Economics – Page 198 – artdiamondblog.com

Entrepreneur Ken Olsen Was First Lionized and Then Chastised

“Ken Olsen, the pioneering founder of DEC, in 1996.” Source of caption and photo: online version of the NYT article quoted and cited below.

I believe in The Road Ahead, Bill Gates describes Ken Olsen as one of his boyhood heroes for having created a computer that could compete with the IBM mainframe. His hero failed to prosper when the next big thing came along, the PC. Gates was determined that he would avoid his hero’s fate, and so he threw his efforts toward the internet when the internet became the next big thing.
Christensen sometimes uses the fall of minicomputers, like Olsen’s Dec, to PCs as a prime example of disruptive innovation, e.g., in his lectures on disruptive innovation available online through Harvard. A nice intro lecture is viewable (but only using Internet Explorer) at: http://gsb.hbs.edu/fss/previews/christensen/start.html

(p. A22) Ken Olsen, who helped reshape the computer industry as a founder of the Digital Equipment Corporation, at one time the world’s second-largest computer company, died on Sunday. He was 84.

. . .
Mr. Olsen, who was proclaimed “America’s most successful entrepreneur” by Fortune magazine in 1986, built Digital on $70,000 in seed money, founding it with a partner in 1957 in the small Boston suburb of Maynard, Mass. With Mr. Olsen as its chief executive, it grew to employ more than 120,000 people at operations in more than 95 countries, surpassed in size only by I.B.M.
At its peak, in the late 1980s, Digital had $14 billion in sales and ranked among the most profitable companies in the nation.
But its fortunes soon declined after Digital began missing out on some critical market shifts, particularly toward the personal computer. Mr. Olsen was criticized as autocratic and resistant to new trends. “The personal computer will fall flat on its face in business,” he said at one point. And in July 1992, the company’s board forced him to resign.

For the full obituary, see:
GLENN RIFKIN. “Ken Olsen, Founder of the Digital Equipment Corporation, Dies at 84.” The New York Times (Tues., February 8, 2011): A22.
(Note: ellipsis added.)
(Note: the online version of the story is dated February 7, 2011 and has the title “Ken Olsen, Who Built DEC Into a Power, Dies at 84.”)

Gates writes in autobiographical mode in the first few chapters of:
Gates, Bill. The Road Ahead. New York: Viking Penguin, 1995.

Christensen’s mature account of disruptive innovation is best elaborated in:
Christensen, Clayton M., and Michael E. Raynor. The Innovator’s Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

“For the First 40 Years of Indian Independence, Entrepreneurs . . . Were Looked Down Upon”

(p. 8) Saurabh Srivastava, co-founder of the National Association of Software and Service Companies in India, explained that for the first 40 years of Indian independence, entrepreneurs here were looked down upon. India had lost confidence in its ability to compete, so it opted for protectionism. But when the ’90s rolled around, and India’s government was almost bankrupt, India’s technology industry was able to get the government to open up the economy, in part by citing the example of America and Silicon Valley. India has flourished ever since.

“America,” said Srivastava, “was the one who said to us: ‘You have to go for meritocracy. You don’t have to produce everything yourselves. Go for free trade and open markets.’ This has been the American national anthem, and we pushed our government to tune in to it. And just when they’re beginning to learn how to hum it, you’re changing the anthem. … Our industry was the one pushing our government to open our markets for American imports, 100 percent foreign ownership of companies and tough copyright laws when it wasn’t fashionable.”

If America turns away from these values, he added, the socialist/protectionists among India’s bureaucrats will use it to slow down any further opening of the Indian markets to U.S. exporters.

For the full commentary, see:
THOMAS L. FRIEDMAN. “It’s Morning in India.” The New York Times, Week in Review Section (Sun., October 31, 2010): 8.
(Note: the online version of the story is dated October 30, 2010.)

Risking Likely Death for a Tiny Chance to “Dwell in Freedom and Earn $5.15 an Hour”

(p. 281) For all the legitimate problems people experience in the Western nations, we cannot imagine a world which generates such hopelessness that people will hurl themselves toward moving trains, or climb into the wheel wells of jetliners bound for the sky in order to have a tiny chance of getting to a place where they can dwell in freedom and earn $5.15 an hour.

Source:
Easterbrook, Gregg. The Progress Paradox: How Life Gets Better While People Feel Worse. Paperback ed. New York: Random House, 2004.

