Economics – Page 230 – artdiamondblog.com

Most Great Inventors Were Blessed with Leisure Time

(p. 49) With his wife running the household and tending to their four-year-old daughter, Sally, Priestley simply had more time on his hands to explore, invent, and write. Priestley was retracing a pattern that Franklin had originally carved two decades before, when he handed over day-to-day operation of his printing business to his foreman, David Hall, in 1748 and then spent the next three years transforming the science of electricity. Necessity may be the mother of invention, but most of the great inventors were blessed with something else: leisure time.

Source:
Johnson, Steven. The Invention of Air: A Story of Science, Faith, Revolution, and the Birth of America. New York: Riverhead Books, 2008.

GM’s Saturn Shows Problems With Incumbent Firms Disrupting Themselves

“In July 1990, the first Saturn rolled off the Spring Hill, Tenn., assembly line, with Roger Smith of General Motors holding the key.” Source of the caption and the photo: online version of the NYT article quoted and cited below.

Clayton Christensen has shown that incumbent firms find it extremely difficult to adopt disruptive innovations that would leapfrog their current dominant business model. GM’s abandonment of its Saturn experiment would seem to be an apt illustration of the point:

(p. A29) “I’m absolutely convinced that the Saturn way could have worked,” said Michael Bennett, the original U.A.W. leader at Saturn. “But what we had was never embraced or adopted.”

Mr. Bennett, like many others, can point fingers to explain why Saturn fell short of its promise.
Mr. Bennett blamed a lack of interest by G.M. executives who succeeded Roger Smith, who as chief executive in the 1980s committed $5 billion to begin Saturn.
But those who followed him — including John F. Smith Jr., who became chief executive in 1992, and G.M.’s current chief executive, Rick Wagoner, who ran its North American operations in the 1990s — had bigger worries.
They had to lead the company through the financial turbulence at G.M. in the early 1990s. And with managers at G.M.’s other, older brands begging for investment, G.M. executives declared Saturn would have to prove it deserved more support, even though its small cars were accomplishing their main goal of winning buyers from imports.
Despite G.M.’s pledge that Saturn would be run as a separate company, with its own car development and purchasing operations, it was folded into G.M.’s small-car operations in 1994, and its lineup did not receive any new models for the next five years.

For the full story, see:
MICHELINE MAYNARD. “With Saturn, G.M. Failed a Makeover.” The New York Times (Thurs., December 3, 2008): A1 & A29.

Christensen’s fullest complete expression of his views can be found in:
Christensen, Clayton M., and Michael E. Raynor. The Innovator’s Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

“The final Saturn built at the plant in March 2007.” Source of the caption and the photo: online version of the NYT article quoted and cited above.

Frazer Institute Seeks Better Measures of Policy Variables

George Gilder emphasizes that the importance of entrepreneurship to economic growth has been missed by many economists, in part because of the difficulty of measuring both the inputs of entrepreneurship (e.g., courage, persistence, creativity, etc.) and the outputs of entrepreneurship (e.g., happiness from more challenging work, greater variety of products, etc.).
Unfortunately this is not just an academic problem, because economists’ policy advice is based on their models, and their models focus on what they can measure. If they can’t measure entrepreneurship, then policies to encourage entrepreneurship are neglected.
Now the Frazer Institute, is seeking proposals to improve the measurement of important poorly measured policy-relevant variables. This initiative is in the spirit of the good work that the Frazer Institute has done in correlating measures of economic freedom with measures of economic growth.
I have been asked to publicize this initiative, and am pleased to do so:

Dear Art Diamond,

The Fraser Institute is launching a new contest to identify economic and public policy issues which still require proper measurement in order to facilitate meaningful analysis and public discourse. We hope you can help promote this contest by posting it on your weblog, artdiamondblog.
The Essay Contest for Excellence in the Pursuit of Measurement is an opportunity for the public to comment on an economic or public policy issue that they feel is important and deserves to be properly measured.
A top prize of $1,000 and other cash prizes can be won by identifying a vital issue that is either not being measured, or is being measured inappropriately. Acceptable entry formats include a short 500-600 word essay, or a short one-minute video essay.
Complete details and a promotional flyer are available at: http://www.fraserinstitute.org/programsandinitiatives/measurement_center.htm.
Entry deadline is Friday, May 15th, 2009.
Sponsored by the R.J. Addington Center for the Study of Measurement.

