Category: Economics

Reinvesting Profits Enables the Scaling Up of Success

(p. A17) Muhammad Yunus has big goals: zero world poverty, zero unemployment and zero net carbon emissions.
. . .
Mr. Yunus has long been a hero of mine for his innovative faith in the resourcefulness of low-income people.
. . .
If you want to motivate support for social enterprise, a utopian promise of “A World of Three Zeros” makes for a better book title than “Helping 60 Albanian Farmers Grow Herbs.” And Mr. Yunus’s paean to entrepreneurship does indeed deliver inspiration about the power of human creativity. But problematic arguments remain, especially his imprecise criticisms of the current economic system and the implausibility of replacing the whole system with social entrepreneurship.
A major problem is one of scale. Mr. Yunus’s many social-enterprise examples are all on the same micro level as the 60 Albanian herb farmers. And while there’s nothing wrong with making a large number of small-scale efforts to help a great many people, it doesn’t qualify as a whole new system for the $76 trillion global economy. Mr. Yunus doesn’t confront the scaling problem. He could have noted, for instance, that successful social entrepreneurs, unlike successful private entrepreneurs, by definition don’t get the high profits to reinvest in scaling up successes.

For the full review, see:
William Easterly. “BOOKSHELF; How to Solve Global Poverty.” The Wall Street Journal (Sat., Oct. 3, 2017): A17.
(Note: ellipses added.)
(Note: the online version of the review has the date Oct. 2, 2017.)

The book under review, is:
Yunus, Muhammad. A World of Three Zeros: The New Economics of Zero Poverty, Zero Unemployment, and Zero Net Carbon Emissions. New York: PublicAffairs, 2017.

Firms Compete in Product Market and Cooperate in Parts Market

(p. B1) When the iPhone X goes on sale next month, Apple Inc.’s rival, Samsung Electronics Co., has good reason to hope it is a roaring success.
The South Korean company’s giant components division stands to make $110 from for each top-of-the-line, $1,000 iPhone X that Apple sells.
The fact reflects a love-hate dynamic between the phone makers that is one of the more unusual relationships in business. While each company vies to get consumers to buy its gadgets, Samsung’s parts operation stands to make billions of dollars supplying screens and memory chips for the new iPhone–parts that Apple relies on for its most important product.

For the full story, see:
Timothy W. Martin and Tripp Mickle. “Samsung To Benefit If iPhone X Is a Success.” The Wall Street Journal (Tues., Oct. 3, 2017): B1 & B5.
(Note: ellipsis, and bracketed date, added.)
(Note: the online version of the story has the date Oct. 2, 2017, and has the title “Why Apple Rival Samsung Also Wins If iPhone X Is a Hit.”)

FCC Spectrum Regulations Drive Innovators to Bankruptcy

(p. A17) In 2004 the FCC moved to relax L-Band rules, permitting deployment of a terrestrial mobile network. Satellite calls would continue, but few were being made, and sharing frequencies with cellular devices made eminent sense. By 2010, L-Band licensee LightSquared was ready to build a state-of-the-art 4G network, and the FCC announced that the 40 MHz bandwidth would become available. LightSquared quickly spent about $4 billion of its planned $14 billion infrastructure rollout. Americans would soon enjoy a fifth nationwide wireless choice.
But in 2012 the FCC yanked LightSquared’s licenses. Various interests, from commercial airlines to the Pentagon, complained that freeing up the L Band could cause interference with Global Positioning System devices, since they are tuned to adjacent frequencies. Yet cheap remedies–such as a gradual roll-out of new services while existing networks improved reception with better radio chips–were available. In reality, the costliest spectrum conflicts emanate from overprotecting old services at the expense of the new. With its licenses snatched away, LightSquared instantly plunged into bankruptcy.
. . .
. . . regulatory impediments continue to block progress. Years after the L-Band spectrum was slated for productive use in 4G, it lies fallow–now delaying upgrades to 5G.

For the full commentary, see:
Thomas W. Hazlett. “How Politics Stalls Wireless Innovation; The FCC unveiled its National Broadband Plan in 2010–but couldn’t stick to it.” The Wall Street Journal (Mon., Oct. 2, 2017): A17.
(Note: ellipses added.)
(Note: the online version of the commentary has the date Oct. 1, 2017.)

