Category: Creative Destruction

Apart from R&D, Scientists and Engineers May Improve Firm Processes

(p. B5) Companies with a higher proportion of scientists and engineers are more productive than their peers, even when those workers aren’t directly involved in the research-and-development tasks that drive the most obvious forms of innovation, a new paper from the National Bureau of Economic Research suggests.

. . .

Some 80% of industrial scientists and engineers work in roles outside of formal R&D, such as information technology and operations. Their knowledge and training is critical to firms’ ability to improve processes, fix broken systems and implement new technologies, says Richard Freeman, a Harvard University economist and co-author of the paper.

For the full story, see:

Lauren Weber. “Scientists Are Useful Beyond R&D Work.” The New York Times (Wednesday, June 28, 2017): B5.

(Note: ellipsis added.)

(Note: the online version of the story has the date June 27, 2017, and has the title “For a More Productive Workforce, Scientific Know-How Helps.”)

The published version of the Freeman co-authored paper mentioned above, is:

Barth, Erling, James C. Davis, Richard B. Freeman, and Andrew J. Wang. “The Effects of Scientists and Engineers on Productivity and Earnings at the Establishment Where They Work.” In U.S. Engineering in a Global Economy, edited by Richard B. Freeman and Hal Salzman. Chicago: University of Chicago Press, 2018, pp. 167 – 91.

With G.E. Exit, Dow Index Has None of Original Firms

(p. B2) General Electric, the last original member of the Dow Jones industrial average, was dropped from the blue-chip index late Tuesday [June 19, 2019] and replaced by the Walgreens Boots Alliance drugstore chain.

. . .

The removal of G.E., which will formally occur June 26, reflects a shift in the economic composition of the United States, which long ago tilted away from heavy industry and toward services, such as technology, finance and health care.

And it also amounted to a milestone for General Electric. It was the last remaining original member of the index, when the stock market measure was introduced in 1896.

For the full story, see:

Matt Phillips. “G.E. Is Dropped From Dow; Was Last Original Member.” The New York Times (Wednesday, June 20, 2018): B2.

(Note: ellipsis, and bracketed date, added.)

(Note: the online version of the story has the date June 19, 2018, and has the title “G.E. Dropped From the Dow After More Than a Century.”)

Table 7.1 and Table 7.2 Correctly Formatted in Free PDF

Table 7.1 from p. 95 of Openness to Creative Destruction, corrected for OUP post-proof formatting errors.
Table 7.2 from p. 96 of Openness to Creative Destruction, corrected for OUP post-proof formatting errors.

After my last viewing of the page proofs for my Openness to Creative Destruction, formatting errors were introduced by Oxford University Press (OUP) into Table 7.1 and Table 7.2.

A PDF with corrected versions of the tables can be downloaded for free at:
https://www.artdiamond.com/DiamondPDFs/CorrectedPages_94_%20thru_96withHeading.pdf

Google Is Vulnerable to Competition

(p. A1) Google’s once-untouchable online-advertising operation took a body blow, hurt by mounting competition and struggles within its increasingly high-profile YouTube unit.

Google parent Alphabet Inc. in the first quarter posted its slowest revenue growth since 2015. The poor results highlight the risks for one of Silicon Valley’s biggest names in effectively leaning on one massive, if lucrative, business.

For all its myriad arms and efforts to diversify, Google remains essentially an old-fashioned billboard operation with a high-tech gloss—and it now faces more rivals.

. . .

(p. A4) Rivals like Amazon, once content to play in their own corners of the Silicon Valley sandbox, are making big plays at online advertising. In a potentially existential threat to Mountain View, Calif.-based Google, more online shoppers now begin their searches directly on Amazon than on search engines.

For the full story, see:

Rob Copeland. “Google Shows Its First Cracks in Years.” The Wall Street Journal (Tuesday, April 30, 2019): A15.

(Note: ellipsis added.)

(Note: the online version of the story has the date April 29, 2019, and has the title “Google Shows First Cracks in Years.”)

Largest U.S. Firm Now Has 3% of U.S. Market Capitalization; In 1930s through 1990s the Largest U.S. Firm Had About 6%

(p. B5) . . . , consider the history of all the companies that have ranked No. 1 by market size. It’s full of surprises.

. . .

Hendrik Bessembinder and Goeun Choi, finance researchers at Arizona State University, calculate that the largest company in the U.S. clung to that spot for an average of 20 months from the late 1920s through the late 1950s—although it was nearly always either AT&T or GM.

From the 1960s through the end of the 1990s, the top company held the No. 1 position for an average of 12 months. From 2000 through mid-2018, the average tenure at the top was 15 months.

Over the past month, Apple, Microsoft and Amazon, all with market values of $700 billion or more, have each been No. 1 for several days at a time.

. . .

The single largest stock has made up about 3% of total U.S. market capitalization for the past 20 years, according to Savina Rizova, co-head of research at Dimensional Fund Advisors, an investment firm in Austin, Texas, that manages $517 billion. That’s down from the earlier average, since the late 1920s, of nearly 6%.

