Pixar as a Case Study on Innovative Entrepreneurship

Pixar-TouchBK2012-02-05.jpg

Source of book image: http://murraylibrary.org/2011/09/the-pixar-touch-the-making-of-a-company/

Toy Story and Finding Nemo are among my all-time-favorite animated movies. How Pixar developed the technology and the story-telling sense, to make these movies is an enjoyable and edifying read.
Along the way, I learned something about entrepreneurship, creative destruction, and the economics of technology. In the next couple of months I occasionally will quote passages that are memorable examples of broader points or that raise thought-provoking questions about how innovation happens.

Book discussed:
Price, David A. The Pixar Touch: The Making of a Company. New York: Alfred A. Knopf, 2008.

Jobless Rate Appears Lower as Aging Population Leaves Labor Force

(p. A4) As more baby boomers leave the job market, the participation rate should continue to decline–a group of economists at the Federal Reserve projected in 2006 that it would fall to 62.5% by 2015. While that suggests the economy won’t need to create as many jobs to bring down the unemployment rate, said Barclays Capital economist Dean Maki, the downside is that it won’t have as large a work force to power it along and pay for the needs of an aging population.
“If you have a greater fraction of the population not working, that will make it harder to pay for costs that will be ballooning,” he said.

For the full story, see:
JUSTIN LAHART. “Aging Population Eases Jobless Rate.” The Wall Street Journal (Sat., November 5, 2011): A4.

Euro Haiku

Welfare states’ debt due
Ratings downgrades, states default
Euro muddles through

Arthur Diamond

The haiku above was my entry in response to the haiku challenge in the Kauffman Foundation’s First Quarter 2012 survey “of top economics bloggers.” The haiku challenge was: “The euro is troubled, so what is its fate in 2012 and/or what should policymakers do?”

The results of the Q1 2012 survey can be found at: http://www.kauffman.org/uploadedFiles/econ_bloggers_outlook_q1_2012.pdf

The Tasmanian Technological Regress: “Slow Strangulation of the Mind”

(p. 78) The most striking case of technological regress is Tasmania. Isolated on an island at the end of the world, a population of less than 5,000 hunter-gatherers divided into nine tribes did not just stagnate, or fail to progress. They fell steadily and gradually back into a simpler toolkit and lifestyle, purely because they lacked the numbers to sustain their existing technology. Human beings reached Tasmania at least 35,000 years ago while it was still connected to Australia. It remained connected – on and off – until about 10,000 years ago, when the rising seas filled the Bass Strait. Thereafter the Tasmanians were isolated. By the time Europeans first encountered Tasmanian natives, they found them not only to lack many of the skills and tools of their mainland cousins, but to lack many technologies that their own ancestors had once possessed. They had no bone tools of any kind, such as needles and awls, no cold-weather clothing, no fish hooks, no hafted tools, no barbed spears, no fish traps, no spear throwers, no boomerangs. A few of these had been invented on the mainland after the Tasmanians had been isolated from it – the boomerang, for instance – but most had been made and used by the very first Tasmanians. Steadily and inexorably, so the archaeological history tells, these tools and tricks were abandoned. Bone tools, for example, grew simpler and simpler until they were dropped altogether about 3,800 years ago. Without bone tools it became impossible to sew skins into clothes, so even in the bitter winter, the Tasmanians went nearly naked but for seal-fat grease smeared on their skin and wallaby pelts over their shoulders. The first Tasmanians caught and ate plenty of fish, but by the time of Western contact they not only ate no fish (p. 79) and had eaten none for 3,000 years, but they were disgusted to be offered it (though they happily ate shellfish).
The story is not quite that simple, because the Tasmanians did invent a few new things during their isolation. Around 4,000 years ago they came up with a horribly unreliable form of canoe-raft, made of bundles of rushes and either paddled by men or pushed by swimming women (!), which enabled them to reach offshore islets to harvest birds and seals. The raft would become waterlogged and disintegrate or sink after a few hours, so it was no good for re-establishing contact with the mainland. As far as innovation goes, it was so unsatisfactory that it almost counts as an exception to prove the rule. The women also learnt to dive up to twelve feet below the water to prise clams off the rocks with wooden wedges and to grab lobsters. This was dangerous and exhausting work, which they were very skilled at: the men did not take part. So it was not that there was no innovation; it was that regress overwhelmed progress.
The archaeologist who first described the Tasmanian regress, Rhys Jones, called it a case of the ‘slow strangulation of the mind’, which perhaps understandably enraged some of his academic colleagues. There was nothing wrong with individual Tasmanian brains; there was something wrong with their collective brains. Isolation – self-sufficiency – caused the shrivelling of their technology. Earlier I wrote that division of labour was made possible by technology. But it is more interesting than that. Technology was made possible by division of labour: market exchange calls forth innovation.

