“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

 

Industrial Giants Succeeded in Philanthropy in the Same Way They Succeeded in Business

(p. 3) . . . the Gateses were not the first to see that money could sometimes move mountains in public health. They are following in the footsteps of the industrial giants of the late-19th century, said Dr. Howard Markel, director of the University of Michigan’s Center for the History of Medicine.

These men also brought their fortunes to bear on social problems, and believed that they could succeed in philanthropy in much the way they had succeeded in business.
The donors of the robber-baron years started their philanthropy while still alive – a novel idea then. Andrew Carnegie, for example, gave away hundreds of millions of dollars to build libraries long before his death.
The largest bequest in American history prior to Carnegie’s time was from Johns Hopkins, a Baltimore merchant, who left $7 million to found the eponymous university and hospital in 1873 – after he died.
But the closest parallel to the Gates approach to philanthropy is that of John D. Rockefeller, said Dr. Markel and Robert E. Kohler, a medical historian from the University of Pennsylvania.
Rockefeller built Standard Oil. Like Mr. Gates, he was the richest man of his time, and like him he was reviled as a greedy monopolist.
Rockefeller, like Mr. Gates, hired a professional to run his charities. And he, like Mr. Gates, used his money systematically to identify and attack important public health problems.
Rockefeller hired Frederick T. Gates, a former minister (and no relation to the Microsoft co-founder) as his philanthropic executive. Mr. Gates read an 1892 medical textbook that convinced him that diseases had causes, like germs and worms, that could be fought by science – not a universally accepted idea at the time.
The most famous health campaign he started with Rockefeller money was the drive, begun in 1907, to rid the rural American South of hookworm. Called “the germ of laziness” because it caused anemia and made victims lethargic and dull-witted, hookworm afflicted up to a third of Southerners.
The foundation set up clinics that administered purgatives and – because the worm is shed in feces and picked up by bare feet – taught people to dig deep privies and wear shoes. More Rockefeller money underwrote some of the 20th century’s great public health drives, many using research done at Rockefeller University. Clinics were built in 50 other countries to eliminate hookworm worldwide. The effort failed because the worm can survive in soil and reinfect people; but the problem diminished, especially in parts of Asia.
In 1915, the foundation declared war on yellow fever; by 1932, scientists had realized that monkeys were also a reservoir for the virus, making eradication impossible, but by then Rockefeller scientists had invented the vaccine still used today.
Patty Stonesifer, chief executive of the Gates foundation, said she and William H. Gates Sr., the father of the software pioneer and co-chair of the foundation, consider the Rockefeller campaigns especially instructive. “We stood on their shoulders,” she said.
. . .
As Ms. Stonesifer said admiringly of the Rockefeller campaign against hookworm: “A lot of people would say, ‘you’ve got to reduce poverty to get rid of hookworm.’ But the Rockefellers said, ‘You don’t need a 20-year intervention. You can use shoes.’ “

For the full article, see:

DONALD G. McNEIL Jr. “The Rich, Sometimes, Are the Best Medicine.” The New York Times, Section 4 (Sun., December 11, 2005): 3.
(Note: ellipses added.)

In Defense of Suburban Sprawl

SprawlBK.jpg Image source: web version of WSJ article quoted and cited below.

(p. P16) For at least half a century, academics, aesthetes and all-purpose agonizers have looked at our ever-sprawling cities with disdain and even horror. The spectacle of rings and rings of humankind nested in single-family homes has inspired in them all sorts of revulsion and, relatedly, a whole discipline of blame: Suburban sprawl has been faulted for exacerbating racial tension, contributing to energy shortages, worsening pollution and heating up the globe — even expanding waistlines.

Largely missing from this debate has been a sound and reasoned history of this pattern of living. With Robert Bruegmann’s “Sprawl: A Compact History,” we now have one. What a pleasure it is: well-written, accessible and eager to challenge the current cant about sprawl.
No, Mr. Bruegmann says, don’t go blaming the Federal Highway Administration for sprawl or the executives at General Motors and Exxon or racist developers fleeing urban environments. Don’t even blame Karl Rove. You really don’t need to blame anyone. Mr. Bruegmann notes that contemporary sprawl — best defined by places like Los Angeles, Phoenix and Houston — is nothing new. It represents “merely the latest chapter in a long and curious history.”
What propels that curious history is something often overlooked by the makers of grand theories — the particular choices of individual human beings. Mr. Bruegmann places the urge to sprawl squarely where it belongs: on people’s logical desire to escape the high costs, crime, pollution, congestion and lack of privacy that accompanies life in dense cities.