. . .

All in all, Amazon’s ascendancy is a reminder not of how new this era is but how old the dominance by big companies is. In some ways, these are the good old days: The top stocks account for less of the total market, and the giants don’t appear to be much easier—or harder—to topple than they used to be.

For the full commentary, see:

Jason Zweig. “Don’t Get Too Comfy At the Top, Amazon.” The Wall Street Journal (Saturday, January 12, 2019): B5.

(Note: ellipses added.)

(Note: the online version of the commentary has the date Jan. 11, 2019, and has the title ” THE INTELLIGENT INVESTOR; What Amazon’s Rise to No. 1 Says About the Stock Market.”)

Closed Factories Re-purposed as E-commerce Distribution Hubs

(p. B7) As the United States economy continues its shift away from manufacturing, locations that once housed industries such as automobiles or chemicals are being remade as distribution hubs for the millions of items bought by consumers online.

Developers are trying to meet growing demand by modifying industrial buildings to meet the requirements of the logistics business or, more likely, demolishing them to make way for facilities built for the distribution industry. These sites offer many benefits ideal for distribution, including easy access to highways, ports and rail links and a proximity to major markets.

“Logistics and fulfillment is really the segment of the industrial world that has backfilled the void that manufacturing has left in terms of employment and economic activity,” said Thomas J. Hanna, president of Harvey Hanna & Associates, which plans to tear down a former General Motors assembly plant at Newport, Del., to create a three-million-square-foot complex for distribution companies.

Plans are in place to redevelop other former manufacturing sites across the nation, including a former plastics factory in Piscataway, N.J., and an old Ford plant in Lorain, Ohio.

E-commerce is driving strong growth in demand for industrial sites, according to a report from Newmark Knight Frank, a global commercial real estate company. “As consumers across economic and demographic spectrums continue to demand more rapid product delivery, developers have had to innovate their product and offer more highly efficient space in the largest urban markets,” the report said.

For the full story, see:

Jon Hurdle. “SQUARE FEET; Places That Once Made Goods Now Speed Them to Your Door.” The New York Times (Wednesday, Sept. 19, 2018): B7.

(Note: the online version of the story has the date Sept. 18, 2018, and has the title “SQUARE FEET; These Sites No Longer Make Goods. Now They’ll Get Them to You Faster.”)

Are We “Made of Sugar Candy”?

(p. 11) Less a conventional history than an extended polemic, “Capitalism in America: A History,” by Greenspan and Adrian Wooldridge, a columnist and editor for The Economist, explores and ultimately celebrates the Austrian economist Joseph Schumpeter’s concept of “creative destruction,” which the authors describe as a “perennial gale” that “uproots businesses — and lives — but that, in the process, creates a more productive economy.”

. . .

. . . , Greenspan’s admiration for the rugged individualists who populate the novels of Ayn Rand (who merits a nod in this history) and the frontier spirit that animated America’s early development shows no sign of weakening as Greenspan has aged. He and Wooldridge lament that Americans are “losing the rugged pioneering spirit” that once defined them and mock the “trigger warnings” and “safe spaces” that now obsess academia.

The authors quote Winston Churchill: “We have not journeyed across the centuries, across the oceans, across the mountains, across the prairies, because we are made of sugar candy.” But now, they conclude, “sugar candy people are everywhere.”

Their prescription for American renewal — reining in entitlements, instituting fiscal responsibility and limited government, deregulating, focusing on education and opportunity, and above all fostering a fierceness in the face of creative destruction — was Republican orthodoxy not so long ago. Before the Great Recession it was embraced by most Democrats as well, and more recently by President Bill Clinton, the recipient of glowing praise in these pages.

No longer. “Capitalism in America,” in both its interpretation of economic history and its recipe for revival, is likely to offend the dominant Trump wing of the Republican Party and the resurgent left among Democrats. It’s not clear who, if anyone, will pick up the Greenspan torch.

For the full review, see:

James B. Stewart. “Creative Destruction.” The New York Times Book Review (Sunday, Nov. 4, 2018): 11.

(Note: ellipses added.)

(Note: the online version of the review has the date Nov. 2, 2018, and has the title “Alan Greenspan’s Ode to Creative Destruction.”)

The book under review, is:

Greenspan, Alan, and Adrian Wooldridge. Capitalism in America: A History. New York: Penguin Press, 2018.

To Compete with Electric Engines, Aramco Incrementally Improving Fuel Efficiency of Combustion Engines

(p. B1) NOVI, Mich.—The world’s largest oil company has 30 engineers working away in this Detroit suburb on a project that sounds counterintuitive: an engine that burns less oil.

But there is a common-sense explanation for why the Saudi Arabian Oil Co., known as Saudi Aramco, wants a more efficient internal combustion engine. It is trying to protect its market share by slowing a potential exodus to electric vehicles.

David Cleary, head of Saudi Aramco’s Detroit Research Center, said the company’s goal with its research is to preserve the market for fuel. To that end, he said, any breakthroughs in better-engine designs would be widely shared.

