Creative Destruction – Page 25

I Was Wrong: Apparently the U.S. Auto Industry Does Have a Prayer

“PRAYING FOR A MIRACLE. S.U.V.’s sat on the altar of Greater Grace Temple, a Pentecostal church in Detroit, as congregants prayed to save the auto industry.” Source of the caption and photo: online version of the NYT article quoted and cited below.

The process of creative destruction, requires that failed businesses be allowed to fail, so that the resources (labor and capital) devoted to the failed businesses, can be devoted to more productive uses.
The Danny DeVito character in “Other People’s Money” makes this point in a speech near the end, in which he says that the Gregory Peck character has just delivered a “prayer for the dead” in calling for continued support for a dead business that is technologically obsolete.
On a more personal level, we have always bought cars from Honda and Toyota, because we sincerely believe that they build better cars than Detroit does. By what right does the government force taxpayers to prop up companies whose products have been rejected in the marketplace?
When the economic and moral arguments for bailout fail, all that is left for a failed industry is prayer (and politics)—one more reason to believe that the opportunity cost of prayer, is high.

(p. A19) DETROIT — The Sunday service at Greater Grace Temple began with the Clark Sisters song “I’m Looking for a Miracle” and included a reading of this verse from the Book of Romans: “I consider that our present sufferings are not worth comparing with the glory that will be revealed in us.”

Pentecostal Bishop Charles H. Ellis III, who shared the sanctuary’s wide altar with three gleaming sport utility vehicles, closed his sermon by leading the choir and congregants in a boisterous rendition of the gospel singer Myrna Summers’s “We’re Gonna Make It” as hundreds of worshipers who work in the automotive industry — union assemblers, executives, car salesmen — gathered six deep around the altar to have their foreheads anointed with consecrated oil.

While Congress debated aid to the foundering Detroit automakers Sunday, many here whose future hinges on the decision turned to prayer.

Outside the Corpus Christi Catholic Church, a sign beckoned passers-by inside to hear about “God’s bailout plan.”

For the full story, see:
NICK BUNKLEY. “Detroit Churches Pray for ‘God’s Bailout’.” The New York Times (Mon., December 8, 2008): A19.
(Note: The photo of the top appeared on p. A1 of the print edition of the December 8, 2008 NYT; also, the online version of the article has a date of Dec. 7 instead of the Dec. 8 date of the print version.)

“Worshipers at Greater Grace Temple, a Pentecostal church in Detroit, prayed on Sunday for an automobile industry miracle.” Source of the caption and photo: online version of the NYT article quoted and cited above.

Reason for Success of U.S. Economy: “We Let People Fail”

McCain’s chief economic adviser and entrepreneur-expert Hotz-Eakin offered some cogent comments on the trend toward more government bailouts at the taxpayers’ expense:

(p. A6) Mr. Obama is by no means an activist in the Japanese mold, said Douglas Holtz-Eakin, an economic adviser to John McCain’s presidential campaign. But as a whole, policies crafted to address distinct problems in the auto, energy and banking sectors are merging into a broader policy that would pick some winners and losers, preserve entire industries and shape consumer choices.

“We’re backing into industrial policy in an emergency to correct massive market failures,” said Jared Bernstein, an economist at the liberal Economic Policy Institute who has worked with the president-elect’s economic team.
. . .
“The reason the U.S. economy was so successful for so long was not because we did things so well. It was because we let people fail.” Mr. Hotz-Eakin said. “This is dangerous at some very deep level.”

For the full story, see:
JONATHAN WEISMAN. “Wider U.S. Interventions Would Yield Winners, Losers as Industries Realign.” The Wall Street Journal (Thurs., NOVEMBER 20, 2008): A6.
(Note: ellipsis added.)
(Note: the final paragraph was in the print edition, but was deleted from the online version.)

The Benefits from the Discovery of Sulfa, the First Antibiotic

I quoted a review of The Demon Under the Microscope in an entry from October 12, 2006. I finally managed to read the book, last month.
I don’t always agree with Hager’s interpretation of events, and his policy advice, but he writes well, and he has much to say of interest about how the first anti-bacterial antibiotic, sulfa, was developed.
In the coming weeks, I’ll be highlighting a few key passages of special interest. In today’s entry, below, Hager nicely summarizes the importance of the discovery of antibiotics for his (and my) baby boom generation.

