Economics – Page 166 – artdiamondblog.com

Castro First Fired, and Then Jailed, Economist Chepe, Who Defended Capitalism

“Oscar Espinosa Chepe in 2010.” Source of caption and photo: online version of the NYT obituary quoted and cited below.

(p. B15) Oscar Espinosa Chepe, a high-ranking Cuban economist and diplomat who became a vocal critic of Fidel Castro in the 1990s but chose to remain in Cuba, despite enduring harassment and imprisonment, died on Monday [September 23, 2013] . . .
. . .
Mr. Espinosa Chepe (pronounced CHEH-pay) lost his job as an official of the National Bank of Cuba in 1996 after advocating the limited restoration of capitalist principles like the right to buy and sell one’s home or start a business.
He then became a journalist, writing articles for American and Spanish-language Web sites in which he used statistical data to analyze Cuba’s economic problems. In March 2003 he was one of 75 activists arrested as part of a government crackdown on dissent known as the Black Spring.
. . .
Mr. Espinosa Chepe, who joined Castro’s revolutionary government in the early 1960s and was once head of the powerful Office of Agrarian Reform, had frequently clashed with fellow economic planners over policies he considered overly dogmatic.
His internal critique became increasingly adamant after 1991, when the loss of the Soviet Union’s financial support began taking a devastating toll on the country’s economy. But his proposals for change, many of which had already been adopted in former Soviet bloc states, were labeled counterrevolutionary, said Carmelo Mesa-Lago, a professor emeritus of economics and Latin American studies at the University of Pittsburgh and an expert on Cuban economic policies.

For the full obituary, see:
PAUL VITELLO. “Oscar Espinosa Chepe, Cuban Economist and Castro Critic, Dies at 72.” The New York Times (Fri., September 27, 2013): B15.
(Note: ellipses, and bracketed date, added.)
(Note: the online version of the obituary has the date September 25, 2013.)

Google Used Auction Model to Allocate Internal Resources

(p. 202) Google’s chief economist, Hal Varian, would later explain how it worked when new data centers open: “We’ll build a nice new data center and say, ‘Hey, Google Docs, would you move your machines over here?’ And they say, ‘Sure, next month.’ Because nobody wants to go through the disruption of shifting. So I suggested we run an auction similar to what airlines do when they oversell a plane– they keep offering bigger vouchers until enough customers are willing to give up their seats. In our case, we offer more machines in exchange for moving. One group might do it for fifty new ones, another for a hundred, and another won’t move unless we give them three hundred. So we give them to the lowest bidder– they get their extra capacity, and we get computation shifted to the new data center.”
Google eventually devised an elaborate auction model for divvying up existing resources. In a paper entitled “Using a Market Economy to Provision Computer Resources Across Planet-wide Clusters,” a group of Google engineers, along with a Stanford professor of management science and engineering, reported a project that essentially made Google’s
computational resources into a silicon Wall Street. Supply and demand worked here not to fix stock prices but to place a value on resources. The system not only allowed projects at Google to get fair access to storage and computational cycles but identified shortages in computers, storage, and bandwidth. Instead of the Vickery auction used by AdWords, the system used an “ascending clock auction.” At the beginning, the current price of each resource would be displayed, and Google engineers in competing projects could claim them at that price. The ideal outcome would ensure sufficient resources for everyone, in which case the auction stopped. Otherwise, the automated auctioneer would raise the prices for the next “time slot,” and (p. 203) remaining competitors for those resources had to decide whether to bid higher. And so on, until the engineers not willing to stake their budgets on the most contested resources dropped out. “Hence,” write the paper’s authors, “the auction allows users to ‘discover’ prices in which all users pay/ receive payment in proportion to uniform resource prices.”

Source:
Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.

