Category: Creative Destruction

Tom Watson, Jr. Managed IBM’s Rare and Successful Self-Disruption by “Transitioning the Firm to Electronic Computing”

(p. 9) Thomas J. Watson Jr. seemed, from a young age, to be destined for failure.

. . .

“He played with fire, shot animals in the nearby swamps and pilfered things from neighbors’ houses,” Ralph Watson McElvenny and Marc Wortman write in “The Greatest Capitalist Who Ever Lived,” a compelling new biography of Watson Jr.

. . .

This is far from the first book about IBM.

. . .

But this is probably the most theatrical book about IBM ever published. McElvenny, who happens to be Watson Jr.’s eldest grandson, is privy to “personal and corporate papers” and, as the endnotes mysteriously specify, many “family sources.”

. . .

“The Greatest Capitalist Who Ever Lived” is about the challenges of corporate and family succession, an essential topic given that IBM itself was the father figure to most of the computing and tech industry. Watson Sr., “the old man,” was a type familiar to our times: the tech titan who runs a large company as an extension of himself. (The IBM machine that beat the “Jeopardy!” champion Ken Jennings bears his name.) For four decades, IBM was Watson Sr.’s fief. The company “was run entirely out of one man’s breast pocket,” McElvenny and Wortman write. Watson Sr. “made all strategic decisions and most minor ones” and “delegated almost no authority.”

To his lasting credit, he did truly take care of his employees and their families in a manner that bred a strong loyalty. That said, Watson Sr. demanded conformity and could be erratic and cruel.

. . .

IBM faced a classic version of what the Harvard Business School professor Clayton Christensen has termed the “innovator’s dilemma” and what the Nobel Prize-winning economist Kenneth Arrow described as a monopoly’s disinclination to innovate. IBM was making plenty of profit on punched cards and accounting machines, its customers were happy, so why rock the boat?

Watson Jr.’s intense antipathy toward his father ended up saving IBM. Just before the United States entered World War II, Junior gained self-confidence the old-fashioned way: by joining the Army Air Corps and flying a B-24. When he eventually returned to IBM (pushed to do so by his commanding officer, Maj. Gen. Follett Bradley, who thought Watson would be wasted as an airline pilot), he became the internal champion of transitioning the firm to electronic computing. He was perhaps the only person who could oppose his father in a company built on yes men.

While the book’s title calls him “the greatest capitalist,” it might more accurately, if less ringingly, call him “the greatest manager,” for Watson Jr. was much better at delegating and using his employees’ talents.

For the full review, see:

Tim Wu. “Next-Gen.” The New York Times Book Review (Sunday, December 17, 2023): 9.

(Note: ellipses added.)

(Note: the online version of the review was updated Dec. 15, 2023, and has the title “The Father-Son Struggle That Helped Ensure IBM’s Success.”)

The book under review is:

McElvenny, Ralph Watson, and Marc Wortman. The Greatest Capitalist Who Ever Lived: Tom Watson Jr. and the Epic Story of How IBM Created the Digital Age. New York: PublicAffairs, 2023.

CEO Ackerman Sold Corning’s Cookware to Focus on Fiber Optics

(p. A8) When Roger Ackerman was named chairman and chief executive of Corning Inc. in 1996, the company depicted him as a technologically savvy leader who would guide the company into the internet age.

“I’m absolutely ready to take over at Corning, and have no fear or trepidation,” he told The Wall Street Journal.

Mr. Ackerman sold Corning’s housewares division, featuring cookware and such brands as Pyrex, to focus on making optical fibers, liquid-crystal-display glass and other high-tech marvels. Optical fibers were in hot demand as telecom companies rushed to lace the globe with voice and data networks.

For the full obituary, see:

James R. Hagerty. “Corning CEO Put Focus on Technology.” The Wall Street Journal (Saturday, Aug. 20, 2022): A8.

(Note: the online version of the obituary has the date August 18, 2022, and has the title “Corning CEO Shifted Focus From Cookware to Photonics.”)