“A Dart-Throwing Chimpanzee” Predicts as Well as “Experts”

The image is of the Canadian edition, which has a different subtitle than the American edition cited below. Source of book image: http://3.bp.blogspot.com/_qGSiMLu6NXM/TTWIQkcllmI/AAAAAAAADEI/qD2yo1rxnL0/s1600/Future%2BBabble.jpg

(p. C6) How bad are expert predictions? Almost predictably bad. In 2005, Philip Tetlock, a professor of psychology at the University of Pennsylvania, published the results of a magisterial 20-year analysis of 27,450 judgments about the future from 284 experts. He discovered that the experts, in aggregate, did little better, and sometimes considerably worse, than “a dart-throwing chimpanzee.”

While Mr. Tetlock guaranteed anonymity to get his experts to reveal how useless they were, Mr. Gardner names names. In the late 1960s, he notes, the political scientist Andrew Hacker predicted that race relations in America would soon get so bad that they would lead to the “dynamiting of bridges and water mains” and the “assassinating of public officials and private luminaries.” In the early 1970s, Richard Falk, at Princeton, imagined that by the 1990s we would be living in a world dominated by “the politics of catastrophe.” In the mid-1970s, Daniel Bell and other analysts assumed that high levels of inflation were, as Mr. Gardner puts it, “here to stay.” (In fact, inflation cooled off in the early 1980s and has stayed low for decades.) In the early 1990s, Lester Thurow, the MIT economist, was one of the experts who predicted that Japan would dominate the 21st century, though he noted that Europe had a chance, too.
The high priest of erroneous prediction is, of course, Paul Ehrlich, who, though a respected entomologist, turned into an end-of-the-worlder with “The Population Bomb” (1968) and “The End of Affluence” (1974). In the latter book he wrote: “If I were a gambler, I would take even money that England will not exist in the year 2000.” Now 77, Mr. Ehrlich is “a gregarious and delightful man, a natural performer,” Mr. Gardner reports, thereby tapping into the sources of his success in the face of repeated failure: Never admit mistakes, never sound doubtful. As Mr. Gardner shows in his survey of expert prediction-making, the more you sound like you know what you are talking about, the more people will believe you.

For the full review, see:
TREVOR BUTTERWORTH. “Prophets of Error.” Wall Street Journal (Sat., APRIL 30, 2011): C6.
(Note: the online version of the article is dated APRIL 30, 2011.)

The book being reviewed, is:
Gardner, Dan. Future Babble: Why Expert Predictions Are Next to Worthless, and You Can Do Better. New York: Dutton Adult, 2011.

The important Tetlock book mentioned, is:
Tetlock, Philip E. Expert Political Judgment: How Good Is It? How Can We Know? Princeton, NJ: Princeton University Press, 2005.

Income Inequality Makes People Happy When It Gives Them Hope

(p. A19) If the royal family were to utilize Kate’s background to help encourage and spread this culture of entrepreneurship, the effects in Britain–and possibly much of the world–could be incredible. The people of the United Kingdom would be much richer, and not just in material terms. “Earned success gives people a sense of meaning about their lives,” writes the social scientist Arthur Brooks, who is president of the American Enterprise Institute think tank.

Indeed, studies show that in both the U.S. and U.K., many blue- and white-collar workers prefer to have the opportunity to advance, even if this means a less equal income distribution. A study of thousands of British employees by Andrew Clark, associate chair of the Paris School of Economics, found that measures of these workers’ happiness actually rose as their demographic group’s average income increased relative to their own.

These findings suggests that as people see members of their peer group gain wealth–even surpassing them–it gives them hope that they can improve their lot as well. As Mr. Clark put it in his study of British workers, “income inequality . . . need not be harmful for economic growth” if it “contains an aspect of opportunity.”

For the full story, see:
JOHN BERLAU. “The Entrepreneurs’ Princess; For centuries in Britain, commercial activities were looked down upon by the aristocracy, whose wealth lay in landownership.” Wall Street Journal (Thurs., APRIL 28, 2011): A17.

Data on Race Are Muddled by Melting Pot

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

(p. A1) The federal Department of Education would categorize Michelle López-Mullins — a university student who is of Peruvian, Chinese, Irish, Shawnee and Cherokee descent — as “Hispanic.” But the National Center for Health Statistics, the government agency that tracks data on births and deaths, would pronounce her “Asian” and “Hispanic.” And what does Ms. López-Mullins’s birth certificate from the State of Maryland say? It doesn’t mention her race.

