modern history,” said Barney Pell, a former NASA computer scientist turned entrepreneur and now a co-founder of Moon Express. While Moon Express might initially make money by sending small payloads, the big fortune would come from bringing back platinum and other rare metals, Dr. Pell said.
“Long term, the market is massive, no doubt,” he said. “This is not a question of if. It’s a question of who and when. We hope it’s us and soon.”
Like the aviation prizes that jump-started airplane technology a century ago, the Google Lunar X Prize is meant to rally technologists and entrepreneurs. It is administered by the X Prize Foundation, which handed out $10 million in 2004 to the first private team to build a spacecraft that could carry people 60 miles above the Earth’s surface. (The winner, SpaceShipOne, was built by the aerospace designer Burt Rutan with backing from Paul Allen, the software magnate.)

For the full story, see:
KENNETH CHANG. “In a Private Race to the Moon, Flights of Fancy Are in the Air.” The New York Times (Fri., July 22, 2011): A1 & A3.
(Note: the online version of the story is dated July 21, 2011 and has the title “Race to the Moon Heats Up for Private Firms.”)

“Mystified by an American Disdain for Its Own Business Culture”

“Paul Holland and Molly Davis, producers of a new documentary, “Something Ventured,” that gives an admiring look at innovators and investors from the past.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B3) The film, “Something Ventured,” is a frankly admiring look at those who went out on a limb to back upstarts like Atari, Cisco Systems, Genentech and Apple.
. . .
But the film’s beating heart is captured by Tom Perkins, whose Kleiner Perkins Caufield & Byers company backed the gene-splicing technology of Genentech, among other things. “It’s great if you can make money and change the world for the better at the same time,” said Mr. Perkins, . . .
Other stars of “Something Ventured” include Nolan Bushnell of Atari; Sandy Lerner of Cisco; Jimmy Treybig of Tandem Computers; and a string of venture capitalists, among them Don Valentine, Dick Kramlich, and Arthur Rock.
Many who appear joined dozens of other business people to finance the picture’s roughly $700,000 cost with contributions of a few thousand dollars each, Mr. Holland said.
In becoming involved, several participants said they wanted to rekindle an entrepreneurial spirit that had either waned or changed since the rough-and-tumble years when, by the film’s telling, Atari was started with $250 but needed capital to push Pong, and Mr. Bushnell passed up a chance to own a third of Apple, started by his employee Steve Jobs, for $50,000.
. . .
Mr. Valentine, . . . , said entrepreneurship had not ended — his company was a force behind Google — but it is less often coming from those born in the United States.
“You don’t understand what you have here” is a constant refrain, he said, from Southeast Asian and Indian innovators who are sometimes mystified by an American disdain for its own business culture.

For the full story, see:
MICHAEL CIEPLY . “A Film About Capitalism, and (Surprise) It’s a Love Story.” The New York Times, Week in Review Section (Sun., March 8, 2011): 8.
(Note: ellipses added.)
(Note: the online version of the story is dated March 7, 2011.)

Entrepreneur Frederic Tudor Spent Family Fortune to Make Ice Obsession a Business Success

(p. 71) Lake ice was a marvelous product. It created itself at no cost to the producer, was clean, renewable, and infinite in supply. The only drawbacks were that there was no infrastructure to produce and store it, and no market to sell it to. In order to make the ice industry exist, it was necessary to work out ways to cut and lift ice on a large scale, build storehouses, secure trading rights, and engage a reliable chain of shippers and agents (p. 72) and, above all, create a demand for ice in places where ice had seldom or never been seen, and was most assuredly not something anyone was predisposed to pay for. The man who did all this was a Bostonian of good birth and challenging disposition named Frederic Tudor. Making ice a commercial proposition became his overweening obsession.
The notion of shipping ice from New England to distant ports was considered completely mad – ‘the vagary of a disordered brain’, in the words of one of his contemporaries. The first shipment of ice to Britain so puzzled customs officials as to how to classify it that all 300 tons of it melted away before it could be moved off the docks. Shipowners were highly reluctant to accept it as cargo. They didn’t relish the humiliation of arriving in a port with a holdful of useless water, but they were also wary of the very real danger of tons of shifting ice and sloshing melt-water making their ships unstable. These were men, after all, whose nautical instincts were based entirely on the idea of keeping water outside the ship, so they were loath to take on such an eccentric risk when there wasn’t even a certain market at the end of it all.
Tudor was a strange and difficult man – ‘imperious, vain, contemptuous of competitors and implacable to enemies’, in the estimation of Daniel J. Boorstin. He alienated all his closest friends and betrayed the trust of colleagues, almost as if that were his life’s ambition. Nearly all the technological innovations that made the ice trade possible were actually the work of his retiring, compliant, long-suffering associate Nathaniel Wyeth. It cost Tudor years of frustrated endeavour, and all of his family fortune, to get the ice business up and running, but gradually it caught on and eventually it made him and many others rich. For several decades, ice was America’s second biggest crop, measured by weight. If securely insulated, ice could last a surprisingly long while. It could even survive the 16,000-mile, 130-day trip from Boston to Bombay – or at least about two-thirds of it could, enough to make the long trip profitable. Ice went to the furthest corners of South America and from New England to California via Cape Horn. Sawdust, a product previously without any value at all, proved to be an excellent insulator, providing useful extra income for Maine lumber mills.

Source:
Bryson, Bill. At Home: A Short History of Private Life. New York: Doubleday, 2010.

Ralph Nader Blasts Cisco for NOT Maximizing Shareholder Value

(p. C1) Ralph Nader, the scourge of American business and onetime presidential candidate, has found his next corporate demon: Cisco Systems Inc.

Mr. Nader isn’t calling for a router recall or claiming the company’s networks are unsafe at any speed. Instead, he wants the tech company to pay a bigger dividend to boost its shares.
The consumer advocate’s motives are far from altruistic. He is a longtime disgruntled Cisco investor who called the company’s share performance “appalling.” In a private letter to Cisco Chief Executive John Chambers sent June 13, Mr. Nader blasted the CEO for not doing enough to lift shares of the technology company and said “it is time for a long overdue Cisco shareholder revolt against a management that is oblivious to building or even maintaining shareholder value,” according to the letter.
. . .
The 77-year-old Mr. Nader, who rose to fame in the 1960s on his claims that American automobiles were unsafe, admitted the letter is a departure from his typical antibusiness stance. He said he has been an “adversary of corporate capitalism,” but he is a believer in capitalism, so long as shareholders have a voice. He wrote the letter to Mr. Chambers, he said, because he objects to the “powerlessness of owner shareholders.”

For the full story, see:
SUSAN PULLIAM. “Nader Kindles Fires of Revolt.” The Wall Street Journal (Fri., JUNE 24, 2011): C1-C2.
(Note: ellipsis added.)