Disruptive Innovation Threatens Boeing and Lockheed?

SpaceXHeavyLifters.gif Source of table: online version of WSJ article cited below.

EL SEGUNDO, Calif. — Maverick entrepreneur Elon Musk, who says he is prepared to spend nearly $200 million of his personal fortune creating a family of low-cost, reusable rockets, recently landed an unexpected customer: the U.S. intelligence community.
Mr. Musk and his fledgling company, closely held Space Exploration Technologies Corp., for years worked on advanced technologies and less-expensive manufacturing concepts to build small rockets capable of launching commercial or government satellites weighing around 1,000 pounds.
But the new contract for a single, classified launch — shrouded in such secrecy that neither the spy agency nor specific type of satellite was identified — envisions construction of a massive rocket by Mr. Musk’s company, known as SpaceX. The launch vehicle is slated to be comparable to the largest, most powerful models built by Boeing Co. and Lockheed Martin Corp., but costing a fraction of the prices charged by the rocket-industry leaders
. . .
Mr. Musk doesn’t minimize the challenge of trying to win more government business while criticizing government procurement practices. “I think it’s extremely risky,” he says of his overall strategy, “but we’ve got to fight for our right to win customers.” If development of simpler, less-costly rocket alternatives is left to major defense contractors, he argues, “I can assure you it will never, never happen.”
. . .
In spite of skepticism and criticism of SpaceX, industry leaders are keeping a wary eye on Mr. Musk, with some vowing stepped-up competition against the industry newcomer.
Tom Marsh, a senior Lockheed Martin space official, told a space conference last month that his company “absolutely intends to pursue, and to pursue vigorously” the market for smaller rockets initially targeted by SpaceX.

ANDY PASZTOR. “For Rocket Start-Up, Sky’s the Limit; Surprise Contract Boosts SpaceX as It Competes With Boeing, Lockheed.” THE WALL STREET JOURNAL (Thurs., September 15, 2005): B6.

Using Supply-and-Demand Parking Pricing to Reduce Urban Congestion

In big cities, drivers often waste time searching for parking places. While they are searching, they are adding congestion, to already congested streets. Technology now permits reall-time pricing at parking meters, where the price depends on the availability of open parking spaces.

Should parking meters cost $17 an hour? Donald Shoup thinks that’s fine — if the rate drops when demand falls. The University of California at Los Angeles urban planning prof wants to end wasteful trolling for empty meters by charging market prices on smart meters. “It’s like Goldilocks,” he says. “The price is too low if there are no spaces open, and too high if there are a lot of spaces open.” Drivers should pay up at peak times and get a break when demand ebbs, he argues. Chicago, where an hour in a downtown lot can cost $17, is studying the idea. And in February, Redwood City, Calif., will adjust meter rates — every three months — to assure 15% vacancies.

Joseph Weber. ” STREET PRICES: Adjustable-Rate Meters.” BusinessWeek (NOVEMBER 21, 2005) 14.

Finland Building Europe’s First New Nuclear Reactor in 15 Years

Petr Beckmann holding a copy of his The Health Hazards of NOT Going Nuclear. Golem Press, 1976. Beckmann died on August 3, 1993. Source of photo and Beckmann date of death: http://www.commentary.net/view/atearchive/s76a1928.htm

Not all those who are right, live to see their ideas vindicated. Thank you Petr Beckmann, for writing the truth, when the truth was not popular.

. . . when Finland, a country with a long memory of the Chernobyl disaster in 1986 and considerable environmental bona fides, chose to move ahead this year with the construction of the world’s largest nuclear reactor, the nuclear industry portrayed it as a victory, one that would force the rest of Western Europe to take note.

But the decision to build the reactor, Olkiluoto 3, Europe’s first in 15 years, was not taken quickly or lightly.
. . .
“There is an expectation that others will follow, both because of the way the decision was made and the boosting of confidence in being able to get through all the oppositional fear-mongering,” said Ian Hore-Lacy, the director of public communications for the World Nuclear Association, an industry lobbying group.
The United States, which has not had a nuclear plant on order since 1978, is experiencing a groundswell of interest. Taking the first step in a long process, Constellation Energy, a Baltimore-based holding company, announced in late October that it would apply to the Nuclear Regulatory Commission for permission to construct and operate a pressurized water reactor like the kind being built in Finland, possibly in upstate New York or Maryland. The Finnish reactor, designed by Areva, the French state-controlled nuclear power group, is being built by Framatome ANP, a joint venture of Areva and Siemens, a Germany company.
In addition, President Bush signed into law an energy bill in August that offers billions of dollars in research and development funds and construction subsidies to companies willing to build new nuclear plants. Several utility companies have applied for early site permits, a preliminary step toward building reactors.
Worldwide, the resurgent interest in nuclear power is even more pronounced. Twenty-three reactors are under construction this year in 10 countries, most of them in Asia, which has aggressively pursued nuclear energy. India is building eight reactors. China and Taiwan are building a total of four reactors and are planning eight more. Russia is building four and South Korea is planning eight.