Sound Economic Policies Benefit Africa More than Sachs’ Profligate Interventions

Source of book image: http://images.huffingtonpost.com/2013-09-02-TheIdealist.jpg

(p. A19) Nina Munk’s new book, “The Idealist,” is about the well-known economist Jeffrey Sachs and his “quest to end poverty,” as the subtitle puts it.
. . .
The quest began in 2005, when Sachs, who directs the Earth Institute at Columbia University, started an ambitious program called the Millennium Villages Project. He and his team chose a handful of sub-Saharan African villages, where they imposed a series of “interventions” in such areas as agriculture, health and education.
. . .
With almost every intervention, she documents the chasm that exists between the villagers and those running the project. At one point, the Millennium Villages Project persuades the farmers in Ruhiira to grow maize instead of their traditional crop, called matoke. “The results were fantastic,” she reports, a bumper crop. Except there were no buyers for the maize, so some of it wound up being eaten by rats. In Dertu, Sachs’s staff decided it should set up a livestock market. It flopped. Efforts to convince villagers to start small businesses largely failed. The critical problem of getting clean water to the villages was enormously expensive.
Ultimately, reports Munk, Dertu was scaled back by the Millennium Villages Project while Ruhiira is today lauded as one of the project’s most successful villages. “There is no question the lives of people in Ruhiira have been improved,” Munk told me. “I’ve seen it.” But she is dubious about what that means — other than the fact that if you pump millions of dollars into an isolated African village, the villagers’ lives will be better.
. . .
That things in Africa are getting better is undeniable. Child mortality is down, as is the number of people living in extreme poverty. In his book, “Emerging Africa,” Steve Radelet, the former chief economist for the United States Agency for International Development, gives credit to such factors as more democratic governments, a new class of civil servants and businesspeople, and sounder economic policies. Sachs wants us to believe that the Millennium Villages Project has also helped show the way.
“The Idealist” makes it tough to believe it’s the latter.

For the full review, see:
JOE NOCERA. “Fighting Poverty, and Critics.” The New York Times (Tues., September 3, 2013): A19.
(Note: ellipses added.)
(Note: the online version of the review has the date September 2, 2013.)

The book under review is:
Munk, Nina. The Idealist: Jeffrey Sachs and the Quest to End Poverty. New York: Doubleday, 2013.

The Radelet book mentioned is:
Radelet, Steven. Emerging Africa: How 17 Countries Are Leading the Way. pb ed. Washington, D.C.: Center for Global Development, 2010.

After 25 Years of Government Harassment, A&P Was Finally Allowed to Lower Prices for Consumers

The two main types of creative destruction are: 1.) new products and 2.) process innovations. Much has been written about the new product type; much less about the process innovation type. Marc Levinson has written two very useful books on process innovations that are important exceptions. The first is The Box and the second is The Great A&P.

(p. A13) A prosecutor in Franklin Roosevelt’s administration called it a “giant blood sucker.” A federal judge in Woodrow Wilson’s day deemed it a “monopolist,” and another, during Harry Truman’s presidency, convicted it of violating antitrust law. The federal government investigated it almost continuously for a quarter-century, and more than half the states tried to tax it out of business. For its strategy of selling groceries cheaply, the Great Atlantic & Pacific Tea Company paid a very heavy price.
. . .
A&P was Wal-Mart long before there was Wal-Mart. Founded around the start of the Civil War, it upset the tradition-encrusted tea trade by selling teas at discount prices by mail and developing the first brand-name tea. A few years later, its tea shops began to stock spices, baking powder and canned goods, making A&P one of the first chain grocers.
Then, in 1912, John A. Hartford, one of the two brothers who had taken over the company from their father, had one of those inspirations that change the course of business. He proposed that the company test a bare-bones format at a tiny store in Jersey City, offering short hours, limited selection and no home delivery, and that it use the cost savings to lower prices. The A&P Economy Store was an instant success. The Great A&P was soon opening one and then two and then three stores per day. By 1920, it had become the largest retailer in the world.
. . .
While shoppers flocked to A&P’s 16,000 stores, small grocers and grocery wholesalers didn’t share their enthusiasm. The anti-chain-store movement dates back at least to 1913, when the American Fair-Trade League pushed for laws against retail price-cutting.
. . .
Thanks in good part to the Hartfords’ tenacity, the restraints on discount retailing began to fade away in the 1950s. Chain-store taxes were gradually repealed, and state laws limiting price competition to protect mom and pop were taken off the books. By 1962, when Wal-Mart, Target, Kmart, and other modern discount formats were born, the pendulum had swung in consumers’ favor.