For the full review, read:
JOEL KOTKIN. “In Praise of ‘Burbs. Academics, planners and tastemakers may vilify suburbia as an American blight. But even the Romans knew: It can be nice to get out of the city.” The Wall Street Journal (Sat., December 10, 2005): P16.

The book that Kotkin’s review is praising:
Robert Bruegmann. Sprawl: A Compact History. Chicago: University of Chicago Press, 2005. (264 pages, $27.50)

Is Democracy a Normal or Inferior Good?

In economics a “normal” good is one where, ceteris paribus, consumers demand more of it when their incomes rise. Conversely, an “inferior” good is one where, ceteris paribus, consumers demand less of it when their incomes rise. Here is an example relevant to the continuing debate about whether political democracy is a normal or inferior good:

A huge throng of pro-democracy protesters poured through the skyscraper canyons of Hong Kong on Sunday afternoon, defying warnings from senior Chinese officials who refuse to set a timetable for general elections here.
The march continued well past sunset, as more and more men, women and children of all ages emerged from side streets and subway stations to join. Organizers estimated the peaceful crowd at 250,000, while the police put it at 63,000.
At either measure, the turnout was surprising because Hong Kong’s economy is booming, unemployment is falling and the city now has a popular and charismatic chief executive, Donald Tsang.

KEITH BRADSHER. “Hong Kong Protesters Want Election Timetable.” The New York Times (Mon., December 5, 2005): A6.

Audacious Nigerian Kleptocrat Cross-dresses to Evade Justice: More on Why Africa is Poor


“Workers installing imported marble on a staircase at Mr. Alamieyeseigha’s official mansion.” Photo by Michael Kamber for The New York Times. Source of photo and caption: http://www.nytimes.com/2005/11/29/international/africa/29nigeria.html?pagewanted=1

YENAGOA, Nigeria, Nov. 22 – Precisely where in the rogue’s gallery of corrupt Nigerian leaders Diepreye Alamieyeseigha will fall is a matter for history to judge. Gen. Sani Abacha, the military dictator who helped himself to at least $3 billion and salted it away in foreign bank accounts, doubtless stole far more.
But General Abacha – who ruled the country from 1993 to 1998 – never fled money-laundering charges in a foreign land by donning a dress and a wig to match forged travel documents, as Mr. Alamieyeseigha, the governor of a small oil-producing state in the Niger Delta, did last week, government officials said.
For their sheer audacity, his antics are likely to earn him a prominent place among the leaders who in the past four decades are believed to have stolen or misspent $400 billion in government money, most of it the profits from Nigeria’s oil reserves.
“It is a new low,” said Gani Fawehinmi, one of Nigeria’s most prominent lawyers and a longtime campaigner for good governance. “And in Nigeria that is saying something.”
Mr. Alamieyeseigha is suspected of siphoning millions of dollars in cash and buying an oil refinery in Ecuador along with several houses in London, California and South Africa. He has denied stealing money from the state.
The sordid saga of the governor comes as the federal government has engaged in a broad effort to rehabilitate the country’s image around the world.
Long associated with rampant corruption and kleptocratic governments, Nigeria has year in and year out gotten one of the worst scores in Transparency International’s world corruption perception index, though this year its rating improved slightly.
Corruption touches virtually every aspect of Nigerian life, from the millions of sham e-mail messages sent each year by people claiming to be Nigerian officials seeking help with transferring large sums of money out of the country, to the police officers who routinely set up roadblocks, sometimes every few hundred yards, to extract bribes of 20 naira, about 15 cents, from drivers. (p. A1)

For the full article, see:
LYDIA POLGREEN. “As Nigeria Tries to Fight Graft, a New Sordid Tale.” The New York Times (Tues., November 29, 2005): A1 & A12.

