Economics – Page 214 – artdiamondblog.com

Myhrvold Innovates in Financing Innovation

“Nathan Myhrvold, chief of Intellectual Ventures, says patent holders are being treated unfairly.” Source of caption and photo: online version of the NYT article quoted and cited below.

When Nathan Myhrvold was at Microsoft, he helped Bill Gates write The Road Ahead, a well-written book full of realistically optimistic speculation, forecast and analysis.
Besides his main initiative, discussed below, he has recently been in the news due to his bold and controversial suggestion for how to cheaply solve global warming.

(p. B1) BELLEVUE, Wash. — Nathan Myhrvold wants to shake up the marketplace for ideas. His mission and the activities of the company he heads, Intellectual Ventures, a secretive $5 billion investment firm that has scooped up 30,000 patents, inspire admiration and angst.

Admirers of Mr. Myhrvold, the scientist who led Microsoft’s technology development in the 1990s, see an innovator seeking to elevate the economic role and financial rewards for inventors whose patented ideas are often used without compensation by big technology companies. His detractors see a cynical operator deploying his bulging patent trove as a powerful bargaining chip, along with the implied threat of costly litigation, to prod high-tech companies to pay him lucrative fees. They call his company “Intellectual Vultures.”
White hat or black hat, Intellectual Ventures is growing rapidly and becoming a major force in the marketplace for intellectual capital. Its rise comes as Congress is considering legislation, championed by large technology companies, that would make it more difficult for patent holders to win large damage awards in court — changes that Mr. Myhrvold has opposed in Congressional testimony and that his company has lobbied against.
. . .
(p. B10) The issues surrounding Intellectual Ventures, viewed broadly, are the ground rules and incentives for innovation. “How this plays out will be crucial to the American economy,” said Josh Lerner, an economist and patent expert at the Harvard Business School.
Mr. Myhrvold certainly thinks so. He says he is trying to build a robust, efficient market for “invention capital,” much as private equity and venture capital developed in recent decades. “They started from nothing, were deeply misunderstood and were trashed by people threatened by new business models,” he said in his offices here.
Mr. Myhrvold presents his case at length in a 7,000-word article published on Thursday in the Harvard Business Review. “If we and firms like us succeed,” he writes, “the invention capital system will turbocharge technological progress, create many more new businesses, and change the world for the better.”
In the article and in conversation, Mr. Myhrvold describes the patent world as a vastly underdeveloped market, starved for private capital and too dependent on federal financing for universities and government agencies, which is mainly aimed at scientific discovery anyway. Eventually, he foresees patents being valued as a separate asset class, like real estate or securities.
His antagonists, he says, are the “cozy oligarchy” of big technology companies like I.B.M., Hewlett-Packard and others that typically reach cross-licensing agreements with each other, and then refuse to deal with or acknowledge the work of inventors or smaller companies.
. . .
Mr. Myhrvold personifies the term polymath. He is a prolific patent producer himself, with more than 100 held or applied for. He earned his Ph.D. in physics from Princeton and did postdoctorate research on quantum field theory under Stephen Hawking, before founding a start-up that Microsoft acquired.
He is an accomplished French chef, who has also won a national barbecue contest in Tennessee. He is an avid wildlife photographer, and he has dabbled in paleontology, working on research projects digging for dinosaur remains in the Rockies.

For the full story, see:
STEVE LOHR. “Turning Patents Into ‘Invention Capital’.” The New York Times (Thur., February 18, 2010): B1 & B10.
(Note: ellipses added.)
(Note: the online version of the article is dated February 17, 2010.)

The Bill Gates book is:
Gates, Bill. The Road Ahead. New York: Viking Penguin, 1995.

Myhrvold’s Harvard Business Review essay is:
Myhrvold, Nathan. “The Big Idea: Funding Eureka!” Harvard Business Review 88, no. 2 (March 2010): 40-50.

“Nathan Myhrvold with a machine that freeze-dries food. Intellectual Ventures so far has paid $315 million to individual inventors.” Source of caption and photo: online version of the NYT article quoted and cited above.

Unlikely Tea Party Leader Protests the “Porkulus”

“Keli Carender resists the idea of a Tea Party leader — “there are a thousand leaders,” she says. But she has become a leader, and a celebrity. Ms. Carender at a recent rally in Olympia, Wash.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 1) SEATTLE — Keli Carender has a pierced nose, performs improv on weekends and lives here in a neighborhood with more Mexican grocers than coffeehouses. You might mistake her for the kind of young person whose vote powered President Obama to the White House. You probably would not think of her as a Tea Party type.