For Musk “Hard Core” Means “Long Hours at High Intensity”

(p. A24) Have you ever gotten an email at midnight from the boss with ​an ominous subject line like “a fork in the road”? Granted, email etiquette today says we’re not supposed to get midnight emails from bosses at all. But Elon Musk is no ordinary boss, and it’s safe to assume he didn’t get the memo on empathetic leadership. So, true to form, as chief executive of Twitter, after laying off nearly half of his staff, bringing a sink to work and proclaiming he would be sleeping at the office “until the org is fixed,” Mr. Musk recently issued this late-night ultimatum to his remaining employees: From this point forward, Twitter was going to be “extremely hard core.” Were they ready to be hard core? They could select “yes” — or opt for three months of severance pay.

To Mr. Musk, “hard core” meant “long hours at high intensity,” a workplace where only the most “exceptional performance” would be accepted and a culture in which midnight emails would be just fine. I’d wager that more than a few workaholics, bosses or otherwise, weren’t entirely turned off by the philosophy behind that statement, and yet it immediately conjured images of sweaty Wall Street bankers collapsing at their desks, Silicon Valley wunderkinds sleeping under theirs and the high-intensity, bro-boss cultures of companies like Uber and WeWork, with their accompanying slogans about doing what you love and sleeping when you’re dead.

For the full commentary, see:

Jessica Bennett. “Elon, the Mosh Pit Called. It Wants ‘Hard Core’ Back.” The New York Times (Friday, November 25, 2022): A24.

(Note: the online version of the commentary has the date Nov. 23, 2022, and has the title “The Worst Midnight Email From the Boss, Ever.”)

Regulations Block Flexible Transformation of Manhattan Buildings

(p. A1) There is an aging office building on Water Street in Lower Manhattan where it would make all the sense in the world to create apartments. The 31-story building, once the headquarters of A.I.G., has windows all around and a shape suited to extra corner units. In a city with too little housing, it could hold 800 to 900 apartments. Right across the street, one office building not so different from this one has already been turned into housing, and another is on the way.

But 175 Water Street has a hitch: Offices in the financial district are spared some zoning rules that make conversion hard — so long as they were built before 1977. And this one was built six years too late, in 1983.

“There’s nothing about that building — its construction, its mechanicals, its structural engineering — that prevents it from being converted,” said Richard Coles, the managing partner of Vanbarton Group, which has developed both conversions across the street.

. . .

Healthy cities must build new things and rehabilitate old ones. But they also perform regular tricks of transmogrification, (p. A13) turning existing building blocks into something new. Factories become loft apartments. Industrial waterfronts become public parks. Warehouses become start-up offices and restaurant scenes.

The pandemic forced American cities to make such transformations, temporarily. They turned sidewalks into restaurants, parks into hospitals, streets into open spaces. Now on a lasting and larger scale, they will need to convert offices into apartments, hotels into affordable housing, curb parking into bike lanes, roadways into transit routes, office parks into real neighborhoods.

“If these last few years have taught us anything,” said Ingrid Gould Ellen, a professor of urban policy and planning at N.Y.U., “it’s the need for flexibility, the need to be open to surprise in the way we’re going to use space.”

But over decades, that flexibility has eroded.

For the full commentary, see:

Emily Badger. “When Offices Ought to Be Apartments.” The New York Times (Tuesday, July 4, 2023): A1 & A13.

(Note: ellipsis added.)

(Note: the online version of the commentary was updated July 4, 2023, and has the title “American Cities Have a Conversion Problem, and It’s Not Just Offices.” The online version says that the title of the print version was “How Cities Are Getting In Own Way.” The title of my national edition of the print version had the title “When Offices Ought to Be Apartments.”)

Will Humans Flourish if Easements Restrict How Inherited Property Is Used?

My mentor at Wabash College, Ben Rogge, was a friend of Pierre Goodrich, the founder of Liberty Fund. They both were great admirers of Adam Smith. Adam Smith believed that inherited property should not be encumbered with restrictions on how future generations used the property. The practice is sometimes called ‘ruling with a dead hand.’ When Liberty Fund was proposed, Rogge suggested that it be set up so that all of the funds would be exhausted at some pre-established time after Goodrich’s death. On this one proposal, Rogge failed to convince Goodrich of the wisdom of Adam Smith’s advice.

Rogge was a supporter of Schumpeter’s idea that we flourish through creative destruction. Progress through creative destruction is harder to accomplish if inherited property is encumbered by ‘ruling with a dead hand.’ Rogge feared that as the decades passed, the inheritors of Liberty Fund would eventually, and substantially, diverge from Goodrich’s original values and hopes. Liberty Fund money helped Rogge make a movie on Adam Smith. Rogge sadly joked that eventually the inheritors of Liberty Fund would probably support making a movie on a famous socialist.