Nuclear energy’s selling points were timely: it does not create emissions, unlike coal, oil and gas, and provides predictable electricity prices, a major bonus for Finnish industries, nuclear proponents said.
“The only viable alternative, if we want to maintain the structure of the economy, maintain our industries and meet our Kyoto targets, is nuclear,” said Juha Rantanen, the chief executive officer of Outokumpu, one of the world’s largest steel producers and one of Finland’s biggest energy users. “We can’t have a declining economy. We face huge challenges and an aging population. Something had to be done.”
Environmentalists, however, argued that nuclear reactors could never be entirely safe. They are always radioactive, and their waste remains toxic for 100,000 years.
But the designers of Areva’s pressurized water reactor, which is costing $3.5 billion to build, helped counter those arguments. In the event of a core meltdown, they said, the nuclear material would flow into a separate enclosure for cooling. They also said that the reactor is being built with enough concrete to withstand the impact of an airliner.
In the end, Finland’s largest trade union supported the project, basically sealing the deal.
. . .

Read the full article at:
LIZETTE ALVAREZ. “Finland Rekindles Interest in Nuclear Power.” The New York Times (Mon., December 12, 2005): A10.
(Note: ellipses added.)

“Fierce” Competition Even When One Firm has Half the Market


   Graph source: page C6 of article cited below.


(C1) YOKKAICHI, Japan – Nestled in a valley in central Japan, surrounded by forested hills and terraced rice paddies, is one of the world’s most sophisticated – and secretive – semiconductor plants. Inside the windowless plant, built by the Japanese electronics maker Toshiba, tiny cranelike robots shuffle along automated production lines, moving stacks of silicon wafers the size of dinner plates. Masked technicians watch as rows of tall machines grind the wafers, etch circuits on their surfaces and cut them into tiny rectangular computer chips. Inside, visitors are allowed to peek through windows at only a small part of the factory floor. Toshiba is anxious to guard the secrets beyond because it needs them to wage one of the most ferocious battles in today’s electronics industry, for control of the fast-growing market for the advanced memory chips at the heart of portable music devices like the Apple iPod Nano. The fight pits Toshiba and its partner, SanDisk of Sunnyvale, Calif., a maker of memory cards, against Samsung Electronics of South Korea. Both camps are spending billions to build new factory lines, hire engineers and develop more powerful chips in a bid to gain supremacy. The chips, called NAND flash memory chips, differ from earlier computer memory chips in that data on them can be easily erased and replaced and they can store data even after the power is turned off. That makes them like miniature hard-disk drives, only much more durable because they lack moving parts. The newest flash memory chips are the size of a fingernail and can store two gigabytes, the equivalent of every word and image printed in nine years of a newspaper. While Toshiba invented the chips more than a decade ago, Samsung has seized the lead with bigger production volumes and lower prices. In the three months that ended in September, Samsung had a market share of 50.2 percent of the $2.97 billion in total global NAND sales, ac- (C6) cording to iSuppli, a market research firm based in El Segundo, Calif. Toshiba’s share was 22.8 percent. SanDisk is not included in iSuppli’s figures because it does not sell its chips, but instead uses them all in its own memory products. . . . At Toshiba’s Yokkaichi plant, there is a palpable determination to catch up with the larger Korean rival. Engineers work in shifts around the clock to speed up development and production of new chips. Noriyoshi Tozawa, the plant’s manager, said he kept workers on their toes with little reminders of darker times. One is an elevator that has been kept out of use since 2001; a sign on the doors says that it was turned off after a crash in computer chip prices almost forced the closure of the plant, which used to produce DRAM, another type of memory chip. "You have to always be at the leading edge to stay alive in this industry," Mr. Tozawa. "We know what it’s like to lose."

To read full article, see: MARTIN FACKLER. "Among Makers of Memory Chips for Gadgets, Fierce Scrum Takes Shape." The New York Times (Mon., December 12, 2005): C1 & C6.

scrum: "a rugby play in which the forwards of each side come together in a tight formation and struggle to gain possession of the ball when it is tossed in among them" Definition source: http://www.m-w.com/cgi-bin/dictionary?book=Dictionary&va=scrum&x=6&y=21


British Inventions Taken Up and Exploited in the United States

They_Made_AmericaBK.jpg   Source of book image: http://www.mikemilken.com/fincareer.taf?page=they_made_america

Was it a difference in “innovative energies” that mattered, or was it a difference in institutions and incentives?