(p. 3) I am part of that great demographic bulge, the World War II “Baby Boom” generation, which was the first in history to benefit from birth from the discovery of antibiotics. The impact of this discovery is difficult to overstate. If my parents came down with an ear infection as babies, they were treated with bed rest, painkillers, and sympathy. If I came down with an ear infection as a baby, I got antibiotics. If a cold turned into bronchitis, my parents got more bed rest and anxious vigilance; I got antibiotics. People in my parents’ generation, as children, could and all too often did die from strep throats, infected cuts, scarlet fever, meningitis, pneumonia, or any number of infectious diseases. I and my classmates survived because of antibiotics. My parents as children, and their parents before them, lost friends and relatives, often at very early ages, to bacterial epidemics that swept through American cities every fall and winter, killing tens of thousands. The suddenness and inevitability of these epidemic deaths, facts of life before the 1930s, were for me historical curiosities, artifacts of another age. Antibiotics virtually eliminated them. In many cases, much-feared diseases of my grandparents’ day—erysipelas, childbed fever, cellulitis—had become so rare they were nearly extinct. I never heard the names.

Source:
Hager, Thomas. The Demon under the Microscope: From Battlefield Hospitals to Nazi Labs, One Doctor’s Heroic Search for the World’s First Miracle Drug. New York: Three Rivers Press, 2007.

Companies “Once as Strong as Dinosaurs But Now Just as Extinct”

From McCraw’s discussion of Schumpeter’s legacy:

(p. 496) No country, regardless of how long it has been prosperous, can take permanent affluence for granted. Nor can any company assume its continued existence—as names such as Digital Equipment, Pan American Airways, Pullman, Douglas Aircraft, and the Pennsylvania Railroad remind us. Each of these companies once epitomized the cutting edge not only of its own industry but of American business as a whole. And all are now in the dustbin of history, along with hundreds of thousands of other businesses of all sizes—once as strong as dinosaurs but now just as extinct.

Source:
McCraw, Thomas K. Prophet of Innovation: Joseph Schumpeter and Creative Destruction. Cambridge, Mass.: Belknap Press, 2007.

Microsoft Still Risks Becoming “Road Kill on the Information Highway”

“Steve Ballmer is the second Microsoft chief executive to butt his head against the view that a new era in technology brings a new market leader.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 4) The Yahoo affair obscures the larger story: Microsoft’s long, long struggle — since 1993 — to maintain its leadership position while the Internet grew ubiquitous. Mr. Ballmer, who joined Microsoft in 1980 as its 15th employee, and Bill Gates, his mentor who will retire next month as a full-time Microsoft employee, have certainly tried their best to avert the inevitable decline of the company’s influence.

In 2000, Mr. Ballmer credited Mr. Gates for noting that no company in the computer business had ever stayed on top through what Mr. Gates called “a major paradigm shift.” The two men wanted Microsoft to be the first company to achieve that goal. An interesting challenge, but some problems are of a size that dwarf the abilities of multibillionaire mortals.
In a 1995 internal memo, “The Internet Tidal Wave,” Mr. Gates alerted company employees to the Internet’s potential to be a disruptive force. This was two years before Clayton M. Christensen, the Harvard Business School professor, published “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail” (1997). The professor presented what would become a widely noted framework to explain how seemingly well-managed companies could do most everything to prepare for the arrival of disruptive new technology but still lose market leadership.
It’s Google, of course, that has developed the musculature to step forward and lay claim to being Microsoft’s successor as industry leader in the Internet era. If there had been any way Microsoft could have prepared for this day, it had ample time to do so. In 1993, fully five years before Google’s founding and two years before Mr. Gates’s memo, Nathan P. Myhrvold, then Microsoft’s chief technology officer, wrote his own memo, “Road Kill on the Information Highway.” It spelled out in prescient detail how each of many industries would be flattened by the build-out of digital networks, and it said that the PC software business would be no exception.

For the full commentary, see:
RANDALL STROSS. “Digital Domain; The Computer Industry Comes With Built-In Term Limits.” The New York Times, SundayBusiness Section (Sun., May 18, 2008): 4.

“Three Generations from Overalls to Overalls”

(p. 156) Because it proceeds by competitively destroying old businesses and hence the existences dependent upon them, there always corresponds to it a process of decline, of loss of caste, of elimination. This fate also threatens the entrepreneur whose powers are declining, or his heirs who have inherited his wealth without his ability. This is not only because all individual profits dry up, the competitive mechanism tolerating no permanent surplus values, but rather annihilating them by means of just this stimulus of the striving for profits which is the mechanism’s driving force; but also because in the normal case things so happen that entrepreneurial success embodies itself in the ownership of a business; and this business is usually carried on further by the heirs on what soon become traditional lines until new entrepreneurs supplant it. An American adage expresses it: three generations from overalls to overalls. And so it may be. Exceptions are rare, and are more than compensated for by cases in which the descent is still faster. Because there are always entrepreneurs and relatives and heirs of entrepreneurs, public opinion and also the phraseology of the social struggle readily overlook these facts. They constitute “the rich” a class of inheritors who are removed from life’s battle. In fact, the upper strata of society are like hotels which are indeed always full of people, but people who are forever changing.