(I can’t remember the name of the socialist who Rogge jokingly mentioned, but I vaguely, vaguely think it might have been Ethel Rosenberg.)

(I base the lines above on my memories of comments by Ben Rogge in conversations and lectures.)

(p. M1) “After me, there won’t be any others,” says Roland Reisley, absorbing what it means to be the last original occupant of a Frank Lloyd Wright house. Reisley is sitting in his hexagonal living room on a rocky hill near Pleasantville, N.Y.

. . .

(p. M4) Despite the house’s pristine condition, the one thing he can’t do is turn it into a museum. It is part of a Westchester County neighborhood laid out by Wright himself in the late 1940s. The community, which Wright named Usonia, never achieved its founders’ ambitions—to become a kind of exurban co-op where everything was owned in common—but it is still a tightly knit community of 47 homes with shared amenities such as a pool and tennis courts. “The residents would not agree to a museum,” Reisley says.

. . .

But if he can’t turn it into a museum, he can execute a preservation easement, a legal document that will prevent future owners from making changes to the house.

. . .

Asked why he hasn’t executed an easement yet, after talking about doing so for years, Reisley says he is “trying to find language that protects what’s important but allows for some reasonable changes to be made. I am going to do it,” Reisley says. “I just haven’t gotten around to doing it. I’m a procrastinator.”

Then, too, his only living child has expressed concerns. Robert Reisley, a 65-year-old entrepreneur and private-equity investor in Philadelphia, says, “I don’t have an issue with a preservation easement on the exterior of the house.” But he says it’s possible he and his wife, or one of their adult children, might want to live in the house. “We might need to make a few necessary changes to the interior. And we might not be able to get permission. That’s my hesitation.”

For example, he says, “The hallway to the bedrooms is very dark. Wright was practical. If we’d asked him, he would have said, ‘Put a skylight there.’ But Wright’s not around, and the conservancy might not allow it.”

. . .

In Minneapolis, the Olfelt house was on the market for two years before a local couple with grown children bought it for $1.2 million in the Spring of 2018. Several months later, they filed plans with the city to add a 1,500-square-foot, $2 million wing to the original 2,600-square-foot house and alter some of the original interiors.

. . .

The Juneks created a website, olfelthouse.info, to explain their intentions. “The impetus for the addition and the minimal interior renovations,” they wrote, “is to address the meager space allocated to the master bedroom, to expand the kitchen to accommodate a large multi-generation family, and to ensure that the home be comfortable, accessible, and safe for aging in place.” The renovation was designed by the New York architecture firm Thread Collective. Photos on the firm’s website show a dining room in a space that used to contain Wright’s tiny galley kitchen, and a spacious new kitchen in what used to be two children’s bedrooms. The addition, which contains a master-bedroom suite over a new garage, is visible mainly from the back of the house. “We have now been living in the house for three years, are very happy with the results of the project,” John Junek wrote in an email.

. . .

Robert and Mary Walton chose not to burden their six children with a preservation easement, the same choice made by Gerte Shavin, Bette Pappas, and the Olfelts. All of them died knowing they had no control over the future of their houses. “Its fate is entirely in the hands of the next owner,” Paul Olfelt told me in a phone message after vacating his house in 2017. Sounding emotional, he added, “I think we were good stewards of the house, and we assume that anyone who buys it will be the same.”

Reisley still has a chance to execute an easement. Will he? The easement would operate in perpetuity, and perpetuity, the 99-year-old homeowner says, “is a very long time.”

For the full story, see:

Fred A. Bernstein. “The Last Original Owner of a Frank Lloyd Wright House.” The Wall Street Journal (Wednesday, June 30, 2023): M1 & M4.

(Note: ellipses added.)

(Note: the online version of the story was updated June 27, 2023, and has the title “Frank Lloyd Wright Built 120 Homes Near the End of His Life. Just One Original Owner Remains.”)

Venturesome Heroes Who Made the “Miracle” of Aviation Possible

(p. 14) Aviation has become just another boring part of modern infrastructure. Some people are afraid of it. Most people endure it. Few people bother to look out the window for a view of Earth that was unimaginable to most of our ancestors, or to reflect on the miracle of technology, engineering and organization that daily airline operations represent. Before the pandemic, roughly three million passengers took flights to or from U.S. airports each day, which averages out to more than one billion passenger journeys per year. (Traffic has nearly returned to that level.) Over the past 13 years, through more than 10 billion passenger journeys, a total of two people have died in U.S. airline accidents.