Enquiries may be directed to:
Courtenay Vermeulen
Education Programs Assistant
The Fraser Institute
Direct: 604.714.4533
courtenay.vermeulen@fraserinstitute.org

The Fraser Institute is an independent international research and educational organization with offices in Canada and the United States and active research ties with similar independent organizations in more than 70 countries around the world. Our vision is a free and prosperous world where individuals benefit from greater choice, competitive markets, and personal responsibility. Our mission is to measure, study, and communicate the impact of competitive markets and government interventions on the welfare of individuals.

An important source of Gilder’s views, obliquely referred to in my comments above, is:
Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.

World Astonished that an American Tradesman Tamed Lightning

(p. 24) Within five years of his speculative note to Collinson, lightning rods had become a common sight on church steeples throughout Europe and America. Franklin’s biographer Carl Van Doren aptly describes the astonishment that greeted these events around the world: “A man in Philadelphia in America, bred a tradesman, remote from the learned world, had hit upon a secret which enabled him, and other men, to catch and tame the lightning, so dread that it was still mythological.”

Source:
Johnson, Steven. The Invention of Air: A Story of Science, Faith, Revolution, and the Birth of America. New York: Riverhead Books, 2008.

The Most Fertile Margins of the Economy Are Always in People’s Minds

(p. 151) The most fertile margins of the economy are always in people’s minds: thoughts and plans and projects yet unborn to business. The future emerges centrifugally and at first invisibly, on the fringes of existing companies and industries. The fastest-growing new firms often arise through defections of restive managers and engineers from large corporations or through the initiatives of (p. 152) immigrants and outcasts beyond the established circles of commerce. All programs that favor established companies, certified borrowers, immobile forms of pay, pensions, and perquisites, institutionally managed savings and wealth, against mobile capital, personal earnings, disposable savings, and small business borrowing, tend to thwart the turbulent, creative, and unpredictable processes of innovation and growth.

Source:
Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.

Rhee Offers DC Teachers Higher Pay If They Give Up Tenure

“Michelle Rhee, second from left, with faculty and staff members of Washington schools last month at an awards ceremony.” Source of the caption and photo: online version of the NYT article quoted and cited below.

(p. A1) WASHINGTON — Michelle Rhee, the hard-charging chancellor of the Washington public schools, thinks teacher tenure may be great for adults, those who go into teaching to get summer vacations and great health insurance, for instance. But it hurts children, she says, by making incompetent instructors harder to fire.

So Ms. Rhee has proposed spectacular raises of as much as $40,000, financed by private foundations, for teachers willing to give up tenure.

Policy makers and educators nationwide are watching to see what happens to Ms. Rhee’s bold proposal. The 4,000-member Washington Teachers’ Union has divided over whether to embrace it, with many union members calling tenure a crucial protection against arbitrary firing.
. . .
Ms. Rhee has not proposed abolishing tenure outright. Under her proposal, each teacher would choose between two compensation plans, one called green and the other red. Pay for teachers in the green plan would rise spectacularly, nearly doubling by 2010. But they would need to give up tenure for a year, after which they would need a principal’s recommendation or face dismissal.

For the full story, see:
SAM DILLON. “A School Chief Takes On Tenure, Stirring a Fight.” The New York Times (Thurs., November 13, 2008): A1 & A19.
(Note: ellipsis added.)

