Roger Koppl Offers Advance Praise for Openness to Creative Destruction

Diamond shows us that entrepreneurial innovation is not just the best way to make a better world. It is the only way. If we care about our fellow humans, then we had better do what we can to enable entrepreneurial innovation. Diamond shows with an unusual depth and breadth of scholarship that the most important thing we can do to promote innovation is to let entrepreneurs test their impossible ideas in the free market. Diamond’s book is a gem. Grab it, read it, learn from it.

Roger Koppl, Professor of Finance, Syracuse University. Author of Expert Failure and other works.

Koppl’s advance praise is for:
Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, forthcoming June 2019.

“Protectionist Trade Policies Can Backfire” on Those They Are Intended to Protect

(p. B1) You may not have appreciated it at the time — golden eras have a habit of coming and going like that — but a five-year stretch that started in 2013 was a pretty great time to buy a washing machine.
Inflation for home laundry equipment, as measured by the Labor Department, fell steadily during that time, which meant you could buy the same washer your neighbor bought last year for less money. Or you could buy a better one at the same price. Great news for your clothes, though maybe bad news for your friendship, if your neighbor was the covetous type.
That stretch of laundry deflation ended last year, shortly after President Trump imposed tariffs, starting at 20 percent, on imported washers. The move was a response to a complaint filed by Whirlpool, a Michigan-based manufacturer.
. . .
A year after Mr. Trump announced the tariffs, washing machine prices were up, as many analysts had expected. But that has not been a boon to the makers of washers because fewer Ameri-(p. B4)cans are investing in new laundry equipment, exposing how protectionist trade policies can backfire on the very companies they are meant to safeguard.
Tariffs of two varieties have pushed prices up
The washer-specific tariffs raised costs for importers like LG and Samsung. But another tariff issued by Mr. Trump, on imported steel, raised costs for some domestic manufacturers like Whirlpool, which took those companies by surprise.
Many manufacturers passed those higher costs on to consumers. Once stores worked their way through models that had been imported before tariffs hit, deflation gave way to sharp price increases.
After years of steady growth, sales reversed in 2018
A basic rule of economics is that when the price of something goes up, people buy less of it. That’s just what happened to washing machines.

For the full story, see:
Jim Tankersley. “Tariffs Tossed a Market Right Into a Spin Cycle.” The New York Times (Saturday, Jan. 26, 2019): B1 & B4.
(Note: ellipsis added; bold and larger font in original.)
(Note: the online version of the story has the date Jan. 25, 2019, and has the title “‘How Tariffs Stained the Washing Machine Market.”)

Tariffs Evaded by Misclassification and Transshipment

(p. A1) One day in June [2018] , seven months after the U.S. imposed stiff tariffs on plywood from China, a wood importer in Oregon got a call from a supplier asking if he would like to get some Chinese plywood tariff-free.
How would that work, asked importer David Visse. The products carry an identification code that is checked by U.S. Customs agents.
“Don’t worry about it,” Mr. Visse says the supplier told him. The plywood would be stripped of its Chinese markings, and “we’ll ship it under some other code.”
Every product imported into the U.S. carries a 10-digit designation called an HTS code, of which there are 18,927 in all. Like a taxonomic version of Noah’s Ark, the code provides a common language to bridge disparate markets and identify products in all their variety.
In a world of increasing tariffs, the code has another function: evading those levies. The business of code-fudging is expanding in step with tariff increases, undermining U.S. efforts to shield American business from foreign competition, according to importers, customs officials, trade attorneys and shipping brokers.
As trade conflict grows between the two largest economies, these professionals say, code misclassification is starting to compete (p. A10) with transshipment–the rerouting of goods through third countries–as a way to duck tariffs.

For the full story, see:
Chuin-Wei Yap. “Trade Fight Spurs Tariff Dodges, With 18,927 Options.” The Wall Street Journal (Tuesday, Oct. 9, 2018): A1 & A10.
(Note: bracketed year added.)
(Note: the online version of the story has the date Oct. 8, 2018, and has the title “The U.S.-China Trade Battle Spawns a New Era of Tariff Dodges.”)

Benjamin Powell Offers Advance Praise for Openness to Creative Destruction

Productive entrepreneurship is not automatic. Art Diamond’s new book brilliantly illustrates how free markets allow entrepreneurs to innovate in ways that disrupt economy activity and, crucially and contrary to popular fears, ultimately reorganize production in ways that allow us to live longer, richer, and more flourishing lives.

Benjamin Powell, Professor of Business Economics, Texas Tech University. Author of Out of Poverty, and other works.

Powell’s advance praise is for:
Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, forthcoming June 2019.