Among the many virtues of John Lancaster’s delightful “The Great Air Race” is how vividly it conveys the entirely different world of aviation at the dawn of the industry, a century ago. Many airplanes in those days were literal death traps. A biplane known as the DH-4, used as a bomber by Allied forces in World War I, had its gas tank immediately behind the pilot in the cockpit. As Lancaster explains, “Even in relatively low-speed crashes, the tank sometimes wrenched free of its wooden cage, crushing the pilot against the engine.” To get a DH-4 properly balanced for landing, a co-pilot or passenger might have to leap out of the open cockpit and climb back to hang onto the tail. And this was one of the era’s most popular and successful models.

Some planes had no gas gauge, so pilots would learn they had run out of fuel only when the engine stopped. Just a tiny portion of the country was covered by charts; pilots’ navigation tools were a magnetic compass and their own eyes. (Mapping was one of the industries that aviation’s growth fostered.)

. . .

For readers familiar with modern U.S. aerospace pre-eminence — Boeing, despite its problems; governmental and private space programs; military aviation and corporate jets — perhaps the most startling aspect of American aviation a century ago is how uncertain its future seemed.

. . .

I have read a lot about aviation and the aircraft industry over the years, but almost everything in this tale was new to me. You might take it on your next airline flight, pause to look out the window and spare a thought for those who helped make it all possible.

For the full review, see:

James Fallows. “The Wild Blue Yonder.” The New York Times Book Review (Sunday, December 4, 2022): 14.

(Note: ellipses added.)

(Note: the online version of the review has the date Nov. 15, 2022, and has the title “When Flying a Plane Was Thrilling — and Often Fatal.”)

The book under review is:

Lancaster, John. The Great Air Race: Glory, Tragedy, and the Dawn of American Aviation. New York: Liveright, 2022.

New Technology Creates More Jobs Than It Destroys

(p. 3) The pessimist’s basic mistake is to focus too much on what is lost to competition and technology, and too little on what is gained. Over the past 25 years, as McKinsey & Company, the consulting firm, has pointed out, about a third of the new jobs created in the United States were types that did not exist or barely existed 25 years ago.

. . .

In New York City the car replaced the horse carriage within the first 15 years of the 20th century, killing off the carriage trade and giving birth to the taxi trade — as well as to highly paid auto mechanics. Uber threatens the taxi trade, and the self-driving car threatens the Uber driver. But it has also brought multimillion-dollar signing bonuses for self-driving-car engineers and created new opportunities for mechanics. People tend to find a way to work with and profit from new technology.

. . .

In most cases, an industry without enough workers to meet customer demand would simply hire more, or at least raise wages to attract them.

Yet, according to the Bureau of Labor Statistics, neither of those things happened last year. The number of pharmacists employed in the United States dropped about 1 percent from 2020 to 2021. On balance, employers did not raise wages — in fact, median pay fell slightly, even without adjusting for inflation.

. . .

. . . there is no evidence so far to support forecasts of a nearly jobless future. If robots threatened human labor, human joblessness would be growing. But it’s not. In fact, since 2008, job growth has been strongest in countries like Germany and Japan, which deploy the most robots.

For the full commentary, see:

Ruchir Sharma. “No, That Robot Will Not Steal Your Job.” The New York Times, SundayReview Section (Sunday, October 8, 2017): 3.

(Note: ellipses added.)

(Note: the online version of the commentary has the date Oct. 7, 2017, and has the same title as the print version.)

During December 2022, Kindle Version of McCloskey’s Bourgeois Equality Is Only $2.99

The long, but wonderful, third volume of Deirdre’ McClokey’s Bourgeois trilogy, Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World, is on offer from Amazon during the month of December 2022 in eText Kindle version for only $2.99.

Current Labor Market Seems Robustly Redundant

In Openness to Creative Destruction, I argue for the possibility and desirability of a “robustly redundant labor market” in which workers can usually quickly find an equally good or better job when they lose their current job.