For the full commentary, see:
MARC LEVINSON. “When Creative Destruction Visited the Mom-and-Pops; The A&P grocery company may be nearing its sell-by date, but a century ago it was a fresh, revolutionary business.” The Wall Street Journal (Sat., Oct. 12, 2013): A13.
(Note: ellipses added.)
(Note: the online version of the commentary has the date Oct. 11, 2013, and had the title “Marc Levinson: When Creative Destruction Visited the Mom-and-Pops; The A&P grocery company may be nearing its sell-by date, but a century ago it was a fresh, revolutionary business.”)

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

Fed-Mandated High Sugar Prices Drive Candy Jobs Abroad

Source of graph: online version of the WSJ article quoted and cited below.

(p. A1) On Friday, [Oct. 18, 2013] the U.S. sugar contract in the futures market settled at 22.28 cents a pound, or 14% higher than the benchmark global price.

U.S. prices can’t fall much lower because of a federal government program that guarantees sugar processors a minimum price. The rest of the world also has a surfeit of sugar, but fewer price restrictions, and big growers like Brazil are expecting a record crop for the current season.
The squeeze explains why Atkinson Candy Co. has moved 80% of its peppermint-candy production to a factory in Guatemala that opened in 2010. That means it can sell bite-size Mint Twists to retailers for 10% to 20% less.
“It wasn’t like we did it for (p. A14) profit reasons. We did it for survival reasons,” said Eric Atkinson, president of the family-owned candy maker, based in Lufkin, Texas. “These are 60 jobs down there…that could be in the U.S.,” he added. “It’s a damn shame.”
Jelly Belly Candy Co. is finishing its second expansion of a factory in Thailand that was opened by the Fairfield, Calif., company in 2007. The sixth-generation family-owned firm sells about 20% of its jelly beans, made in flavors from buttered popcorn to very cherry, outside the U.S.
Sugar makes up about half of the ingredients and cost of a typical jelly bean, said Bob Simpson, Jelly Belly’s president and chief operating officer. Thailand is the world’s fourth-largest sugar producer and gives Jelly Belly access to cheaper sugar, labor and other raw materials than the candy maker has in the U.S.
“You can’t compete shipping finished U.S. goods” anymore, Mr. Simpson said. In the U.S., Jelly Belly has had to raise prices “several times” in the past 10 years due to high sugar prices.
. . .
Three candy-making jobs are lost for each sugar-growing and processing job saved by higher sugar prices, according to a Commerce Department report in 2006.
In a sign that candy makers are taking advantage of lower sugar prices elsewhere, the amount of sugar contained in imported products surged 33% from 2002 to 2012, according to the Agriculture Department.

For the full story, see:
Wexler, Alexandra. “Cheaper Sugar Sends Candy Makers Abroad.” The Wall Street Journal (Mon., Oct. 21, 2013): A1 & A14.
(Note: ellipsis, and bracketed date, added.)
(Note: the online version of the story has the date Oct. 20, 2013.)

“Jelly Belly, whose facility in Fairfield, Calif., is shown above, is expanding its factory in Thailand.” Source of caption and photo: online version of the WSJ article quoted and cited above.

Google Had the Most “Massive Parallelized Redundant Computer Network” in the World

(p. 198) . . . by perfecting its software, owning its own fiber, and innovating in conservation techniques, Google was able to run its computers spending only a third of what its competitors paid. “Our true advantage was actually the fact that we had this massive parallelized redundant computer network, probably more than anyone in the world, including governments,” says Jim Reese. “And we realized that maybe it’s not in our best interests to let our competitors know.”