(p. 11) This crucial difference between invention and innovation was borne in on me on my return to England in 1957. As a young science reporter, I visited the government-funded National Physical Laboratory at Teddington, and they showed where their senior researcher Robert Watson Watt had in 1935 invented the radar system that was to help the Royal Air Force win the battle of Britain. His former colleagues remarked with chagrin on how swiftly this British invention had been taken up and exploited in the United States after 1939, laying the foundation for the great electronics industry. It was the same story with antibiotics, following Alexander Fleming’s 1928 discovery of penicillin; with Maurice Wilkes’s pioneering efforts in developing the first commercial application of the computer at the offices of J. Lyons and Company in 1951 and with the jet engine. All of these British inventions were superseded by the innovative energies of America.


Evans, Harold. They Made America: Two Centuries of Innovators from the Steam Engine to the Search Engine. New York: Little, Brown and Co., 2004.

The French Are Not Always Wrong

Editorial page advice from the budget minister of France:

The choice of nuclear power dates back to the end of World War II.  With insufficient fossil fuel reserves, our country very early on invested in energy alternatives.  The two oil crises of the ’70s convinced us to accelerate the construction of facilities to produce safe and economically profitable nuclear energy.  That strategy paid off:  In 30 years, France’s energy independence has risen from 30% to 50%.  While turning toward nuclear energy might have seemed unusual 60 years ago, I believe that it was an especially visionary choice.  The development of nuclear energy enabled us to meet several objectives:  energy independence and security of supply, and competitive, stable energy prices.  This nuclear option is also an economic and commercial asset for our country, whose capabilities in this cutting-edge area are world-renowned.  (p. A20)

JEAN-FRANCOIS COPE. "Energy a la Francaise." The Wall Street Journal (Weds., October 5, 2005):  A20.

A “Bridge” Technology Between Gas and Hydrogen?

Premacy gasoline-electric-hydrogen concept car. Photo source: WSJ, see below.

One of the difficulties in major changes in technology is how to handle the transition. Technologies that reduce the cost of the transition (I call them “bridge technologies”) can be important. Here is a potential example.

(p. D5) . . . with the Premacy concept, Mazda is attempting to combine this electric-motor engine with a combustion engine that is itself a kind of hybrid engine — one that can burn either gasoline or hydrogen, whichever the driver chooses. The company already has spent years developing such dual-fuel combustion engines and says they are now ready for the mass market. Mazda is expected to announce at the Tokyo Motor Show, which opens Oct. 22, that it will begin leasing a version of the RX-8 sports car in Japan with a combustion engine that burns hydrogen as well as gasoline.

Hydrogen is normally seen as an alternative energy source for use in cars powered by fuel cells, in which the chemical reaction between hydrogen and oxygen is used to generate electricity. Fuel-cell technology is attractive because it releases no harmful emissions, and Japan has roughly 15 government-run hydrogen stations to encourage the use of alternative fuels. More are expected.
But fuel-cell technology is also extremely expensive. Because of this, most industry experts think commercial use of fuel-cell cars is years, if not decades, away. That is why Mazda has been developing engines that burn hydrogen much like gasoline. Burning hydrogen, according to Mazda, is much more practical.

For the full story, see:

JATHON SAPSFORD. “Mazda Concept Car Will Run on Three Fuels.” THE WALL STREET JOURNAL (Weds., October 5, 2005): D5.

(Note: ellipsis added.)

If Only Caroline Had Read Schumpeter

Innovation is sometimes slowed because innovators do not know that creative destruction will replace old jobs with equally good, or better, new jobs:

In 1834 Walter Hunt of New York City made such a leap in lateral thinking. In his little machine shop down a narrow alley in Abingdon Square, he devised a machine for stitching cloth with two threads from two separate sources, one a needle on a vibrating arm and the other a transverse shuttle fed by an unwinding bobbin.
. . .
Hunt, an altruistic Quaker, never pursued his invention because his 15-year-old daughter, Caroline, recoiled from the thought that it would put seamstresses out of work. (p. 87)

Evans, Harold. They Made America: Two Centuries of Innovators from the Steam Engine to the Search Engine. New York: Little, Brown and Co., 2004.
(Note: ellipsis added.)

Infinite Jobs to Be Done

Marc Andreesen was the cofounder of Netscape.