Source:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.

Study Finds Lack of Control at Office Is Deadly for Men

(p. C12) . . . Israeli scientists found that the factor most closely linked to health was the support of co-workers: Less-kind colleagues were associated with a higher risk of dying. While this correlation might not be surprising, the magnitude of the effect is unsettling. According to the data, middle-age workers with little or no “peer social support” in the workplace were 2.4 times more likely to die during the study.
But that wasn’t the only noteworthy finding. The researchers also complicated longstanding ideas about the relationship between the amount of control experienced by employees and their long-term health. Numerous studies have found that the worst kind of workplace stress occurs when people have little say over their day. These employees can’t choose their own projects or even decide which tasks to focus on first. Instead, they must always follow the orders of someone else. They feel like tiny cogs in a vast corporate machine.
Sure enough, this new study found that a lack of control at the office was deadly–but only for men. While male workers consistently fared better when they had some autonomy, female workers actually fared worse. Their risk of mortality was increased when they were put in positions with more control.
While it remains unclear what’s driving this unexpected effect, one possibility is that motherhood transforms control at the office–normally, a stress reducer–into a cause of anxiety. After all, having a modicum of control means that women must constantly navigate the tensions between work and family. Should they stay late at their job? Or go home and help take care of the kids? This choice is so stressful that it appears to increase the risk of death.

For the full summary, see:
JONAH LEHRER. “HEAD CASE; Your Co-Workers Might Be Killing You; Hours don’t affect health much–but unsupportive colleagues do.” The Wall Street Journal (Sat., August 20, 2011): C12.
(Note: ellipsis added.)

The paper referred to in the quote from Lehrer’s summary is:
Shirom, Arie, Sharon Toker, Yasmin Alkaly, Orit Jacobson, and Ran Balicer. “Work-Based Predictors of Mortality: A 20-Year Follow-up of Healthy Employees.” Health Psychology 30, no. 3 (May 2011): 268-75.

How to Slow Down Creative Destruction

(p. 356) This catallaxy will not go smoothly, or without resistance. Natural and unnatural disasters will still happen. Governments will bail out big corporations and big bureaucracies, hand them special favours such as subsidies or carbon rations and regulate them in such a way as to create barriers to entry, slowing down creative destruction. Chiefs, priests, thieves, financiers, consultants and others will appear on all sides, feeding off the surplus (p. 357) generated by exchange and specialisation, diverting the life-blood of the catallaxy into their own reactionary lives. It happened in the past. Empires bought stability at the price of creating a parasitic court; monotheistic religions bought social cohesion at the price of a parasitic priestly class; nationalism bought power at the expense of a parasitic military; socialism bought equality at the price of a parasitic bureaucracy; capitalism bought efficiency at the price of parasitic financiers.

Source:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.

Creative Destruction Creates as Many New Jobs as It Destroys

(p. 113) It was Joseph Schumpeter who pointed out that the competition which keeps a businessman awake at night is not that from his rivals cutting prices, but that of entrepreneurs making (p. 114) his product obsolete. As Kodak and Fuji slugged it out for dominance in the 35mm film industry in the 1990s, digital photography began to extinguish the entire market for analogue film – as analogue records and analogue video cassettes had gone before. Creative destruction, Schumpeter called it. His point was that there is just as much creation going on as destruction – that the growth of digital photography would create as many jobs in the long run as were lost in analogue, or that the savings pocketed by a Wal-Mart customer are soon spent on other things, leading to the opening of new stores to service those new demands. In America, roughly 15 per cent of jobs are destroyed every year; and roughly 15 per cent created.