The Policy Agenda to Euthanize the Entrepreneur

(p. 151) The agenda is simple: the stealthy and unannounced euthanasia of the entrepreneur. It can be accomplished easily by following two seductive themes of policy: lowering tax and interest costs for large corporations and a few other favored institutions, while shifting the burden increasingly to individuals and families. By reducing corporate taxes, subsidizing corporate loans, sponsoring a wide range of favored borrowers, institutionalizing personal savings, and discreetly allowing taxes to rise on personal income, government can painlessly extinguish the disposable wealth of entrepreneurs.

Source:
Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.

Economists Find TV Improved Children’s Cognitive Ability

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

(p. A1) It didn’t take long after America started tuning in to television that people started to worry about what it was doing to children. “When it offers a daily diet of Western pictures and vaudeville by the hour, television often seems destined to entertain the child into a state of mental paralysis,” wrote The New York Times in 1949.

A generation later, the Scholastic Aptitude Test scores of college-bound teenagers had fallen significantly. A 1977 panel appointed by the College Entrance Examination Board suggested television bore some blame for the drop. Indeed, the decline began in the mid-1960s, just as the first students heavily exposed to TV took their SATs.

But University of Chicago Graduate School of Business economists Matthew Gentzkow and Jesse Shapiro aren’t sure that TV has been all that bad for kids. In a paper published in the Quarterly Journal of Economics this year, they presented a series of analyses that showed that the advent of television might actually have had a positive effect on children’s cognitive ability.

. . .
(p. A8) The economists . . . looked at results of a survey of 800 U.S. schools that administered tests to 346,662 sixth-grade, ninth-grade and 12th-grade students in 1965. Their finding: Adjusting for differences in household income, parents’ educational background and other factors, children who lived in cities that gave them more exposure to television in early childhood performed better on the tests than those with less exposure.

The economists found that television was especially positive for children in households where English wasn’t the primary language and parents’ education level was lower. “We don’t exactly know why that is, but a plausible interpretation is that the effect of television on cognitive development depends on what other kinds of activity television is substituting for,” says Mr. Shapiro, 28.

For the full story, see:
JUSTIN LAHART. “A New View On TV; Economists Probe the Data on Television Watching And Find It’s Not All Bad; Better Test Scores?” The Wall Street Journal (Sat., SEPTEMBER 6, 2008): A1 & A8.
(Note: ellipses added.)
If you are interesting in further reading that is in the same vein as the article above, consult:
Johnson, Steven. Everything Bad Is Good for You. New York: Riverhead Trade, 2006.

Schramm Sees the Donor as the Only Real Stakeholder of a Foundation

Carl Schramm. Source of image: online version of the WSJ interview article quoted and cited below.

(p. A9) . . . who are the real stakeholders in foundations? Mr. Schramm can think of only one: the donor. “At Kauffman I think the trustees and I are very, very clear: We work for Mr. Kauffman,” says Mr. Schramm, acknowledging that his boss passed away in 1993. Kauffman not only left extensive writings but also videotape of himself describing how he wanted the foundation to operate. Mr. Schramm says that one board member told him he was hired because he was the only candidate who had read Kauffman’s book.
. . .
. . . within a year of taking over, Mr. Schramm began a serious overhaul of the foundation. He laid off about half of its 150-person staff and cut off funding to some of its biggest grantees, many in Kansas City. There was a public outcry from local nonprofits and from some former members of the board. One told the New York Times that “Carl doesn’t seem to understand that there isn’t an ‘I’ in team.” It reached the point where Missouri’s then attorney general, Jeremiah Nixon, launched an extensive investigation. He determined that Mr. Schramm had not led the foundation astray. What ultimately saved his job, says Mr. Schramm, were the detailed writings that Kauffman left before his death.
“What happened was not atypical in foundations. Often around 10 years after the death of the donor there’s a moment of truth.” People who were close to the donor will say, “Yes, he said that but he didn’t mean that.” Mr. Schramm concludes: “If there was one piece of advice I’d give to someone who was starting a foundation it is this: Think very, very hard of the long term and write down what you want your foundation to look like in 30 years or 40 years.”
Despite the fact that the foundation’s endowment has fallen by $722 million since the end of 2007, Mr. Schramm sees this as Kauffman’s “moment.” While “no one hopes for a recession,” it’s during economic crises that entrepreneurs “challenge companies that have gotten big and lazy.” The downturn, he says, will even challenge Kauffman to “think about how we can do our work better, like every business.” In fact, Mr. Schramm adds, “The only people immune from thinking hard in moments like this are in government.”