The commentary, quoted above, is related to the author’s book:
Hazlett, Thomas W. The Political Spectrum: The Tumultuous Liberation of Wireless Technology, from Herbert Hoover to the Smartphone. New Haven, CT: Yale University Press, 2017.

Musk Fires Under-Performing Workers to Speed Output of Mass-Market Electric Sedans

(p. B4) DETROIT — The electric-car maker Tesla fired hundreds of workers this week after a series of performance reviews conducted during the biggest expansion in the company’s history.
Tesla said Friday [Oct. 13, 2017] that the dismissals were not out of the ordinary, even though they came as the automaker tries to increase the production of its first mass-market vehicle, the Model 3 sedan.
The company has been criticized for the slow pace of its early production of the new model, which has generated hundreds of thousands of deposits from prospective buyers.
Tesla built about 25,000 vehicles in the three months that ended Sept. 30, but only 260 of those were Model 3s — considerably fewer than the 1,500 it had projected. The automaker has attributed the low production rate of the new car to unexpected bottlenecks in its manufacturing system.

For the full story, see:
BILL VLASIC. “Tesla Fires Hundreds of Workers.” The New York Times (Sat., OCT. 14, 2017): B4.
(Note: bracketed date added.)
(Note: the online version of the story has the date OCT. 13, 2017, and has the title “Tesla Fires Hundreds as It Tries to Speed Production of an Electric Sedan.”)

Rate of Inflation Is Still a “Mystery” to Economists

(p. A2) CLEVELAND–Federal Reserve Chairwoman Janet Yellen on Tuesday [Sept. 26, 2017] defended the central bank’s projection for a gradual path of rate increases over the next few years despite the past few months of unexpectedly low inflation.
. . .
Inflation, under the Fed’s preferred measure, has undershot the central bank’s 2% target for much of the past five years. Although Ms. Yellen said she expects inflation to gradually move up to the target, she acknowledged the uncertainty surrounding that prediction.
. . .
“How should policy be formulated in the face of such significant uncertainties? In my view, it strengthens the case for a gradual pace of adjustments,” Ms. Yellen told a National Association for Business Economics conference in Cleveland.
. . .
Still, the Fed’s understanding of inflation is “imperfect,” she said, calling the shortfall in inflation “a mystery.” “We recognize that something more persistent may be responsible for the current undershooting.”

For the full story, see:
David Harrison. “Yellen Firm on Rates; Inflation a ‘Mystery’.” The Wall Street Journal (Weds., Sept. 27, 2017): A2.
(Note: ellipses, and bracketed date, added.)
(Note: the online version of the story has the date Sept. 26, 2017, and has the title “Yellen Defends Fed Rate-Rise Plan Despite ‘Mystery’ of Low Inflation.”)

“The Tabula Rasa of the American Dream”

(p. 22) The four Keats siblings, John and George, sister Fanny, and a third brother, “star crossed” Tom, dead of tuberculosis at 19, were all well schooled in the World of Pains. The orphaned children of a shiftless stable hand, they survived on the miserly dole of a tea merchant appointed their guardian. “The lives of these orphans,” Gigante remarks, “do have the makings of fairy tale.” John trained in medicine before taking up the far riskier profession of poetry; reviews of his ambitious long poem “Endymion” were so harsh that Byron cruelly joked he was “snuffed out by an article.” George limped along as a clerk in various mercantile firms, dreaming of something more ­adventurous.
Gigante has had the clever idea of telling the stories of John and George as parallel lives, a dual biography of brothers.
. . .
In her view, George’s departure to America with his young wife, Georgiana, was “an imaginative leap across 4,000 miles onto the tabula rasa of the American dream.” And yet, nothing — nothing, that is, beyond his famous brother — distinguishes George from thousands of other immigrants who joined in the Western migration during the tough years following the French Revolution, when it became painfully clear that possibilities for advancement in class-stratified Great Britain were severely curtailed.
. . .
The land of opportunity was also the land of crushing disappointment. On his second trip to America, after blowing his inheritance on a dubious investment with his elegant friend and neighbor Audubon, and retreating from the bleak prairies to more civilized Louisville, George finally completed his sawmill. (He would have been wiser to invest in Audubon’s pictures of otters and buzzards than a crackpot steamboat scheme.) After a few years of profit, when he built a columned mansion equipped with slaves near the center of town, George lost it all again in the Panic of 1837.