(p. A6) . . . one characteristic of today’s economy is that job cuts at small startups and large companies have yet to dent the overall labor market. Labor demand is still historically strong, offering only faint signs of cooling. There are nearly two job openings for every unemployed person seeking work. That means many workers who are losing their jobs are quickly landing jobs. Some are even weighing multiple offers and accepting positions that pay more and better align with their skills.

. . .

Employers had 10.7 million unfilled jobs in June [2022], down from a record of 11.9 million in March, but still well above the 7 million job openings in February 2020 ahead of the pandemic, when the labor market was also booming.

Job-openings rates across industries are much higher than before the pandemic hit, suggesting companies still need workers even in sectors where company layoffs have been pronounced, such as technology, real estate, finance and insurance.

Longer periods of unemployment can allow job seekers more time to search for roles that match their skill sets, some economists say. But with job opportunities so abundant, many unemployed workers are finding jobs that suit them within a matter of weeks or even days.

For the full story see:

Sarah Chaney Cambon. “Laid-Off Employees Quickly Find New Jobs.” The Wall Street Journal (Thursday, Aug. 25, 2022): A1 & A6.

(Note: ellipses and bracketed year added.)

(Note: the online version of the story has the date August 24, 2022, and has the title “The Surprise in a Faltering Economy: Laid-Off Workers Are Quickly Finding Jobs.”)

My book mentioned above is:

Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, 2019.

Amazon Warehouse Jobs Give “Economic Boost” to English Town

(p. B4) DARLINGTON, England—Many retailers in this old market town have long held Amazon.com Inc. partially to blame for the closures of a raft of local shops in recent years.

Then, Amazon opened a warehouse here.

The facility, which opened in early 2020, employs 1,300 full-time staff, making it one of the town’s biggest employers. It hired 500 additional seasonal workers during the end-of-year holidays. Wages start at £10 (equivalent to $13.25) an hour, above the legal minimum, and benefits include private healthcare and an £8,000 education allowance available in installments over four years.

The new jobs have all delivered an economic boost for the Northern England town of 100,000, while sparking a reassessment of the U.S. e-commerce giant. Nicola Reading, a gift-shop owner, still blames Amazon for the demise of the local retail scene but now sees an upside, too.

“It feels like Amazon employs half the population of Darlington now,” she said.

Already America’s second-biggest employer, after Walmart Inc., Amazon has been advancing in Europe and the U.K., investing €78 billion ($89 billion) since 2010 in a continentwide expansion that has significantly accelerated over the past few years. Amazon employs over 55,000 full-time U.K. staff.

. . .

Local officials in Darlington have applauded Amazon’s arrival, which they say has benefited the town, chiefly by creating jobs. Amazon’s presence is also encouraging young university graduates to stay in the town and attracting other companies, said Mark Ladyman, the Darlington Borough Council’s assistant director for economic growth.

For the full story, see:

Trefor Moss. “The Small Town That Amazon Upended, Then Saved.” The Wall Street Journal (Saturday, January 22, 2022): B4.

(Note: ellipsis added.)

(Note: the online version of the story was updated Jan. 21, 2022, and has the same title as the print version.)

Technology Allows College Students to Stay Attached to Friends and Family at Home

(p. C5) I sometimes forget that my daughter has left for college. She Facetimes me on her way from the library to the gym. I see a small portion of her head, blue sky behind her, headphones dangling from an ear, part of a cup of coffee. She texts me updates on her failing quest to find the right edition of “The Waste Land” for one of her classes. I am still part of the dailiness of her life in a way that I am quite sure my mother was not in mine when I left for college in the last century.

My daughter also stays in close contact with her friends from home via group texts, Snapchat, TikTok, private Instagram stories. They are warm, vivid presences in her life that would likely have faded in a different technological moment.

While I remember high-school friends drifting, high-school boyfriends vanishing by winter break, many people she knows have romantic interests from home that endure. After all, their relationships with their new friends are also, to some degree, on the phone. With smartphones, physical presence becomes less important; it is no longer necessary to be with someone to communicate incessantly with them. The people in front of you comprise only one of many social situations you have access to.

. . .

Some part of me wonders if there aren’t benefits to this new way of being, along with the obvious downsides. My daughter is attached to her college friends and her friends from home. She is almost living in two places simultaneously; she is inhabiting more than one possible world.

For the full commentary, see:

Katie Roiphe. “Even at College, Our Children Are Home.” The Wall Street Journal (Saturday, January 29, 2022): C5.

(Note: ellipsis added.)

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