For the full interview, see:

NAOMI SCHAEFER RILEY. “Opinion; THE WEEKEND INTERVIEW with Carl Schramm; Giving Capitalism Its Due.” Wall Street Journal (Sat., APRIL 4, 2009): A9.
(Note: ellipses added.)

French Labor Holds Management Hostage—Literally

“French Caterpillar executive Nicolas Polutnik, center, with workers after his release Wednesday.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. B1) PARIS — Of the 22,000 workers Caterpillar Inc. plans to lay off this year, the French ones have perhaps the most radical tactic for negotiating their severance deals.

In an aggressive, and peculiarly French, negotiating strategy, they held their managers hostage. The workers detained the director of their plant and four other managers for about 24 hours this week. Workers released them only after the company agreed to resume talks with unions and a government mediator on how to improve compensation for workers who are being laid off.
. . .
Jérôme Pélisse, a sociologist, surveyed 3,000 companies in 2004 and found that 18 of them had experienced an executive detention in the prior three years.

For the full story, see:
DAVID GAUTHIER-VILLARS and LEILA ABBOUD. “In France, the Bosses Can Become Hostages.” Wall Street Journal (Fri., APRIL 3, 2009): B1 & B5.
(Note: ellipsis added.)

Union Dynamited “True Industrial Freedom”

Source of book image: online version of the WSJ review quoted and cited below.

(p. A23) The turn-of-the-20th-century war of capital and labor is not even half-remembered now. But the glum slab of the Los Angeles Times building will remind anyone who cares to look. The antiunion rallying cry of “True Industrial Freedom” is carved deeply into its façade. Completed in 1935, the building is a cenotaph for the 21 nonunion pressmen and linotype operators who were blown up on an early October morning in 1910 and died in a storm of fire and collapsing masonry.

The dynamiting of the Los Angeles Times was, for Howard Blum in “American Lightning,” the war’s decisive engagement. After it, a national campaign of union-led terrorism was exposed; labor sympathizers who defended the bombers were proved to be gullible (if not dishonest); and the political force of American socialism was wrecked. Reputations were wrecked, too, principally that of Clarence Darrow, who was then a renowned labor lawyer.
. . .
In 1910, Los Angeles was a young boomtown aching for water and respectability. To the owner of the Los Angeles Times, Harrison Gray Otis, respectability included making sure that the city was uninfested by union labor. It was an era of deep enmity and suspicion between business and labor, when it was not uncommon for strikes to end in riots and death. Otis and the Times preached the open shop with such vehemence that it was almost inevitable that they would become targets of prounion wrath.
The dynamite conspiracy unraveled when a second, unexploded bomb in Los Angeles was found to match another bomb discovered a month earlier by a Burns operative in a rail yard in Peoria, Ill. Burns tied the evidence to a campaign of terror against the National Erectors Association, a union-busting alliance of builders. The target of the association’s animus was the union shop in general and the Structural Iron Workers Union in particular. John McNamara was the union’s secretary-treasurer. His brother James was a union agent. Their weapons against the association and its allies were nitroglycerine and dynamite.

For the full review, see:
D.J. WALDIE. “Bookshelf; Dynamite and Deadlines.” The Wall Street Journal (Tues., SEPTEMBER 16, 2008): A23.
(Note: ellipsis added.)

The reference to the book under review, is:
Blum, Howard. American Lightning. New York: Crown Publishers, 2008.