But leaders of the Tea Party movement credit her with being the first.
A year ago, frustrated that every time she called her senators to urge them to vote against the $787 billion stimulus bill their mailboxes were full, and tired of wearing out the ear of her Obama-voting fiancé, Ms. Carender decided to hold a protest against what she called the “porkulus.”
. . .

(p. 19) The daughter of Democrats who became disaffected in the Clinton years, Ms. Carender, 30, began paying attention to politics during the 2008 campaign, but none of the candidates appealed to her. She had studied math at Western Washington University before earning a teaching certificate at Oxford — she teaches basic math to adult learners — and began reading more on economics, particularly the writings of Thomas Sowell, the libertarian economist, and National Review.
Reading about the stimulus, she said, “it didn’t make any sense to me to be spending all this money when we don’t have it.”
“It seems more logical to me that we create an atmosphere where private industry can start to grow again and create jobs,” she said.

For the full story, see:
KATE ZERNIKE. “Early Arrival at the Tea Party: A Young and Unlikely Activist.” The New York Times, First Section (Sun., February 26, 2010): 1 & 19.
(Note: ellipsis added.)
(Note: the online version of the article is dated February 27, 2010 and has the title “Unlikely Activist Who Got to the Tea Party Early.”)

The Entrepreneurial Epistemology of Wikipedia

Source of book image: http://kellylowenstein.files.wordpress.com/2009/04/wikipedia-revolution1.jpg

Wikipedia is a very unexpected and disruptive institution. Amateurs have produced an encyclopedia that is bigger, deeper, more up-to-date, and arguably of at least equal accuracy, with the best professional encyclopedias, such as Britannica.
I learned a lot from Lih’s book. For instance I did not know that the founders of Wikipedia were admirers of Ayn Rand. And I did not know that the Oxford English Dictionary was constructed mainly by volunteer amateurs.
I also did not know anything about the information technology precursors and the back-history of the institutions that helped Wikipedia to work.
I learned much about the background, values, and choices of Wikipedia entrepreneur “Jimbo” Wales. (Jimbo Wales seems not to be perfect, but on balance to be one of the ‘good guys’ in the world—one of those entrepreneurs who can be admired for something beyond their particular entrepreneurial innovation.)
Lih’s book also does a good job of sketching the problems and tensions within Wikipedia.
I believe that Wikipedia is a key step in the development of faster and better institutions of knowledge generation and communication. I also believe that substantial further improvements can and will be made.
Most importantly, I think that you can only go so far with volunteers–ways must be found to reward and compensate.
In the meantime, much can be learned from Lih. In the next few weeks, I will be quoting a few passages that I found especially illuminating.

Book discussed:
Lih, Andrew. The Wikipedia Revolution: How a Bunch of Nobodies Created the World’s Greatest Encyclopedia. New York: Hyperion, 2009.

Harry Truman’s Search for “a One-Armed Economist”

(p. 32) “I was in search of a one-armed economist, so that the guy could never make a statement and then say: “on the other hand.””

Source:
Harry S. Truman as quoted in: Keyes, Ralph. The Wit & Wisdom of Harry S. Truman. New York: Gramercy Books, 1999.

Federal Government Spending Soars

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

(p. A17) This has been an unforgettable year in the history of American spending.

It began with an eye-popping $800 billion stimulus bill that came from nowhere and went to nowhere. Done with that, the Washington Democrats turned to President Obama’s health-care reform, which looked big at first, but turned out to be bigger. A well-publicized June estimate of the Senate bill’s cost by the Congressional Budget Office put the 10-year price tag at $1.6 trillion. So $800 billion, then a trillion.
Dollar signs rocketed into the sky all year: hundreds of billions on various TARP salvage projects, much drawn from some magic stash held by the Federal Reserve. The Obama cap-and-trade bill was going to use an auction to siphon $3.3 trillion from various states to Washington over 40 years. Oh, almost forgot–an FY 2011 $3.8 trillion budget.

For the full commentary, see:

DANIEL HENNINGER. “It’s the Spending, America .” The Wall Street Journal (Thurs., February 18, 2010): A17.

“Silicon Valley’s Economy is Sputtering”

“An unoccupied office building in San Jose, Calif., in December. Many tech firms are hiring engineers abroad to do their work.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B3) SAN FRANCISCO — Silicon Valley’s economy is sputtering and risks permanently stalling, according to an annual report by a group of researchers in the region.