Source:
Schumpeter, Joseph A. The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle. Translated by Redvers Opie. translation of 2nd German edition that appeared in 1926; translation first published by Harvard in 1934 ed. London: Oxford University Press, 1961.

Company Graveyard Scene from Wattenberg’s “In Search of the Real America”

Source of image: screen capture downloaded on 9/3/08 from: http://cgi.ebay.com/PBS-TV-SERIES-IN-SEARCH-OF-THE-REAL-AMERICA-1977_W0QQitemZ330267803398QQihZ014QQcategoryZ63821QQssPageNameZWDVWQQrdZ1QQcmdZViewItem

For years I have been trying to find a copy of Ben Wattenberg’s wonderful opening scene in the episode on big business of his 1970s series “In Search of the Real America.” He stands in a spooky, foggy, graveyard next to several tombstones. When we see the tombstones more closely, they have the names of big business corporate failures.

L.E.D.’s as the Next Leapfrog Advance in Light

A few years ago I presented a paper at the meetings of Society for Social Studies of Science in which I mentioned Nordhaus’s wonderful paper in which he measures advances in technology that produce illumination. Some of the technologies represent leapfrog advances that are part of Schumpeter’s process of creative destruction.
At the end of my presentation, a member of the audience gave me a reference to the new L.E.D. light technology that he suggested was the next leapfrog advance. (Alas, I do not remember his name.)

(p. C3) L.E.D. bulbs, with their brighter light and longer life, have already replaced standard bulbs in many of the nation’s traffic lights. Indeed, the red, green and yellow signals are — aside from the tiny blinking red light on a DVD player, a cellphone or another electronic device — probably the most familiar application of the technology.

But it is showing up in more prominent spots. The ball that descends in Times Square on New Year’s Eve is illuminated with L.E.D.’s. And the managers of the Empire State Building are considering a proposal to light it with L.E.D. fixtures, which would allow them to remotely change the building’s colors to one of millions of variations.
. . .
The problem, though, is the price. A standard 60-watt incandescent usually costs less than $1. An equivalent compact fluorescent is about $2. But in Europe this September, Philips, the Dutch company dealing in consumer electronics, health care machines and lighting, is to introduce the Ledino, its first L.E.D. replacement for a standard incandescent. Priced at $107 a bulb, it is unlikely to have more than a few takers.
“L.E.D. performance is there, but the price is not,” said Kevin Dowling, a Philips Lighting vice president . . .
. . .
“The Marcus Center lighting will require no maintenance for 15 years,” Mr. Gregory said. “That’s a dream for a lighting designer.”
But he does not expect standard bulbs to disappear totally. Just as the invention of the light bulb did not completely kill the candle and kerosene lamp markets, Mr. Gregory said, “there will always be a need for incandescent bulbs. They will never totally go away.”
“The way an incandescent bulb plays on the face on a Broadway makeup mirror,” he said, “you can never duplicate that.”

For the full story, see:
ERIC A. TAUB. “Fans of L.E.D.’s Say This Bulb’s Time Has Come.” The New York Times (Mon., July 28, 2008): C3.
(Note: ellipses added.)

The reference to the Nordhaus paper is:
Nordhaus, William D. “Do Real-Output and Real-Wage Measures Capture Reality? The History of Light Suggests Not.” In The Economics of New Goods, edited by Robert J. Gordon and Timothy F. Bresnahan, Chicago: University of Chicago Press for National Bureau of Economic Research, 1997, pp. 29-66.

“The full spectrum of color, design and programming available for the Times Square ball.” Source of the caption and photo: online version of the NYT article quoted and cited above.

Leapfrog Competition Among Three Firms in Jet-Engine Oligopoly

“Pratt & Whitney hopes its Geared Turbo Fan engine will defy skeptics and win it a spot on the next generation of jets from Boeing and Airbus.” Source of the caption and photo: online version of the WSJ article quoted and cited below.