Source:
Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.
(Note: ellipsis added.)

Goldman I.P.O. Led to Pressure to Grow

Source of book image: http://s.wsj.net/public/resources/images/OB-ZF094_bkrvgo_GV_20131008133334.jpg

(p. B8) Steven G. Mandis, a Ph.D. candidate in sociology at Columbia University, takes a measured, academic approach to the question in a new book, “What Happened to Goldman Sachs,” an examination of the bank’s evolution from an elite private partnership to a vast public corporation — and the effects of that transformation on its culture.

. . .

Mr. Mandis said that the two popular explanations for what might have caused a shift in Goldman’s culture — its 1999 initial public offering and subsequent focus on proprietary trading — were only part of the explanation. Instead, Mr. Mandis deploys a sociological theory called “organizational drift” to explain the company’s evolution.
The essence of his argument is that Goldman came under a variety of pressures that resulted in slow, incremental changes to the firm’s culture and business practices, resulting in the place being much different from what it was in 1979, when the bank’s former co-head, John Whitehead, wrote its much-vaunted business principles.
These changes included the shift to a public company structure, a move that limited Goldman executives’ personal exposure to risk and shifted it to shareholders. The I.P.O. also put pressure on the bank to grow, causing trading to become a more dominant focus. And Goldman’s rapid growth led to more potential for conflicts of interest and not putting clients’ interests first, Mr. Mandis says.

For the full review, see:
PETER LATTMAN. “An Ex-Trader, Now a Sociologist, Looks at the Changes in Goldman.” The New York Times (Tues., October 1, 2013): B8.
(Note: ellipsis added.)
(Note: the online version of the review has the date SEPTEMBER 30, 2013.)

The book under review is:
Mandis, Steven G. What Happened to Goldman Sachs: An Insider’s Story of Organizational Drift and Its Unintended Consequences. Boston, MA: Harvard Business School Publishing, 2013.

“Steven G. Mandis is the author of “What Happened to Goldman Sachs.”” Source of caption and photo: online version of the NYT article quoted and cited above.

Silicon Valley Is Open to Creative Destruction, But Tired of Taxes

(p. A15) Rancho Palos Verdes, Calif.
When the howls of creative destruction blew through the auto and steel industries, their executives lobbied Washington for bailouts and tariffs. For now, Silicon Valley remains optimistic enough that its executives don’t mind having their own businesses creatively destroyed by newer technologies and smarter innovations. That’s an encouraging lesson from this newspaper’s recent All Things Digital conference, which each year attracts hundreds of technology leaders and investors.
. . .
In a 90-minute grilling by the Journal’s Walt Mossberg and Kara Swisher, Apple Chief Executive Tim Cook assured the audience that his company has “some incredible plans that we’ve been working on for a while.”
Mr. Cook’s sunny outlook was clouded only by his dealings with Washington. He was recently the main witness at hearings called by Sen. Carl Levin, a Michigan Democrat, who accused Apple of violating tax laws. In fact, Apple’s use of foreign subsidiaries is entirely legal–and Apple is the largest taxpayer in the U.S., contributing $6 billion a year to the government’s coffers.
Mr. Cook put on a brave face about the hearings, saying, “I thought it was very important to go tell our side of the story and to view that as an opportunity instead of a pain in the [expletive].” Mr. Cook’s foul language was understandable. “Just gut the [tax] code,” he told the conference. “It’s 7,500 pages long. . . . Apple’s tax return is two feet high. It’s crazy.”
When the audience applauded, Ms. Swisher quipped, “All right, Rand Paul.” A woman shouted: “No, I’m a Democrat!” One reason the technology industry remains the center of innovation may be that many technologists of all parties view trips to Washington as a pain.