Part of the toll on Silicon Valley has resulted from the recession. The region, the center of the global technology industry, lost 90,000 jobs from the second quarter of 2008 to the second quarter of 2009. Unemployment is higher than national levels and the worst in the region since 2005, when technology companies were still recovering from the dot-com implosion.
The drop in the number of midlevel jobs — the engineers who drive much of the Valley’s growth — has been sharpest. And when companies do hire, they are cautiously hiring independent contractors instead of regular employees, and are hiring abroad, according to the “2010 Index of Silicon Valley” report, which was produced by the Joint Venture: Silicon Valley Network and the Silicon Valley Community Foundation, two local nonprofit groups.
Other economic indicators are also gloomy, the report found.
“We show no evidence that the recovery has arrived,” said Russell Hancock, chief executive of Joint Venture.

For the full story, see:
CLAIRE CAIN MILLER. “Report Warns Silicon Valley Could Lose Its Edge.” The New York Times (Thurs., February 11, 2010): B3.
Note: The online version of the article is dated February 10, 2010, and has the title “Report Warns Silicon Valley Could Lose Its Edge.”)

Chamber’s Donohue Promotes Free Enterprise

Chamber of Commerce President Tom Donohoe. Source of caricature: online version of the WSJ article quoted and cited below.

(p. A13) The White House’s war on the Chamber has come just as the group is launching a new $100 million campaign promoting free enterprise.

“We want to encourage and promote and educate and get a bunch of enthusiasm behind . . . the free enterprise system with free capital markets and free trade and the ability to fail and fall right on your ass and get up and do it again!” he says.
The belief in that system, Mr. Donohue says, has been eroded by the recession and subsequent criticism of the free market. “The purpose of this is to get out of the doldrums! Quit sulking and worrying.” He hopes the campaign will remind Americans that “We created 20 million jobs in the ’90s, we can do it again. We don’t have to do it exactly like that–Adam Smith didn’t have a BlackBerry–but we ought to pay attention to what made it work.”

For the full interview, see:
KIMBERLEY A. STRASSEL. “OPINION: THE WEEKEND INTERVIEW with Tom Donohue; Business Fights Back; His organization under attack by the White House, the president of the Chamber of Commerce stands by his defense of free enterprise.” The Wall Street Journal (Sat., October 24, 2009): A13.
(Note: the online version of the article has the date October 23, 2009.)
(Note: ellipsis in original.)

The “Bongo System” of Corruption in Gabon: More on Why Africa is Poor

“The image of Ali Bongo, the son of longtime ruler Omar Bongo, blanketed Libreville.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A5) The “Bongo system,” as people here refer to it — forsaking roads, schools and hospitals for the sake of Mr. Bongo’s 66 bank accounts, 183 cars, 39 luxury properties in France and grandiose government constructions in Libreville — is etched in the streets of this languid seaside capital, where he ruled for 41 years, and also in the minds of its inhabitants.
. . .
A Western family here spoke of embarrassment at visiting a government minister whose house is packed with the latest flat-screen televisions and other expensive electronic gadgets, and whose garage was full of luxury cars. The top aide to a leading opposition figure, discussing the “Bongo system,” said: “You had to bring a suitcase to the palace. Bongo didn’t write checks.” The president, he said, “calls everybody to the palace, and the money is handed out. That’s how the country was run.”
He spoke of a “sandwich system” of vote-buying employed by the ruling party in rural districts: notables are called together for a meeting, and at the end, when all are tired, a tray of “sandwiches” is passed around. Inside each “sandwich” is up to $600.
Looking around at an outdoor restaurant, he asked not to be named because he said: “It’s a police state. They mess up your life.”
. . .
On paper, the government’s budget allocations for health, education and transportation were impressive, “huge,” said the Western development official. “But in reality, it was actually about 20 percent of what was on paper,” the official said. “The rest was embezzled,” he added, asking to remain anonymous because identifying him would complicate his work in the country.
. . .
“It’s a tiny number that benefits from the country’s riches,” said a cigarette vendor, Price Nyamam, squatting on the pavement in the poor Rio district. He said he had degrees in economics and sociology. “You are obliged to do work that doesn’t correspond to your aspirations.”

For the full story, see:
ADAM NOSSITER. “Libreville Journal; Underneath Palatial Skin, Corruption Rules Gabon.” The New York Times (Tues., September 15, 2009): A5.
(Note: the online version of the article has the date September 14, 2009.)
(Note: ellipses added.)

“Foraging for food at the main dump.” Source of caption and photo: online version of the NYT article quoted and cited above.

Largest Decline in Private Sector Union Members in 25 Years

(p. A3) Organized labor lost 10% of its members in the private sector last year, the largest decline in more than 25 years. The drop is on par with the fall in total employment but threatens to significantly limit labor’s ability to influence elections and legislation.