James Dyson Pursued a Slow Hunch by Trial and Error

(p. 6) Mr. Dyson discovered his passion for design at an early age, and eventually began work on his signature product, the bagless vacuum cleaner. It took several years, but he brought the product to market, founding Dyson Ltd. in 1991. Soon, Dyson was expanding internationally and developing new products, including washing machines, fans, heaters, air purifiers, hand dryers and hair dryers. It is now at work on an electric car.
. . .
And what was so different about your vacuums?
I saw the problem, and I saw a possible solution, which was the huge cyclones outside cement plants and timber yards that collect dust all day long. So I started building various versions of that technology. As it happens, it didn’t work. I had to spend four or five years coming up with different types of cyclonic separation devices in order to make it work.
It took a lot of empirical work. I had to build the prototypes, one or two a day, which sounds tedious, but actually it was fascinating. I’m still doing it today. It always is a wonderful adventure of excitement and disappointment. Almost everything you do is a failure, until you get the one success that works..
How did you pay for all that research and development before you had a product to sell?
I was borrowing it all from the bank. Going deeper and deeper into debt. By the time I launched the vacuum cleaner, I was two million pounds in debt. I think the bank got in a bit deeper than they intended to, but I had an interesting bank manager. I asked him why he lent me the money, and he said, “I went home to my wife and said, ‘What do you think about vacuum bags and vacuum cleaners?’ And she said, ‘Dreadful, dreadful.'”
. . .
Why are you in favor of Brexit?
I think we should be independent. Europe has become more and more of a unified society where all the laws are made in Brussels. I don’t believe it’s ever been right for Britain.
Britain has always been a globally facing country, with our empire, if I dare mention that, covering half the globe. We have a pioneering and global outlook. There’s no room for us in Europe.
What about the prospect of economic disruption to England
All cars coming into England from America have a 10 percent duty on them, and most of that goes to Brussels. Europe is a protectionist setup designed to keep competitors out. It’s not a good thing to be in. We believe in free trade. And if any bankers are leaving London, it’s got nothing to do with Brexit. It was the right decision for Britain.

For the full interview, see:
David Gelles, interviewer. “‘Follow the Design, Not the Market.” The New York Times, SundayBusiness Section (Sunday, Dec. 6, 2018): 6.
(Note: ellipses added; bold in original.)
(Note: the online version of the interview has the date Dec. 5, 2018, and has the title “CORNER OFFICE; James Dyson: ‘The Public Wants to Buy Strange Things’.” The first quoted paragraph, and the bold questions, are by David Gelles. The answers are by James Dyson.)

Young Back Choi Offers Advance Praise for Openness to Creative Destruction

In this excellent book, Arthur Diamond offers a spirited defense of open and free market system, saying that much of the complaints against capitalism is based on (1) mistakenly conflating free market competition with cronyism, and (2) grossly under-appreciating the innovative entrepreneur’s ability to solve problems in all sorts of areas–in the past and in the future. One of the central claims of the author, based on his understanding of the epistemology of innovation, namely, the necessity of self-funding of all breakthrough entrepreneurs, underlines the need for open and competitive markets if we are to enjoy in the future benefits of innovative dynamism, as we have in the past.

Young Back Choi, Professor of Economics and Finance, St. John’s University. Author of Paradigms and Conventions: Uncertainty, Decision Making, and Entrepreneurship.

Choi’s advance praise is for:
Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, forthcoming June 2019.

Chinese Entrepreneurs Anxious Over Growing Government Control of Private Enterprise

(p. A15) HONG KONG — The comments were couched in careful language, but the warning about China’s direction was clear.
China grew to prosperity in part by embracing market forces, said Wu Jinglian, the 88-year-old dean of pro-market Chinese economists, at a forum last month. Then he turned to the top politician in the room, Liu He, China’s economic czar, and said “unharmonious voices” were now condemning private enterprise.
“The phenomenon,” Mr. Wu said, “is worth noting.”
Mr. Wu gave rare official voice to a growing worry among Chinese entrepreneurs, economists and even some government officials: China may be stepping back from the free-market, pro-business policies that transformed it into the world’s No. 2 economy. For 40 years, China has swung between authoritarian Communist control and a freewheeling capitalism where almost anything could happen — and some see the pendulum swinging back toward the government.
. . .
China’s leadership turned to entrepreneurs in the late 1970s, after the government had led the economy to the brink of collapse. Officials gave them special economic zones where they could open factories with fewer government rules and attract foreign investors. The experiment was an unparalleled success. When extended to the rest of the country, it created a growth machine that helped make China second only to the United States in terms of economic heft.
Today, the private sector contributes nearly two-thirds of the country’s growth and nine-tenths of new jobs, according to the All-China Federation of Industry and Commerce, an official business group. So pressures on private businesses could create serious ripples.
“The private sector is experiencing great difficulties right now,” wrote Mr. Hu, the retired minister, who as the son of a former top Communist Party leader is often a voice for reform in China, in an essay posted online last Thursday. “We should try our best not to replicate the nationalization of private enterprise in the 1950s and the state capitalism.”
. . .
Private entrepreneurs are loath to speak out for fear of attracting official condemnation. But signs of distress aren’t hard to find.
Last month, Chen Shouhong, the founder of an investment research firm, asked a group of executive M.B.A. students — many of whom already owned publicly listed companies — to choose between panic and anxiety to describe how they feel about the economy. An overwhelming majority chose panic, according to a transcript. Mr. Chen declined to be interviewed.
. . .
Xiao Han, an associate law professor in Beijing, cited one of Aesop’s fables, of a man trying and failing to stop a donkey from going over a cliff.
“Before long,” Mr. Xiao said, “we’ll probably find a body of a China donkey under the cliff.”

For the full story, see:
Li Yuan. “China Muscles In on Its Free-Market Prosperity.”The New York Times (Thursday, Oct. 4, 2018): A1 & A12.
(Note: ellipses added.)
(Note: the online version of the story has the date Oct. 3, 2018, and has the title “Private Businesses Built Modern China. Now the Government Is Pushing Back.”)