For the full review, see:
CHRISTOPHER BENFEY. “Ode to Siblings.” The New York Times Book Review (Sunday, October 16, 2011): 22.
(Note: ellipses added.)
(Note: the online version of the review has the date OCT. 14, 2011, and has the title “A Keats Brother on the American Frontier.”)

The book under review, is:
Gigante, Denise. The Keats Brothers: The Life of John and George. Cambridge, MA: The Belknap Press of Harvard University Press, 2011.

Nursing Unions “Keep Aides from Encroaching on Their Turf”

(p. B2) There are a few reasons long-term care is such a bad job. “Most people see it as glorified babysitting,” said Robert Espinoza, vice president for policy at PHI, an advocacy group for personal care workers that also develops advanced training curriculums to improve the quality of the work force.
The fact that most workers are immigrant women does not help the occupation’s status. Occupational rules that reserve even simple tasks for nurses, like delivering an insulin shot or even putting drops into a patient’s eye, also act as a barrier against providing care workers with better training.
. . .
. . . there are the powerful nursing unions, ready to fight tooth and nail to keep aides from encroaching on their turf. Carol Raphael, former chief executive of the Visiting Nurse Service of New York, the largest home health agency in the United States, told Professor Osterman that when the association tried to expand the role of home-care aides, the “nurses went bonkers.”

For the full commentary, see:
Porter, Eduardo. “ECONOMIC SCENE; Rethinking Home Health Care as a Path to the Middle Class.” The New York Times (Weds., AUG. 30, 2017): B1-B2.
(Note: ellipses added.)
(Note: the online version of the commentary has the date AUG. 29, 2017, and has the title “ECONOMIC SCENE; Home Health Care: Shouldn’t It Be Work Worth Doing?”)

“The Regulations Are Absurd”

(p. A6) CIUDAD del ESTE, Paraguay–This remote South American country, long known for contraband traffickers and a 35-year dictatorship, is now becoming something else: a manufacturing hub.
Paraguay has attracted scores of foreign factories since 2013, as predominantly Brazilian companies respond to new incentives by flocking to this gritty border city to make everything from toys to motor scooters for export.
Koumei SA, a family-run Brazilian light-fixtures company, is typical. Its owners moved the plant and about 150 jobs here last year, saying they were fed up with Brazil’s high taxes and complicated labor rules.
“It’s just easier here,” said Seijii Abe, who directs the company with his father.
. . .
Brazil ranked 123rd out of 190 in the World Bank’s 2017 survey on ease of doing business, right behind Uganda and Egypt. Companies there say they are bedeviled by rules that smother entrepreneurial impetus. They point to labor regulations that make hiring and firing difficult, high energy bills, a legal system that encourages employee lawsuits and taxes of up to 35% on imported goods.
“The regulations are absurd,” said João Carlos Komuchena, owner of Kompar SA, a company which makes small plastic bottles used for packing soy sauce and other products that moved to Paraguay from Brazil last year. “We need to wake up in Brazil; there is a lot of prejudice against business.”

For the full story, see:
Jeffrey T. Lewis. “Businesses Flee Brazil Rules for Paraguay.” The Wall Street Journal (Mon., Aug. 28, 2017): A6.
(Note: ellipsis added.)
(Note: the online version of the story has the date Aug. 26, 2017, and has the title “Brazil’s Woes Multiply as Manufacturers Move to Paraguay.”)

The Ship that Held the Antikythera Mechanism Was Greek, Not Roman

(p. A12) A bronze statue’s orphaned arm. A corroded disc adorned with a bull. Preserved wooden planks. These are among the latest treasures that date back to the dawn of the Roman Empire, discovered amid the ruins of the Antikythera shipwreck, a sunken bounty off the coast of a tiny island in Greece.
. . .
For decades people referred to it as a Roman shipwreck, like in Jacques Cousteau’s documentary “Diving for Roman Plunder,” but the team’s findings since 2012 — such as a chemical analysis of lead on the ship’s equipment that trace it back to northern Greece and the personal possessions they found with Greek names etched on them — are changing that narrative, Dr. Foley said. “It’s starting to look an awful lot like a Greek-built, Greek-crewed ship, not a Roman-Italian vessel.”