On Friday, the Labor Department reported private-sector unions lost 834,000 members, bringing membership down to 7.2% of the private-sector work force, from 7.6% the year before. The broader drop in U.S. employment and a small gain by public-sector unions helped keep the total share of union membership flat at 12.3% in 2009. In the early 1980s, unions represented 20% of workers.

For the full story, see:
KRIS MAHER. “Union Membership Declines by 10%.” The Wall Street Journal (Sat., January 23, 2010): A3.
(Note: the online version of the article has the slightly different title “Union Membership Drops 10%.”)

Business Decisions Often Need to Be Made Before You Have Much Data

Rita Gunther McGrath is a member of the faculty of the Columbia Business School. Source of photo: online version of the WSJ article quoted and cited below.

(p. R2) BUSINESS INSIGHT: You and Prof. Ian C. MacMillan of the Wharton School of the University of Pennsylvania wrote a book called “Discovery-Driven Growth.” What is discovery-driven growth?

DR. MCGRATH: Discovery-driven growth is a way of planning to grow that doesn’t require a lot of analytical information at the outset. It recognizes that many of the data that you need to make decisions don’t exist at the time that you have to make the decisions. It’s a plan to learn.
I think we all live with a conceptual overhang from an industrial era when things were more predictable. You had big production runs. At least if you were an American company, you had a lot of markets with very little competition, and what competition there was was more or less predictable. In many businesses you could use the past as an adequate guide to what the future held for you.
In more and more industries, those conditions no longer apply. You’re seeing temporary advantages, very rapid swings in who’s on top competitively, new technologies that make older ones irrelevant at an ever-faster clip–the usual litany of things people moan about today. But I think one of the things that has not yet quite been fully recognized is that these have an impact on our management processes–or should.

For the full interview, see:
Martha E. Mangelsdorf. “Executive Briefing; Learning From Corporate Flops; When starting new ventures, companies should revisit their assumptions early and often.” The Wall Street Jounal (Mon., OCTOBER 26, 2009): R2.
(Note: italics in original.)

Source of book image: http://events.roundtable.com/iguru/DiscoveryDrivenGrowth.gif.

Entrepreneurial Judgment Can Be Right Even When It Is Hard to Articulate

Entrepreneurs may develop a good sense of people, even though they cannot articulate their judgment. Yet their firms, and our economy, might be more efficient and productive if they were allowed to follow their judgments, rather than follow Human Resource Department credentialism and paper trails.
The entrepreneurs might make mistakes, but in an open economy they would pay a price for their mistakes in profits foregone, and hence would have an incentive to correct the mistakes. And there would be plenty of alternative jobs for anyone mistakenly fired.

(p. 91) I’ve been wrong in my judgments about men, I suppose, but not very often. Bob Frost, one of our key executives on the West Coast, will remember the time he and I were checking out stores, and I got a very unfavorable impression of one of his young managers. As we drove away from the store I said to Bob, “I think you’d better fire that man.”
“Oh, Ray, come on!” he exclaimed. “Give the kid a break. He’s young, he has a good attitude, and I think he will come along.”

“You could be right, Bob,” I said, “but I don’t think so. He has no potential.”
Later in the day, as we were driving back to Los Angeles, that conversation was still bugging me. Finally I turned to Bob and yelled, “Listen goddammit I want you to fire that man!”
One thing that makes Bob Frost a good executive is that he has the courage of his convictions. He also sticks up for his people. He’s a retired Navy man, and he knows how to keep his head under fire. He simply pursed his lips and nodded solemnly and said, “If you are ordering me to do it, Ray, I will. But I would like to give him another six months and see how he works out.”
I agreed, reluctantly. What happened after that was the kind of (p. 92) personnel hocus-pocus that government is famous for but should never be permitted in business, least of all in McDonald’s. The man hung on. He was on the verge of being fired several times in the following years, but he was transferred or got a new supervisor each time. He was a decent guy, so each new boss would struggle to reform him. Many years later he was fired. The assessment of the executive who finally swung the ax was that “this man has no potential.”
Bob Frost now admits he was wrong. I had the guy pegged accurately from the outset. But that’s not the point. Our expenditure of time and effort on that fellow was wasted and, worst of all, he spent several years of his life in what turned out to be a blind alley. It would have been far better for his career if he’d been severed early and forced to find work more suited to his talents. It was an unfortunate episode for both parties, but it serves to show that an astute judgment can seem arbitrary to everyone but the man who makes it.

Source:
Kroc, Ray. Grinding It Out: The Making of McDonald’s. Chicago: Henry Regnary Company, 1977.