For the full commentary, see:
L. GORDON CROVITZ. “INFORMATION AGE; Techies Cheer Creative Destruction.” The Wall Street Journal (Mon., June 3, 2013): A15.
(Note: ellipsis between paragraphs added; italics in original; ellipsis, and bracketed words, within next-to-last paragraph, in original.)
(Note: the online version of the commentary has the date June 2, 2013.)

Larry Page: “At His Core He Cares about Latency”

(p. 184) Speed had always been an obsession at Google, especially for Larry Page. It was almost instinctual for him. “He’s always measuring everything,” says early Googler Megan Smith. “At his core he cares about latency.” More accurately, he despises latency and is always trying to remove it, like Lady Macbeth washing guilt from her hands. Once Smith was walking down the street with him in Morocco and he suddenly dragged her into a random Internet café with maybe three machines. Immediately, he began timing how long it took web pages to load into a browser there.
Whether due to pathological impatience or a dead-on conviction that speed is chronically underestimated as a factor in successful products, Page had been insisting on faster delivery for everything Google from the beginning. The minimalism of Google’s home page, allowing for lightning-quick (p. 185) loading, was the classic example. But early Google also innovated by storing cached versions of web pages on its own servers, for redundancy and speed.
“Speed is a feature,” says Urs Hölzle. “Speed can drive usage as much as having bells and whistles on your product. People really underappreciate it. Larry is very much on that line.”

Source:
Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.

Push the Flywheel, in Business and Life

Jim Collins makes wonderful use of the flywheel analogy in his Good to Great book. His point is that many achievements in business require long, gradual work to build to a major achievement that finally gets noticed by the business press and the general public. The business press often assumes that the success is overnight, when it is in fact long-building.

(p. C14) Flywheels – weighted wheels used for absorbing, storing and releasing energy – get used in everything from pottery wheels to car engines. Lately, they have showed up in corporate spin.

“Our more than 19,000 store global footprint, our fast-growing CPG presence and our best-in-class digital, card, loyalty and mobile capabilities are creating a ‘flywheel’ effect elevating the relevancy of all things Starbucks, and driving profitability,” CEO Howard Schultz said in a statement accompanying quarterly earnings last month.
“So we have the flywheel spinning in the right direction because it is spinning one way and letting us generate these margins, contribution margins,” said Overstock.com CEO Patrick Byrne last month. “And so now we can give some of that back and that makes it easier to get it spinning faster.”
“We are at the one-mile market (sic) in a marathon,” commented Symantec CEO Steve Bennett in an earnings call with analysts last week, “and the flywheel is just starting to spin.”

For the full story, see:
JUSTIN LAHART. “Overheard.” The Wall Street Journal (Weds., Aug 6, 2013): C14.
(Note: the online version of the story has the date Aug 6, 2013, and had the title “Ride a Painted Pony, Let the Spinning Wheel Fly.” The print version did not identify an author. The versions were slightly different in two or three places–when different, the version quoted above follows the print version.)

The Collins book, mentioned above, is:
Collins, Jim. Good to Great: Why Some Companies Make the Leap… And Others Don’t. New York: HarperCollins Publishers, Inc., 2001.

Dohrmann and Quevedo Survive Creative Destruction of Inacom

“Cosentry, an Omaha-based provider of data center storage and managed technology services, has a new CEO, Brad Hokamp, center. With him at the Cosentry data center in Papillion are company founders Kevin Dohrmann, left, and Manny Quevedo.” Source of caption and photo: online version of the Omaha World-Herald article quoted and cited below.

