Charles Koch Participates in Schumpeter’s Process of Creative Destruction

 

KochClharles.gif Charles Koch.  Source of image:  online version of WSJ article cited below.

 

I heard Charles Koch speak at the April 2005 Orlando meetings of the Association of Private Enterprise Education.  Part of his speech involved how he has tried to apply in his own business, Schumpeter’s process of creative destruction.  For a long time Koch has been a stalwart defender of the free market in word and deed.

Ideas seem to exhilarate him.  This no doubt explains in part why this professorial CEO delivers "dozens and dozens" of lectures around the country to his employees on these very topics.  But what does any of this have to do with explaining his company’s prodigious profitability?  Well, everything — he believes.  Mr. Koch contends that the key insight of his business career was melding these philosophical insights about the way the wealth-creation process works into a business operating system called "Market Based Management."  This system, which he has trademarked, enables every division of his business empire to operate as a separate, autonomous, profit-maximizing unit.  It is intended to reward employees who think like entrepreneurs.

"Long-term success entails constantly discovering new ways to create value for customers and building new capabilities to capture new opportunities," he instructs.  "In this sense, maintaining a business is, in reality, liquidating a business."  Mr. Koch likens the cycle to Schumpeter’s "creative destruction" — where the old and inefficient are ruthlessly swept away by the new.

 

For the full commentary, see: 

STEPHEN MOORE. "THE WEEKEND INTERVIEW with Charles Koch; Private Enterprise." The Wall Street Journal (Sat., May 6, 2006): A8.

 

If Bush’s spirit breaks “evil will indeed triumph”

Natan Sharansky was a political prisoner for nine years in the Soviet Union.  He is articulate and passionate.  But I am not so sure he is right in almost equating freedom and democracy.

While I was an undergraduate at Wabash College, Ben Rogge arranged for Erik Maria Ritter von Kuehnelt-Leddihn to visit campus for a week.  Kuehnelt-Leddihn was an improbable walras of a man.  On my first encounter with him, I was stunned to hear him arguing that a monarchy embued with noblese oblige would be more likely to defend freedom, than would a democracy.  At first I thought the conclusion was patently absurd.  But over time, I gradually came to believe that although it was probably a false conclusion, it was not an absurd one. 

History, and modern experience, provide us many examples of democracies that severely restrict the freedom of their citizens.  And perhaps, for a time, freedom can thrive under enlightened monarchs, or dictators?

I hope, and still believe, that democracy is the system of government most likely, most of the time, to promote freedom.  If so, then what Bush is trying to do, may eventually leave the world safer, and more free:

 

Critics rail against every step on the new and difficult road on which the United States has embarked.  Yet in pointing out the many pitfalls which have not been avoided and those which still can be, those critics would be wise to remember that the alternative road leads to the continued oppression of hundreds of millions of people and the continued festering of the pathologies that led to 9/11.

Now that President Bush is increasingly alone in pushing for freedom, I can only hope that his dissident spirit will continue to persevere.  For should that spirit break, evil will indeed triumph, and the consequences for our world would be disastrous.

 

For the full commentary, see:

Sharansky, Natan.  "Dissident President."  The Wall Street Journal  (Mon., April 24, 2006):  A15.

Charlie Munger Calls Ethanol “Stupid”

Charlie Munger.  Source of image:   http://daily.stanford.edu/tempo?page=content&id=16135&repository=0001_article#

 

Charlie Munger is the number two executive, next to Warren Buffett, at Berkshire Hathaway.  He is old enough, and successful enough, and gutsy enough, and curmudgeony enough, to call ethanol "stupid" while in the "cornhusker state" for the company’s annual meeting.  (Of course, he wasn’t running for public office, and knew he would soon be flying back to his home in California.)

 

Munger said using ethanol for fuel seems "stupid" to him because it takes more energy to create than it produces as a fuel.  Buffett said there are so many ethanol plants, existing or planned, that he doesn’t see how they can all continue operating profitably.

 

For the full article, see:

STEVE JORDON and JONATHAN WEGNER.  "Berkshire Notes: Clayton’s Excutives Double Up."  Omaha World-Herald  (Sunday, May 7, 2006):  1D.

(Note:  the annual meeting was held on Sat., May 6, 2006)  

Incentives and Constraints Matter, But Sometimes Values Do, Too


 Harvard sociology professor Orlando Patterson.  Source of image:
http://www.iadb.org/idbamerica/index.cfm?thisid=681

 

Cambridge, Mass. – Several recent studies have garnered wide attention for reconfirming the tragic disconnection of millions of black youths from the American mainstream. But they also highlighted another crisis: the failure of social scientists to adequately explain the problem, and their inability to come up with any effective strategy to deal with it.

The main cause for this shortcoming is a deep-seated dogma that has prevailed in social science and policy circles since the mid-1960’s: the rejection of any explanation that invokes a group’s cultural attributes — its distinctive attitudes, values and predispositions, and the resulting behavior of its members — and the relentless preference for relying on structural factors like low incomes, joblessness, poor schools and bad housing.