Source:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.

More Options Can Result in Focus on Quality Instead of Choice Paralysis

(p. C4) Much of the research on decision-making focuses on the “choice paralysis” commonly thought to result from having too many options. But new research suggests that instead of being a debilitating factor, having many options actually sharpens our focus on quality.

For the full summary, see:
DAVID DISALVO. “Commerce; Choosing the Very Best.” The Wall Street Journal (Sat., August 20, 2011): C4.

The paper summarized is:
Bertini, Marco, Luc Wathieu, and Sheena S. Sethi-Iyengar. “The Discriminating Consumer: Product Proliferation and Willingness to Pay for Quality.” SSRN eLibrary (2010).

Paleolithic Homo Sapiens Engaged in Long Distance Trade

(p. 71) At Mezherich, in what is now Ukraine, 18,000 years ago, jewellery made of shells from the Black Sea and amber from the Baltic implied trade over hundreds of miles.
This is in striking contrast to the Neanderthals, whose stone tools were virtually always made from raw material available within an hour’s walk of where the tool was used.

Source:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.

Hunter-Gatherers Suffered Violence, Famine and Disease–No Idyllic Golden Age

(p. 44) The warfare death rate of 0.5 per cent of the population per year that was typical of many hunter-gatherer societies would equate to two billion people dying during the twentieth century (instead of 100 million). At a cemetery uncovered at Jebel Sahaba, in Egypt, dating from 14,000 years ago, twenty-four of the fifty-nine bodies had died from unhealed wounds caused by spears, darts and arrows. Forty of these bodies were women or children. Women and children generally do not take part in warfare – but they are (p. 45) frequently the object of the fighting. To be abducted as a sexual prize and see your children killed was almost certainly not a rare female fate in hunter-gatherer society. After Jebel Sahaba, forget the Garden of Eden; think Mad Max.
It was not just warfare that limited population growth. Hunter-gatherers are often vulnerable to famines. Even when food is abundant, it might take so much travelling and trouble to collect enough food that women would not maintain a sufficient surplus to keep themselves fully fertile for more than a few prime years. Infanticide was a common resort in bad times. Nor was disease ever far away: gangrene, tetanus and many kinds of parasite would have been big killers. Did I mention slavery? Common in the Pacific north-west. Wife beating? Routine in Tierra del Fuego. The lack of soap, hot water, bread, books, films, metal, paper, cloth? When you meet one of those people who go so far as to say they would rather have lived in some supposedly more delightful past age, just remind them of the toilet facilities of the Pleistocene, the transport options of Roman emperors or the lice of Versailles.

Source:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.

Gary Becker Says “Economics Trumps Culture”

At the Chicago American Economic Association (AEA) meetings, I attended an 8 AM session on Sun., Jan. 8, 2012 in honor of the 30 anniversary of Gary Becker’s Treatise on the Family. At the end of the session, Becker discussed five issues related to the book.
One of these was the question of whether the features of the family are best understood on the basis of economic issues or cultural issues. He mentioned two examples: the Irish family and the Asian family. In the past it had been claimed that the Irish family would have enduring features due to religion and culture, features such as many children and women who stayed at home. Today, Becker noted, the Irish family looks much like other European families. He then paraphrased Singapore’s former ruler Lee Kuan Yew as having claimed in the past that the Asian family is superior to the Western family in its cohesiveness and loyalty. Today, Becker noted, Asian families look much more like Western families. Becker concluded that in the short run cultural factors may dominate, but that in the long run economic factors dominate. He said “Economics trumps culture.”
Becker’s discussion has broader relevance. One of the issues that I am grappling with in my research and teaching is the extent to which success at entrepreneurial innovation depends on cultural differences and the extent to which it depends on differences in constraints and policies.
If policies matter more, then it is easier to see a clear path toward progress, than if murkier cultural issues matter more.