Innovation through creative destruction brings us the new products and processes that make our lives longer, richer and more satisfying. The major downside of creative destruction is the job loss of those working for firms that are creatively destroyed. Sometimes, in class, I use Omaha’s Inacom as a concrete example. Inacom was a value-added retailer of computer equipment. They would buy PCs from IBM, Compaq and the like, then add software and hardware, and re-sell and install for firms, at a mark-up. They were creatively destroyed by Dell’s process innovation of customizing and selling direct, at much lower prices than Inacom charged. When I arrived in Omaha, Inacom was one of a handful of Fortune 500 firms. Now Inacom is gone. But just because a firm is creatively destroyed does not imply that all those who worked for the firm are creatively destroyed. Dohrmann and Quevedo were executives at Inacom. They had the skills, knowledge, resilience and work ethic to create their own entrepreneurial startup that has thrived. Not everyone can do what Dohrmann and Quevedo did. But everyone should be able to improve their skills, knowledge, resilience, and work ethic, so that if creative destruction destroys the firm that employs them, they will still survive and possibly thrive.

(p. 1D) Cosentry’s regional data center footprint has grown far from its “humble beginnings” 12 years ago of just 4,000 square feet in the old Southroads Mall in Bellevue.

“Everyone saw it as a mall that was in deterioration, and I walked in and saw the most beautiful building in Omaha,” co-founder Manny Quevedo said, (p. 3D) remembering solid walls and below-grade space for computer systems.
Investments from Omaha firms Waitt Co. and McCarthy Capital along the way helped the firm grow; it was sold in 2011 to Boston private equity firm TA Associates but still has its headquarters at 127th Street and West Dodge Road.
. . .
The company’s workforce has approximately doubled in the last five years to nearly 200, more than half of them in Nebraska, and will continue to grow gradually with the expansion as Cosentry hires more engineers and technicians, Quevedo said.
Today the company has six data centers, including two each in the Kansas City and Sioux Falls, S.D., metropolitan areas. If you use utilities or health care services or do any shopping or banking in the region, there’s a chance some of your information has been stored or processed through Cosentry’s servers.
Cosentry started with what Quevedo said was a handful of clients and grew to hundreds within its first five years.
. . .
(p. 3D) Cosentry Timeline
2001: With investment from Waitt Co., Cosentry is started by Manny Quevedo and Kevin Dohrmann, former employees of InaCom, the former Omaha Fortune 500 computer dealer that began as a division of Valmont Industries but merged with VanStar of Atlanta in 2000 and later declared bankruptcy. Cosentry creates a data center in Bellevue.
2005: Cosentry, also called IPR Inc., sold its IP Revolution division to a Kansas firm, Choice Solutions. IP Revolution sold voice and data communications services and systems. Cosentry doubles the size of its Bellevue data center and expands to the Kansas City and Sioux Falls, S.D., markets.
2008: Omaha investment firm McCarthy Capital invests in the firm. At the time, Cosentry had 95 employees.
2010: Cosentry cuts the ribbon on the $26 million Midlands Data Center in Papillion, a joint project with Alegent Health, which uses the center to store electronic medical records.
2011: Boston investment firm TA Associates buys Cosentry for an undisclosed amount from McCarthy and Waitt. The local management team continues to operate and have an ownership stake in Cosentry. The firm expands with second data centers in both the Sioux Falls and Kansas City markets.
2013: Cosentry refinances its credit facilities to provide up to $100 million to enable expansion, including the expansion of the Midlands Data Center. Today, Cosentry has nearly 200 employees and six data centers in three metropolitan areas.

For the full story, see:
Barbara Soderlin. “A Growing Tech Footprint: As Businesses’ Data Storage Needs Expand, Cosentry Adds to Its Papillion Center.” Omaha World-Herald (MONDAY, AUGUST 26, 2013): 1D & 3D.
(Note: ellipses added; bold in original print version of article.)
(Note: the online version of the article has the title “As Businesses’ Data Storage Needs Expand, Cosentry Adds to Its Papillion Center.”)

“Scott Capps of Cosentry’s Papillion data center with the cooling system that helped Cosentry earn an Energy Star certification, which is given by the Environmental Protection Agency based on energy efficiency and lower emissions. It’s the only data center in Nebraska with the certification.” Source of caption and photo: the archive online version of the Omaha World-Herald article quoted and cited above.