Never Say Die: Milton Friedman on Vouchers, Again

From an opinion-piece by Milton Friedman, at age 93, in today’s Wall Street Journal:

Whatever the promise of vouchers for the education of New Orleans children, the reform will be opposed by the teachers unions and the educational administrators. They now control a monopoly school system. They are determined to preserve that control, and will go to almost any lengths to do so.
Unions to the contrary, the reform would achieve the purposes of Louisiana far better than the present system. The state’s objective is the education of its children, not the construction of buildings or the running of schools. Those are means not ends. The state’s objective would be better served by a competitive educational market than by a government monopoly. Producers of educational services would compete to attract students. Parents, empowered by the voucher, would have a wide range to choose from. As in other industries, such a competitive free market would lead to improvements in quality and reductions in cost.
If, by a political miracle, Louisiana could overcome the opposition of the unions and enact universal vouchers, it would not only serve itself, it would also render a service to the rest of the country by providing a large scale example of what the market can do for education when permitted to operate.

MILTON FRIEDMAN. “The Promise of Vouchers.” The Wall Street Journal (Mon., December 5, 2005): A20.

The Right Way to Give Away Money

Why is the foundation closing, 52 years after its founding? John M. Olin, who died in 1982, feared that if it were to exist in perpetuity, it would eventually be captured by hostile forces; the example of Henry Ford II, who quit the board of the Ford Foundation in frustration over its liberal agenda, had especially impressed him.
. . .
The Olin model offers many lessons for foundations that would seek to mimic its success, some of them simply mechanical: restrict the number of trustees to avoid the creation of factions (there will be only six at tomorrow’s Olin meeting); hire a staff of smart generalists with diverse backgrounds from outside the foundation world; and make sure that everybody sticks to a set of clearly defined guiding principles.
Other lessons are more strategic in nature. The Olin Foundation’s leaders understood that success is often unplanned, and so they focused on creating the conditions for success rather than thrusting a set of detailed agendas and goals upon grant recipients. Nobody, for example, expected that Allan Bloom’s “Closing of the American Mind” would become a runaway best seller whose meaning is still debated two decades after it was published; the John M. Olin Foundation merely decided in the early 1980’s that Mr. Bloom, a political theorist at the University of Chicago, was a genuine talent who deserved financial backing.
. . .
Finally, the decision to spend itself out of existence may seem bizarre, like an act of philanthropic suicide, yet it magnified the Olin Foundation’s influence. Although it never had much more than $100 million in assets, its refusal to hoard its endowment allowed it to spend at the rate of a much larger foundation.

JOHN J. MILLER. “The Very Foundation of Conservatism.” The New York Times (Mon., November 28, 2005): A23.

Drucker Predicted “Universities Won’t Survive”

Mr. Drucker also told us to expect enormous changes that will come in higher education, thanks to the rise of satellites and the Internet. “Thirty years from now big universities will be relics. Universities won’t survive. It is as large a change as when we first got the printed book.” He believed “High school graduates should work for at least five years before going on to college.” It will be news to most college presidents and a lot of alumni that “higher education is in deep crisis. Colleges won’t survive as residential institutions. Today’s buildings are hopelessly unsuited and totally unneeded.” All this from a life-long academic.
. . .
How higher education is managed did not impress Mr. Drucker; but what did is our continuing education system, whether in community colleges or by computers. Also: “Our most important education system is in the employees’ own organization.” That is where most Americans learn the most.

STEVE FORBES. “A Tribute to Peter Drucker.” The Wall Street Journal (Tues., November 15, 2005): A22.

Willy and His Balls


Willy is a miniature dachshund. Willy’s veterinarian has from the start urged us to have him neutered, but we have so far resisted the temptation to follow the politically correct practice.
I did not attend Willy’s most recent visit to the vet, but I am told that he was placed on the counter and given two shots. Little Willy was not fond of this activity, so after receiving the second shot, he lifted up a hind leg and peed on the floor. Observing this, the vet said ‘that’s what you have to expect from an intact male.’
Willy’s favorite activity is to chase after a ball that you throw for him. His favorite balls are racquetballs, because they are small enough for him to easily carry around and because they have a lot of bounce. But he is also happy to chase tennis balls, and when he sees a soccer ball, he goes beserk with enthusiasm. (When my daughter and I practice soccer in the backyard, little Willy switches to whichever side is most in need of help.)
Our miniature dachshund is a loyal, intelligent, rascally, affectionate, stubborn critter. My advice to little Willy: don’t ever let them take away your balls.