“We are trying to get technology into production, and we want to be very fast,” Mr. Cleary said.

While electric-vehicle adoption remains small globally, and is expected to rise gradually, the prospect of a large-scale shift is setting up a showdown between oil companies and utilities over who will power tomorrow’s cars.

For the full story, see:

Russell Gold. “Big Oil Reinvents Engines to Survive.” The Wall Street Journal (Monday, July 16, 2018): B1-B2.

(Note: the online version of the story has the date July 15, 2018, and has the title “Oil, Utilities Fight to Fuel Vehicles of the Future.”)

Innovative Entrepreneurs Bring Prosperity to the Poor

(p. A17) As the economist Joseph Schumpeter observed: “The capitalist process, not by coincidence but by virtue of its mechanism, progressively raises the standard of life of the masses.”

For Schumpeter, entrepreneurs and the companies they found are the engines of wealth creation. This is what distinguishes capitalism from all previous forms of economic society and turned Marxism on its head, the parasitic capitalist becoming the innovative and beneficent entrepreneur. Since the 2008 crash, Schumpeter’s lessons have been overshadowed by Keynesian macroeconomics, in which the entrepreneurial function is reduced to a ghostly presence. As Schumpeter commented on John Maynard Keynes’s “General Theory” (1936), change–the outstanding feature of capitalism–was, in Keynes’s analysis, “assumed away.”

Progressive, ameliorative change is what poor people in poor countries need most of all. In “The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty,” Harvard Business School’s Clayton Christensen and co-authors Efosa Ojomo and Karen Dillon return the entrepreneur and innovation to the center stage of economic development and prosperity. The authors overturn the current foreign-aid development paradigm of externally imposed, predominantly government funded capital- and institution-building programs and replace it with a model of entrepreneur-led innovation. “It may sound counterintuitive,” the authors write, but “enduring prosperity for many countries will not come from fixing poverty. It will come from investing in innovations that create new markets within these countries.” This is the paradox of the book’s title.

Continue reading “Innovative Entrepreneurs Bring Prosperity to the Poor”

Last Blockbuster Store Flourishes

(p. B3) The second-to-last Blockbuster, a squat blue-and-yellow slab wedged next to a real estate agency in Western Australia, will stop renting videos on Thursday and shut down for good at the end of the month. Two stores in Alaska, part of the final group of Blockbuster outlets in the United States, closed in July.
That will make the Blockbuster in Bend, Ore., one of a kind: a corporate remnant, just off the highway, near a cannabis retailer and a pet cremation service.
. . .
Some Tower Records stores still thrive in Japan long after their parent company declared bankruptcy and closed all of its American stores. There is a Howard Johnson’s in Lake George, N.Y., that is the lone survivor of what was once the country’s largest restaurant chain.
Such holdouts have bucked the norm in the retail and restaurant industries, which have shed stores by the hundreds in recent years.
. . .
The Bend store became a Blockbuster franchise in 2000. It has about 4,000 active accounts and signs up a few fresh ones each day, Ms. Harding said. Some of the new customers are tourists who have traveled hours out of their way to stop in.
. . .
One possible explanation for the store’s long life: Bend is in a region that the city’s mayor, Sally Russell, describes as having “huge expanses with really small communities” that often do not have easy access to the high-speed internet necessary for content streaming.
Many residents of outlying areas stop at Blockbuster during their weekly trips to town to run errands, drawn in part by the store’s seven-day rental policy, Ms. Russell said, adding that the store’s last-in-the-world status could even give it a lift.
“It’s like with old vinyl, and how everyone wants to have turntables again,” she said. “We get to a place where something out of date comes back in — there’s definitely interest in keeping this almost-extinct way of enjoying movies alive.”

For the full story, see:
Tiffany Hsu. “A 9,000-Store Chain Has Closed 8,999. How Does That Work?” The New York Times (Thursday, March 7, 2019): B3.
(Note: ellipses added.)
(Note: the online version of the story has the date March 6, 2019, and has the title “The World’s Last Blockbuster Has No Plans to Close.”)

Former Biggest Retailer Sears Limps into Bankruptcy

(p. A1) For much of the 20th century, Sears defined American retailing with catalogs and department stores that brought toys, tools and appliances to millions of homes.
By the time Sears Holdings Corp. limped into bankruptcy on Monday [Oct. 15, 2018], the once-great company was shriveled and sickly. Decades earlier, it had been dethroned by Walmart Inc. as the biggest U.S. retailer. Then it was crippled by a chief executive with unorthodox strategies, and Amazon.com Inc., an endless online catalog that sucked profits out of the business.

For the full story, see:
Suzanne Kapner. “Sears, Once Retail Colossus, Enters Painful New Era.” The Wall Street Journal (Tuesday, Oct. 16, 2018): A1 & A6.
(Note: bracketed date added.)
(Note: the online version of the story has the date Oct. 15, 2018, and has the title “Sears Reshaped America, From Kenmore to Allstate.”)