“If you believe human wants and needs are infinite,” said Andreeseen (sic), “then there are infinite industries to be created, infinite businesses to be started, and infinite jobs to be done, and the only limiting factor is human imagination. The world is flattening and rising at the same time. And I think the evidence is overwhelmingly clear: If you look over the sweep of history, every time we had more trade, more communications, we had a big upswing in economic activity and standard of living.” (p. 231)

Friedman, Thomas L. The World Is Flat: A Brief History of the Twenty-First Century. New York: Farrar, Straus and Giroux, 2005.

Benjamin Franklin “Stealing God’s Thunder”

From a delightful review of a promising new book:

In Franklin’s day, lightning destroyed homes, barns and livestock, not to mention human beings. To 18th-century Americans, though, it was not merely an occurrence in nature but a form of judgment sent down by a disapproving God. The only way to appease divine wrath — and avoid lightning’s destructive effects — was to pray during thunderstorms or to ring specially “baptized” church bells whose sound might keep the lightning away.
After his kite experiment, Franklin realized that lightning was a form of electricity. He also discovered that electric current would surge through metal and follow its path downward to the ground. In the summer of 1752, he installed the world’s first lightning rods at the Pennsylvania State House and the Pennsylvania Academy. In 1753, he used the pages of “Poor Richard’s Almanack” to make the case for his invention, describing how a pointed iron rod situated atop a tall structure could draw lightning to it, making storms less dangerous. “Poor Richard’s” sold 10,000 copies, earning Franklin instantaneous fame.
But not everyone embraced his claim. By inventing the lightning rod, he was playing God, at least in the view of some of his contemporaries. They saw God’s handiwork in all aspects of life, from the divine-right monarchies that governed men to the storms that crashed overhead. Franklin’s invention, according to Mr. Dray, raised questions “of reason and faith, liberty and tyranny, science and superstition.” The French scientist and clergyman Jean Antoine Nollet was among the most vocal detractors. He contended that it was “as impious to ward off Heaven’s lightnings as for a child to ward off the chastening rod of its father.”
New Englanders, though, started to come around, especially as the authority of their early clergy began to wane in the mid-18th century. They became dubious of the notion that providence controlled nature in every detail. Some people, Mr. Dray notes, “favored the idea that, although God no longer gave daily attention to the world, he had at Creation pre-programmed natural catastrophes to occur throughout time as a way of reminding humanity of its frailty.”
In 1755, humanity seemed frail indeed. A massive earthquake hit Boston, sending tremors from Nova Scotia to South Carolina. An even greater earthquake in Lisbon a few days later killed tens of thousands. A renewed debate erupted over the cause of such destruction. Thomas Prince, a pastor of Boston’s South Church (who believed that he had saved Boston from a French attack in 1746 by calling on God for a sea storm), insisted that lightning rods played a part, sending electricity down into the ground, where it joined the large quantity already there and built up “subterranean tension.” John Winthrop, a professor of science at Harvard, argued that a “kind of undulatory motion” in the Earth, beneath the surface, caused earthquakes and that lightning rods had nothing to do with it. John Adams even joined the fray, siding with Winthrop.
In the end, Prince won in the court of public opinion, though Winthrop’s arguments had the virtue of being true. The use of lightning rods in Boston declined for many years thereafter. Luckily, a technological development in Europe — the increased size of field artillery — led to the acceptance of lightning rods on the Continent. Vaults under churches and other high buildings housed the gunpowder for such war machines. When lightning struck, the results were disastrous. But a lightning rod, it was discovered, kept nature’s spark away. St. Mark’s Basilica in Venice got one in 1766.
. . .
Mr. Dray’s book boasts a delightful secondary theme: the parallels between Franklin’s invention and America’s revolutionaries. Both were using reason to thwart what many perceived to be the natural order of things. Both were battling entrenched superstitions and dogmatic faith. Both were, in a sense, “playing God.”

Rachel DiCarlo. “Books: Block That Bolt.” The Wall Street Journal. (August 16, 2005): D8. (A review of: Philip Dray. Stealing God’s Thunder. Random House, 2005.)

No Known Upper Bound for Economic Growth

Given the limited state of our knowledge of the process of technological change, we have no way to estimate what the upper bound on the feasible rate of growth for an economy might be. If economists had tried to make a judgment at the end of the 19th century, they would have been correct to argue that there was no historical precedent that could justify the possibility of an increase in the trend rate of growth of income per capita to 1.8% per year. Yet this increase is what we achieved in the 20th century. (p. 226)

Romer, Paul M. “Should the Government Subsidize Supply or Demand in the Market for Scientists and Engineers?” In Innovation Policy and the Economy, vol. 1, Cambridge, MA: MIT Press, 2001, pp. 221-252.