Category: Economics

The Entrepreneurial Epistemology of Wikipedia

Wikipedia-RrevolutionBK2010-02-08.jpg

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.

Federal Government Spending Soars

SpendingFederalGraph2010-02-28.gif

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”

SiliconValleyEmptyOfficeBuilding2010-02-28.jpg “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

DonohueTomChamberPresident2010-01-27.jpg

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

BongoGabon2010-01-27.jpg “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.)

GabonDumpForaging2010-01-27.jpg “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

McGrathRitaGunther2010-01-27.jpgRita 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.)

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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.

Dubai’s Economic Future Depends on Its Institutions

DubaiViewFromTallestBuilding2010-01-25.jpg “A man took in the view of Dubai from the 124th floor of the newly opened, $1.5 billion Burj Khalifa, a rocket-shaped building that soars 2,717 feet.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A7) CAIRO — In the heady days of the Dubai gold rush, when real estate sold and resold even before a shovel hit the ground, the ambitious emirate was hailed as the model of Middle Eastern modernity, a boomtown that built an effective, efficient and accessible form of government.

Then the crash came and revealed how paper-thin that image was, political and financial analysts said. That realization, not just in Dubai but also in Abu Dhabi, the oil-rich capital of the United Arab Emirates, has cast a harsh light on an opaque, top-down decision-making process, not just in business but in matters of crime and punishment as well, political and financial analysts said.
The financial crisis and now two criminal cases that have generated critical headlines in other countries have demonstrated that the emirates remain an absolute monarchy, where institutions are far less important than royalty and where the law is particularly capricious — applied differently based on social standing, religion and nationality, political experts and human rights advocates said.
“I think what we learned here the last four months is that the government, at least on a political level, is still very undeveloped,” said a financial analyst based in Dubai who asked not to be identified to avoid compromising his ability to work in the emirates. “It’s very difficult to read or interpret or understand what is going on. The institutions have not shaped up to people’s expectations.”

For the full story, see:
MICHAEL SLACKMAN. “Dubai Memo; Entrenched Monarchy Thwarts Aspirations for Modernity.” The New York Times (Fri., January 22, 2010): A7.
(Note: the online version of the article is dated January 21, 2010.)
(Note: ellipsis added.)

DubaiOfficesForRentSign2010-01-25.jpg “Workers repaired a phone line next to an office building in Dubai’s Internet City. Even after a bailout, Dubai remains heavily burdened by debt.” Source of caption and photo: online version of the NYT article quoted and cited above.

Chinese Subsidies Create Unprofitable Overcapacity and Risk of Crisis

(p. 5) . . . subsidies, . . . , have spurred excess capacity and created a dangerous political dynamic in which these investments have to be propped up at all cost.

China has been building factories and production capacity in virtually every sector of its economy, but it’s not clear that the latest round of investments will be profitable anytime soon. Automobiles, steel, semiconductors, cement, aluminum and real estate all show signs of too much capacity. In Shanghai, the central business district appears to have high vacancy rates, yet building continues.
. . .
Over all, there is a lack of transparency. China’s statistics on its gross domestic product are based more on recorded production activity than on what is actually sold. Chinese fiscal and credit policies are geared toward jobs and political stability, and thus the authorities shy away from revealing which projects are most troubled or should be canceled.
Put all of this together and there is a very real possibility of trouble.

For the full commentary, see:
TYLER COWEN. “Economic View; Dangers of an Overheated China.” The New York Times, SundayBusiness Section (Sun., November 29, 2009 ): 5.
(Note: the online version of the commentary has the date November 28, 2009.)
(Note: ellipsis added.)