For the full story, see:
NICHOLAS ST. FLEUR. “A Bronze Arm Points to More Treasure Below.” The New York Times (Sat., OCT. 7, 2017): A12.
(Note: ellipsis added.)
(Note: the online version of the story has the date OCT. 5, 2017, and has the title “Bronze Arm Found in Famous Shipwreck Points to More Treasure Below.”)

On Private Property, Innovator “Can Try New Ideas Without as Much Red Tape”

(p. B1) SAN JOSE, Calif. — Molly Jackson, an 82-year-old retired nurse, was sitting in the back seat of a self-driving taxi when the vehicle jerked to a halt at a crossing as its computer vision spotted an approaching golf cart.
When the vehicle, a modified Ford Fusion developed by a start-up named Voyage, started to inch forward, it abruptly stopped again as the golfers pressed ahead and cut in front of the car.
Ms. Jackson seemed unfazed by the bumpy ride. As a longtime resident of the Villages Golf and Country Club, a retirement community in San Jose, Calif., she knew all about aggressive golf cart drivers.
“I like that; we made a good stop there,” Ms. Jackson said. “I stop for them. They say we don’t have to, but I do.”
. . .
The speed limit, just 25 miles an hour, helps reduce the risk if something goes wrong. And because it is private property, the company does not have to share ride information with regulators and it can try new ideas without as much red tape.
(p. B6) Cars that can drive themselves could be a great benefit to older people. Residents at the Villages say that once people stop driving, they often pull back from activities and interacting with friends.

For the full story, see:
DAISUKE WAKABAYASHI. “Where Cars Brake for Golf Carts.” The New York Times (Thurs., OCT. 5, 2017): B1 & B6.
(Note: ellipses added.)
(Note: the online version of the story has the date OCT. 4, 2017, and has the title “Where Driverless Cars Brake for Golf Carts.”)

Can “Radical Transparency” Work “in Today’s Polarized and Litigious World”?

(p. B1) In 1993, Ray Dalio, the chairman of what is today the largest hedge fund in the world, Bridgewater Associates, received a memo signed by his top three lieutenants that was startlingly honest in its assessment of him.
It was a performance review of sorts, and not in a good way. After mentioning his positive attributes, they spelled out the negatives. “Ray sometimes says or does things to employees which makes them feel incompetent, unnecessary, humiliated, overwhelmed, belittled, pressed or otherwise bad,” the memo read. “If he doesn’t manage people well, growth will be stunted and we will all be affected.”
To Mr. Dalio, the message was both devastating and a wake-up call. His reaction: “Ugh. That hurt and surprised me.”
That moment helped push Mr. Dalio to rethink how he approached people and to begin developing a unique — and sometimes controversial — culture inside his firm, one based on a series of “principles” that place the idea of “radical transparency” above virtually all else.
. . .
(p. B5) Of course, the larger question is whether Mr. Dalio’s version of utopia — a place where employees feel comfortable offering blunt and in some cases brutal feedback — can exist outside Bridgewater’s controlled environment of mostly self-selecting individuals who either embrace the philosophy or quickly exit. Given the intense environment, as you might expect, there are horror stories of employees who have left in tears. Turnover among new employees is high.
Mr. Dalio’s critics — and there are many — say his principles offer permission to be verbally barbaric, and they question whether the $160 billion firm’s success is a product of such “radical transparency” or whether he can afford such a wide-ranging social experiment simply because the firm is so financially successful.
In truth, it is hard to imagine how harsh individual critiques in the workplace can work at many other organizations in today’s polarized and litigious world, where people are increasingly looking for “safe spaces” and those who say they are offended by a particular argument are derided as “fragile snowflakes.”

For the full commentary, see:
Sorkin, Andrew Ross. “DEALBOOK; Bridgewater’s Ray Dalio Dives Deeper Into the ‘Principles’ of Tough Love.” The Wall Street Journal (Sat., Sept. 5, 2017): B1 & B5.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Sept. 4, 2017, and has the title, “DEALBOOK; Bridgewater’s Ray Dalio Dives Deeper Into the ‘Principles’ of Tough Love.” )

The Dalio book, discussed above, is:
Dalio, Ray. Principles: Life and Work. New York: Simon & Schuster, 2017.