Harry Holzer, an economist at Georgetown University and a co-author of one of the recent studies, typifies this attitude. Joblessness, he feels, is due to largely weak schooling, a lack of reading and math skills at a time when such skills are increasingly required even for blue-collar jobs, and the poverty of black neighborhoods. Unable to find jobs, he claims, black males turn to illegal activities, especially the drug trade and chronic drug use, and often end up in prison. He also criticizes the practice of withholding child-support payments from the wages of absentee fathers who do find jobs, telling The Times that to these men, such levies ”amount to a tax on earnings.”

His conclusions are shared by scholars like Ronald B. Mincy of Columbia, the author of a study called ”Black Males Left Behind,” and Gary Orfield of Harvard, who asserts that America is ”pumping out boys with no honest alternative.”

This is all standard explanatory fare. And, as usual, it fails to answer the important questions. Why are young black men doing so poorly in school that they lack basic literacy and math skills? These scholars must know that countless studies by educational experts, going all the way back to the landmark report by James Coleman of Johns Hopkins University in 1966, have found that poor schools, per se, do not explain why after 10 years of education a young man remains illiterate.

Nor have studies explained why, if someone cannot get a job, he turns to crime and drug abuse. One does not imply the other. Joblessness is rampant in Latin America and India, but the mass of the populations does not turn to crime.

And why do so many young unemployed black men have children — several of them — which they have no resources or intention to support? And why, finally, do they murder each other at nine times the rate of white youths?

. . .  

So what are some of the cultural factors that explain the sorry state of young black men? They aren’t always obvious. Sociological investigation has found, in fact, that one popular explanation — that black children who do well are derided by fellow blacks for ”acting white” — turns out to be largely false, except for those attending a minority of mixed-race schools.

An anecdote helps explain why: Several years ago, one of my students went back to her high school to find out why it was that almost all the black girls graduated and went to college whereas nearly all the black boys either failed to graduate or did not go on to college. Distressingly, she found that all the black boys knew the consequences of not graduating and going on to college (”We’re not stupid!” they told her indignantly).

So why were they flunking out? Their candid answer was that what sociologists call the ”cool-pose culture” of young black men was simply too gratifying to give up. For these young men, it was almost like a drug, hanging out on the street after school, shopping and dressing sharply, sexual conquests, party drugs, hip-hop music and culture, the fact that almost all the superstar athletes and a great many of the nation’s best entertainers were black.

Not only was living this subculture immensely fulfilling, the boys said, it also brought them a great deal of respect from white youths. This also explains the otherwise puzzling finding by social psychologists that young black men and women tend to have the highest levels of self-esteem of all ethnic groups, and that their self-image is independent of how badly they were doing in school.

I call this the Dionysian trap for young black men. The important thing to note about the subculture that ensnares them is that it is not disconnected from the mainstream culture. To the contrary, it has powerful support from some of America’s largest corporations. Hip-hop, professional basketball and homeboy fashions are as American as cherry pie. Young white Americans are very much into these things, but selectively; they know when it is time to turn off Fifty Cent and get out the SAT prep book.

For young black men, however, that culture is all there is — or so they think. Sadly, their complete engagement in this part of the American cultural mainstream, which they created and which feeds their pride and self-respect, is a major factor in their disconnection from the socioeconomic mainstream.

 

For the full commentary, see:

ORLANDO PATTERSON. "A Poverty of the Mind."  The New York Times, Section 4 (Sunday, March 26, 2006):  13.  



British Pull Own Teeth Under Public Dental Care

KellyWilliamToothless.jpg "William Kelly, 43, extracted part of his own tooth, leaving a black stump. He plans to pull one more."  Source of caption and image:  online version of NYT article cited below.

 

ROCHDALE, England, May 2 — "I snapped it out myself," said William Kelly, 43, describing his most recent dental procedure, the autoextraction of one of his upper teeth.

Now it is a jagged black stump, and the pain gnawing at Mr. Kelly’s mouth has transferred itself to a different tooth, mottled and rickety, on the other side of his mouth.  "I’m in the middle of pulling that one out, too," he said.

. . .

But the problem is serious.  Mr. Kelly’s predicament is not just a result of cigarettes and possibly indifferent oral hygiene; he is careful to brush once a day, he said.  Instead, it is due in large part to the deficiencies in Britain’s state-financed dental service, which, stretched beyond its limit, no longer serves everyone and no longer even pretends to try.

Every time he has tried to sign up, lining up with hundreds of others from the ranks of the desperate and the hurting — "I’ve seen people with bleeding gums where they’ve ripped their teeth out," he said grimly — he has arrived too late and missed the cutoff.

"You could argue that Britain has not seen lines like this since World War II," said Mark Pritchard, a member of Parliament who represents part of Shropshire, where the situation is just as grim.  "Churchill once said that the British are great queuers, but I don’t think he meant that in connection to dental care."

Britain has too few public dentists for too many people. At the beginning of the year, just 49 percent of the adults and 63 percent of the children in England and Wales were registered with public dentists.