Ms. López-Mullins, 20, usually marks “other” on surveys these days, but when she filled out a census form last year, she chose Asian, Hispanic, Native American and white.
The chameleon-like quality of Ms. López-Mullins’s racial and ethnic identification might seem trivial except that statistics on ethnicity and race are used for many important purposes. These include assessing disparities in health, education, employment and housing, enforcing civil rights protections, and deciding who might qualify for special consideration as members of underrepresented minority groups.
But when it comes to keeping racial statistics, the nation is in transition, moving, often without uniformity, from the old “mark one (p. A17) box” limit to allowing citizens to check as many boxes as their backgrounds demand. Changes in how Americans are counted by race and ethnicity are meant to improve the precision with which the nation’s growing diversity is gauged: the number of mixed-race Americans, for example, is rising rapidly, largely because of increases in immigration and intermarriage in the past two decades. (One in seven new marriages is now interracial or interethnic.)
In the process, however, a measurement problem has emerged. Despite the federal government’s setting standards more than a decade ago, data on race and ethnicity are being collected and aggregated in an assortment of ways. The lack of uniformity is making comparison and analysis extremely difficult across fields and across time.

For the full story, see:
SUSAN SAULNY. “Race Remixed; In Multiracial Nation, Many Ways to Tally Can Throw Off Some Numbers.” The New York Times, First Section (Thurs., February 10, 2011): A1 & A17.
(Note: the online version of the story is dated February 9, 2011 and has the title “Race Remixed; Counting by Race Can Throw Off Some Numbers.”)

Reduce Spending for Stronger Economy

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

(p. A17) To the extent that government spending crowds out job-creating private investment, it can actually worsen unemployment. Indeed, extensive government efforts to stimulate the economy and reduce joblessness by spending more have failed to reduce joblessness.

Above all, the federal government needs a credible and transparent budget strategy. It’s time for a game-changer–a budget action that will stop the recent discretionary spending binge before it gets entrenched in government agencies.
. . .
We can see such a sensible budget strategy starting to emerge. The first step of the strategy is largely being addressed by the House budget plan for 2011, or HR1. Though voted down in its entirety by the Senate, it is now being split up into “continuing” resolutions that add up to the same spending levels.

For the full commentary, see:

GARY S. BECKER, GEORGE P. SHULTZ AND JOHN B. TAYLOR. “OPINION; Time for a Budget Game-Changer; Assurance that current tax levels will remain in place would provide an immediate stimulus. House Republican budget planners are on the right track.” The Wall Street Journal (Mon., APRIL 4, 2011): A17.
(Note: ellipsis added.)

Italy’s Dynastic Capitalism “Is Built Around Loyalty, Not Performance”

“Carlo Altomonte, an economist, says that “Italy’s problem isn’t that we have a lot of debt. It’s that we don’t grow.”” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 6) “I know that in the States, all Mediterranean countries get lumped together,” says Carlo Altomonte, an economist with Bocconi University in Milan. “But Italy’s problem isn’t that we have a lot of debt. It’s that we don’t grow.”
. . .
“There is no sense of what a market economy is in this country,” says Professor Altomonte. “What you see here is an incredible fear of competition.”
. . .
FIVE years ago, Francesco Giavazzi needed a taxi. Cabs are relatively scarce in Milan, especially at 5 a.m., when he wanted to head to the airport, so he called a company at 4:30 to schedule a pickup. But when he climbed into the cab half an hour later, he discovered that the meter had been running for more than 20 minutes, because the taxi driver had arrived soon after the call and started charging for (p. 7) his time. Allowed by the rules, but to Mr. Giavazzi, utterly unfair.
“So it was 20 euros before we started the trip to the airport,” recalls Mr. Giavazzi, who is an economics professor at Bocconi University. “I said, ‘This is impossible.’ ”
Professor Giavazzi later wrote an op-ed article denouncing this episode as another example of the toll exacted by Italy’s innumerable guilds, known by several names here, including “associazioni di categoria.” (These are different from unions, another force here, in that guilds are made up of independent players in a trade or profession who have joined to keep outsiders out and maintain standards, as opposed to representing employees in negotiations with management, as a union might.) Even baby sitters have associations in Italy.
The op-ed did not endear Professor Giavazzi to the city’s cab drivers. They pinned leaflets with his name and address at taxi stands around Milan and for the next five nights, cabs drove around his home, honking their horns.
“This is a country with a lot of rents,” says Professor Giavazzi, sitting in his office one recent afternoon, . . . “You need a notary public, it’s like 1,000 euros before you even open your mouth. If you’re a notary public in this country, you live like a king.”
For Mr. Barbera, as is true with every entrepreneur here, the prevalence and power of Italy’s guilds explains much of what is driving up costs. He says he must overspend for accountants, lawyers, truckers and other members of guilds on a list that goes on and on: “Everything has a tariff, and you have to pay.”
. . .
Italians, notes Professor Altomonte, are among the world’s heaviest consumers of bottled water. “Do you know why? Because the water in the tap comes from the government.”
The suspicion of Italians when it comes to extra-familial institutions explains why many here care more about protecting what they have than enhancing their wealth. Most Italians live less than a mile or two from their parents and stay there, often for financial benefits like cash and in-kind services like day care. It’s an insularity that runs all the way up to the corporate suites. The first goal of many entrepreneurs here isn’t growth, so much as keeping the business in the family. For a company to really expand, it needs capital, but that means giving up at least some control. So thousands of companies here remain stubbornly small — all of which means Italy is a haven for artisans but is in a lousy position to play the global domination game.
“The prevailing management style in this country is built around loyalty, not performance,” says Tito Boeri, scientific director at Fondazione Rodolfo Debenedetti, who has written about Italy’s dynastic capitalism.