(p. B1) Once every 20 years or so, the companies that make jet engines battle it out for a chance to power the next generation of single-aisle airplanes.
. . .
General Electric Co. unveiled plans to develop a new family of engine cores that it said would vault it ahead of United Technologies Corp.’s Pratt & Whitney, which has a two-year head start on a novel engine that promises to burn 12% less fuel than today’s best engines.
GE, which is working with French partner Safran SA, said its engine will have fewer moving parts than Pratt & Whitney’s, and will deliver equal or better performance. “We’ve been pretty quiet for the last couple of years, but we’ve been doing plenty of work in secret,” said GE Aviation President David Joyce, in an interview. “So be it. Game on.”
. . .
Besides GE and Pratt & Whitney, the other major player in the industry is Britain’s Rolls-Royce PLC. Hoping to dominate the market, all three companies plan to spend well over $1 billion on their new engines, stretching the limits of their technology. Developing fuel-efficient engines requires the use of exotic alloys and ceramic coatings that can cope with internal engine temperatures that would be above the melting points of untreated metal components.
The next generation of engines may look radically different from those used today. One design that GE and Rolls-Royce are exploring separately would have a double row of propellers at the (p. B3) back end of the engine, with no protective covering. Such an engine would be noisier and significantly slower than today’s planes. It also would have to be mounted at the rear of the airplane, but the companies say it would consume as much as 24% less fuel.
. . .
Pratt & Whitney had hoped to get a boost in the engine race by promoting a design called the Geared Turbo Fan. It uses a gearbox at the front of the engine that allow various fans and compressors to turn at different speeds for greater efficiency and less noise. . . .
. . .
The company has been working on the gear technology for almost 20 years, investing almost $1 billion so far, Mr. Finger said. He said that in addition to fuel and emissions savings, the new engine will cut noise by a factor of two and reduce maintenance by 40% because it will have fewer moving parts throughout the engine.

For the full story, see:
J. LYNN LUNSFORD and DANIEL MICHAELS. “Jet-Engine Makers Launch New War; Billions of Dollars at Stake in Race To Develop Efficient Power Source For Next Wave of Boeing, Airbus Planes.” The Wall Street Journal (Mon., July 14, 2008): B1 & B3.
(Note: ellipses added.)

“GE is creating an engine with fewer moving parts than Pratt & Whitney’s design, and seeks to deliver equal or better performance.” Source of the caption and photo: online version of the WSJ article quoted and cited above.

For Some Purposes Leapfrogged Technologies Remain Better

“Hachette’s audio department recently held a “funeral” for cassette tapes; an invitation is above.” Source of caption and photo: online version of the NYT article quoted and cited below.

The article quoted below mentions a feature of new “leapfrog” technologies that has received too little attention. The new product, overall, for most purposes, or for most important purposes, is better than the old product, but it may be that the new product lacks some features that the old product had, that had value. It is a step forward in most respects, but not in all respects.
I salute the observation in the last quoted paragraph below. When I am listening to a book, while walking Willy, some UPS truck often passes me, noisily making a sentence of two inaudible. If I’m listening to a cassette, I can back up a few sentences. If I’m listening to a CD, I have to back up at least a few minutes, and often many minutes (depending on how short the tracks are on the CD).
I remember an early word processor (can’t remember its name, maybe it was Wordmarc), that allowed you to type in the page number of a long document and then go directly to that page. I am currently writing a book using Microsoft Word. And in the vast majority of respects it is better than the word processor of yore. But every time I have to scroll and scroll and scroll, to get to a page, when I already know exactly which page I want, I irrationally curse Bill Gates.

Addendum posted 10/10/08:
Since this post was created on July 30, 2008, I have discovered that Word 2007 has the feature that I missed from Wordmarc, and I also learned that if I had invested more time in Word 2003, I might have discovered that by drilling down to an obscure option menu, it too could have been customized to have had the feature. (In Wordmarc the feature was real obvious.)

(p. C7) There was a funeral the other day in the Midtown offices of Hachette, the book publisher, to mourn the passing of what it called a “dear friend.” Nobody had actually died, except for a piece of technology, the cassette tape.

While the cassette was dumped long ago by the music industry, it has lived on among publishers of audio books. Many people prefer cassettes because they make it easy to pick up in the same place where the listener left off, or to rewind in case a certain sentence is missed. For Hachette, however, demand had slowed so much that it released its last book on cassette in June, with “Sail,” a novel by James Patterson and Howard Roughan.
The funeral at Hachette — an office party in the audio-book department — mirrored the broader demise of cassettes, which gave vinyl a run for its money before being eclipsed by the compact disc. (The CD, too, is in rapid decline, thanks to Internet music stores, but that is a different story.)
. . .
Cassette tapes’ tendency to hiss — and to melt in the summer and snap in the winter — turns off audiophiles. But for audio books, the cassette is an oddly elegant medium: you can eject it from your car, carry it home and stick it in a boombox, and it will pick up in the same place, an analog feat beyond the ability of the CD.

For the full story, see:
ANDREW ADAM NEWMAN. “Say So Long to an Old Companion: Cassette Tapes.” The New York Times (Mon., July 28, 2008): C7.
(Note: ellipsis added.)

McCraw Identifies Schumpeter’s “Signature Legacy”

McCraw is correct in identifying Schumpeter’s “signature legacy”:

(p. 495) Schumpeter’s signature legacy is his insight that innovation in the form of creative destruction is the driving force not only of capitalism but of material progress in general.

Source:
McCraw, Thomas K. Prophet of Innovation: Joseph Schumpeter and Creative Destruction. Cambridge, Mass.: Belknap Press, 2007.
(Note: italics in original.)