And now, discouraged by what they say is the assembly-line nature of the job and by a new contract that pays them to perform a set number of "units of dental activity" per year, even more dentists are abandoning the health service and going into private practice — some 2,000 in April alone, the British Dental Association says.

. . .

The system, critics say, encourages state dentists to see too many patients in too short a time and to cut corners by, for instance, extracting teeth rather than performing root canals.

Claire Dacey, a nurse for a private dentist, said that when she worked in the National Health Service one dentist in the practice performed cleanings in five minutes flat.

Moreover, she said, by the time patients got in to see a dentist, many were in terrible shape.

"I had a lady who was in so much pain and had to wait so long that she got herself drunk and had her friend take out her tooth with a pair of pliers," Ms. Dacey said.

Some people simply seek treatment abroad.

 

For the full story, see:

SARAH LYALL.  "In a Dentist Shortage, British (Ouch) Do It Themselves."  The New York Times, Section 1  (Sun., May 7, 2006):  3. 

(Note: ellipsis added.)

Benjamin Rogge in 1973 Discussed Leapfrog Competition


Ben Rogge and the members of Wabash College’s John Van Sickle Club in 1973.  Source of image: The Wabash 1973 Yearbook, p. 173.

 

In explaining Schumpeter’s concept of competition within the process of creative destruction, I have long thought the phrase "leapfrog competition" was apt.  I have no memory of Schumpter himself using the phrase, but did think I remembered Rogge using the phrase.

Today (4/21/06) I used the Amazon.com "Search within the Book" feature to search for the "leapfrog", "leap-frog", and "frog" in Schumpeter’s Capitalism, Socialism and Democracy.  No use of any of the three was found.  This provides some support to my belief that Schumpeter himself did not use the phrase.

I also today examined my lecture notes from Benjamin Rogge’s Comparative Economic Systems course at Wabash College.  In the midst of a discussion of creative destruction on 1/25/73, I note "leap-frogging analogy" which supports my memory that Rogge made use of the phrase "leapfrog competition" in class.

In terms of in-print uses of the analogy, I have performed the same three searches using Liberty Fund’s HTML version of Rogge’s Can Capitalism Survive?  I found one "hit" which appears on p. 22 of the print versions of the book.  

The technical description of the market structure, in the language of the textbook model, would be that of “oligopoly”—the rule of the few.

All of this Schumpeter would label as nonsense. Why? Because the investigator would be examining “each year—taken separately” rather than the never-ending game of leapfrog that the data reveal and that represents the true nature of the competitive process.

I will be in the debt of anyone who can show me an earlier use of the word "leapfrog" in the context of a discussion of competiton in Schumpeter’s process of creative destruction.


Disruptive Innovation in Medicine

DoctorWaitingRoom.jpgSource of image:  http://online.wsj.com/article/SB114540135592529301.html?mod=home_personal_journal_middle

  

(p. D1) The dysfunctional doctor’s office is getting a makeover.

A growing number of programs around the country are helping doctors redesign their offices to wring more profit out of their practices and fix problems that have long frustrated patients: weeks-long delays to get appointments, hours in the waiting room, too-brief visits with the doctor, and the near impossibility of getting the physician on the phone.  While the goal is to improve care, the programs also aim to avert a looming shortage of primary-care doctors who are frustrated with low pay, long hours and rising overhead costs.

The new programs borrow lessons from other industries to help doctors work more efficiently, especially those in solo and small group practices who account for the majority of outpatient office visits.  One approach employs calculations used by airlines, hotels and restaurants to predict demand:  The idea is that doctors can cut patient waits much the way restaurant chains seat diners and turn over tables efficiently.  Others involve relatively simple changes, such as leaving afternoon appointments open for urgent visits, or having patients fill out paperwork ahead of time online.

Managed-care giant Kaiser Permanente is launching a program to help 12,000 doctors that contract with its health plan increase their efficiency with a new electronic-medical-records system.  Portland, Ore., physician Chuck Kilo, whose GreenField Health Systems helps restructure medical practices, and is assisting with the program, says that too many doctors’ appointments take up valuable office time with follow-up that could be accomplished with phone calls and email.

Other models involve more-radical change, such as one called "Ideal Micro Practice" that sharply reduces or even eliminates support staff.  With this blueprint, doctors rely on electronic health records and practice-management software to quickly dispense with administrative tasks.  And they may run their offices solo, greeting patients personally as they come in the door.

"The office practice hasn’t changed much in 50 years," says John Wasson, a Dartmouth Medical School professor and practice redesign expert who is helping to launch a national program to expand the Micro Practice concept.  "This is a disruptive innovation that can lead to increased quality and reduced costs."

 

For the full story, see: 

LAURA LANDRO. "Cutting Waits at the Doctor’s Office; New Programs Reorganize Practices to Be More Efficient; Applying ‘Queuing Theory’." The Wall Street Journal (Weds., April 19, 2006): D1 & D3.

  

  Source of graphic:  http://online.wsj.com/article/SB114540135592529301.html?mod=home_personal_journal_middle