Use for Subsidized Corn: Ski Iowa

Source of image: “Mark Kegans for The New York Times”, at http://www.artsci.wustl.edu/~anthro/articles/09harvest.html

(p. A1) As Iowa finishes harvesting its second-largest corn crop in history, Roger Fray is racing to cope with the most visible challenge arising from the United States’ ballooning farm subsidy program: the mega-corn pile.
Soaring more than 60 feet high and spreading a football field wide, the mound of corn behind the headquarters of West Central Cooperative here resembles a little yellow ski hill. ”There is no engineering class that teaches you how to cover a pile like this,” Mr. Fray, the company’s executive vice president for grain marketing, said from the adjacent road. ”This is country creativity.”
At 2.7 million bushels, the giant pile illustrates the explosive growth in corn production by American farmers in recent years, which this year is estimated to reach a nationwide total of at least 10.9 billion bushels, second only to last year’s 11.8 billion bushels.
But this season’s bumper crop is too much of a good thing, underscoring what critics call a paradox at the heart of the government farm subsidy program: America’s efficient farmers may be encouraged to produce far more than the country can use, depressing prices and raising subsidy payments.
. . .
(p. A1) Even as the Bush administration tries to persuade member nations of the World Trade Organization that it is serious about trimming agricultural subsidies, federal spending on farm payments is closing in on the (p. C4) record of $22.9 billion set in 2000, when the Asian financial crisis caused American exports to fall and crop prices to sink, pushing the Midwest farm belt into recession.
If export sales stay weak, this year’s subsidies could hit a new record. Just last week the United States Agriculture Department raised its projection of payments to farmers by $1.3 billion, to $22.7 billion. In 2004, the subsidies were only $13.3 billion.
In response to pressure, the Bush administration said last month that the United States was prepared to cut its most trade-distorting farm subsidies by 60 percent over five years. The world’s poor nations, which tend to be heavily dependent on agriculture, complain that American and European Union farm subsidies spur growers to produce gluts that depress crop prices throughout the world.
. . .
Lately the giant piles have become the butt of jokes in farm country. They were spoofed in a fake picture, widely e-mailed, that showed a skier airborne atop West Central’s biggest pile, with the caption that said ”one thing you can do with a 3-million-bushel pile of harvested corn: Ski Iowa.”

ALEXEI BARRIONUEVO. “Mountains of Corn and a Sea of Farm Subsidies.” The New York Times (Weds., November 9, 2005): A1 & C4.
Source of image: http://www.chicagoboyz.net/archives/2004_11.html

Forbes on Schumpeter and Drucker

From Steve Forbes’ excellent tribute to Peter Drucker:

No surprise that the economist fellow-Austrian (at least by birth) Joseph Schumpeter was Mr. Drucker’s hero. In 1983, at the centennial of both Schumpeter and the then-legendary John Maynard Keynes, Mr. Drucker wrote in Forbes that Schumpeter’s centenary birthday would hardly be noticed. Yet “Schumpeter it is who will shape the thinking and inform the questions on economic theory and economy policy for the rest of this century, if not for the next 30 or 50 years.” Today Schumpeter’s emphasis on the crucial importance of entrepreneurship and “creative destruction” are now commonplaces.
As Mr. Drucker wrote over two decades ago, “The economy is forever going to change and is biological rather than mechanistic in nature. The innovator is the true subject of economics. Entrepreneurs that move resources from old and obsolescent to new and more productive employments are the very essence of economics and certainly of a modern economy. Innovation makes obsolete yesterday’s capital earnings and capital investment. The more an economy progresses the more capital formation — profits — will it therefore need.” These two men saw profits as a moral imperative, a genuine “cost” in the cost of staying in business because “Nothing is predictable except that today’s profitable business will become tomorrow’s white elephant.”

For the full tribute, see:
STEVE FORBES. “A Tribute to Peter Drucker.” The Wall Street Journal (Tues., November 15, 2005): A22.