For the full story, see:
DAVID SEGAL. “Is Italy Too Italian?” The New York Times (Sun., August 1, 2010): 1 & 6-7.
(Note: ellipses added.)
(Note: the online version of the article is dated July 31, 2010.)

“The clothier Luciano Barbera in his family’s “spa for yarn,” where crates of thread rest for months. Economists fear that such small-scale artisanship cannot sustain Italy’s economy forever.” Source of caption and photo: online version of the NYT article quoted and cited above.

U.S. Citizens Choose Cars for 99% of Trips

(p. 92) America is a car culture and has been for almost a century, the phrase “traffic jam” dating to 1910, meaning we’re stuck with car culture for the time being. In the United States, the number of trips taken on public transportation has since 1998 been rising more rapidly than trips taken in cars. But public transportation nevertheless cannot be a cure-all for traffic congestion, since only a total of 1 percent of all U.S. trips occur on public transit. Double the share, which would require notable effort and capital expense, and it’s still only 2 percent. A car culture with a rising population and rising prosperity has little choice but to keep investing in roads and parking.

Source:
Easterbrook, Gregg. The Progress Paradox: How Life Gets Better While People Feel Worse. Paperback ed. New York: Random House, 2004.

Socialism Is “Morally Corrupting”

On balance, Stephen Pollard believes that Claire Berlinski’s book on Thatcher is poorly written. But he does believe that Berlinski got one important point right:

(p. 22) She is quite right, . . . , to stress that Thatcher’s crusade against socialism was not merely about economic efficiency and prosperity but that above all, “it was that socialism itself — in all its incarnations, wherever and however it was applied — was morally corrupting.”

For the full review, see:
STEPHEN POLLARD. “Thatcher’s Legacy.” The New York Times Book Review (Sun., January 18, 2009): 22.
(Note: ellipsis added.)
(Norte: the online version of the review has the date January 16, 2009.)

Book reviewed:
Berlinski, Claire. There Is No Alternative: Why Margaret Thatcher Matters. New York: Basic Books, 2008.

In Greece It Is Illegal for Brewers to Produce Tea

“Demetri Politopoulos at his microbrewery in northern Greece. He says Greek leaders need to do more to make the country an easier place to do business.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 1) DEMETRI POLITOPOULOS says he has suffered countless indignities in his 12-year battle to build a microbrewery and wrest a sliver of the Greek beer market from the Dutch colossus, Heineken.

His tires have been slashed and his products vandalized by unknown parties, he says, and his brewery has received threatening phone calls. And he says he has had to endure regular taunts — you left Manhattan to start up a beer factory in northern Greece? — not to mention the pain of losing 5.3 million euros.
Bad as all that has been, nothing prepared him for this reality: He would be breaking the law if he tried to fulfill his latest — and, he thinks, greatest — entrepreneurial dream. It is to have his brewery produce and export bottles of a Snapple-like beverage made from herbal tea, which he is cultivating in the mountains that surround this lush pocket of the country.
An obscure edict requires that brewers in Greece produce beer — and nothing else. Mr. Politopoulos has spent the better part of the last year trying fruitlessly to persuade the Greek government to strike it. “It’s probably a law that goes back to King Otto,” said Mr. Politopoulos with a grim chuckle, referring to the Bavarian-born king of Greece who introduced beer to the country around 1850.
Sitting in his office, Mr. Politopoulos took a long pull from a glass of his premium Vergina wheat beer and said it was absurd that he had to lobby Greek politicians to repeal a 19th-century law so that he could deliver the exports that Greece urgently needed. And, he said, his predicament was even worse than that: it was emblematic of the web of restrictions, monopolies and other distortions that have made many Greek companies uncompetitive, and pushed the country close to bankruptcy.

For the full story, see:
LANDON THOMAS Jr. “What’s Broken in Greece? Ask an Entrepreneur.” The New York Times, SundayBusiness Section (Sun., January 30, 2011): 1 & 5.
(Note: the online version of the article is dated January 29, 2011.)