Category: Creative Destruction

Innovative Entrepreneurs Bring Prosperity to the Poor

(p. A17) As the economist Joseph Schumpeter observed: “The capitalist process, not by coincidence but by virtue of its mechanism, progressively raises the standard of life of the masses.”
For Schumpeter, entrepreneurs and the companies they found are the engines of wealth creation. This is what distinguishes capitalism from all previous forms of economic society and turned Marxism on its head, the parasitic capitalist becoming the innovative and beneficent entrepreneur. Since the 2008 crash, Schumpeter’s lessons have been overshadowed by Keynesian macroeconomics, in which the entrepreneurial function is reduced to a ghostly presence. As Schumpeter commented on John Maynard Keynes’s “General Theory” (1936), change–the outstanding feature of capitalism–was, in Keynes’s analysis, “assumed away.”
Progressive, ameliorative change is what poor people in poor countries need most of all. In “The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty,” Harvard Business School’s Clayton Christensen and co-authors Efosa Ojomo and Karen Dillon return the entrepreneur and innovation to the center stage of economic development and prosperity. The authors overturn the current foreign-aid development paradigm of externally imposed, predominantly government funded capital- and institution-building programs and replace it with a model of entrepreneur-led innovation. “It may sound counterintuitive,” the authors write, but “enduring prosperity for many countries will not come from fixing poverty. It will come from investing in innovations that create new markets within these countries.” This is the paradox of the book’s title.
. . .
One example that the authors cite is Tolaram Group, a Singapore-based conglomerate that created the instant-noodle market in Nigeria, pushing out 4.5 billion packets annually and generating revenue of almost $1 billion a year. Sourcing, manufacturing, distributing and selling its Indomie-branded noodles required that Tolaram invest in a broad and deep logistics and distribution chain; create a retail network; develop specialized training; acquire its own electricity generation; build a water and sewage-treatment plant; and construct a deep-water port in the city of Lekki. Had Tolaram waited for the Nigerian government to address these infrastructure and institutional challenges before investing in the country, the company would still be waiting. Other examples include British businessman Mo Ibrahim’s pan-African Celtel, which built a cellphone network across 13 African countries and gained 5.2 million customers in six years, and India’s Narayana Health, which has brought the cost of open-heart surgery down to $1,000.
. . .
Instead of a book of glib answers, they present something much more powerful–a work of creative destruction for today’s failed development-policy paradigm.

For the full review, see:
Rupert Darwall. “BOOKSHELF; A Better Way to Fight Poverty; The current foreign-development paradigm of government-funded programs should be replaced by an entrepreneurial model.” The Wall Street Journal (Thursday, January 31, 2019): A17.
(Note: ellipses added.)
(Note: the online version of the review has the date Jan. 30, 2019, and has the title “BOOKSHELF; ‘The Prosperity Paradox’ Review: A Better Way to Fight Poverty; The current foreign-development paradigm of government-funded programs should be replaced by an entrepreneurial model.”)

The book under review, is:
Christensen, Clayton M., Efosa Ojomo, and Karen Dillon. The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty. New York: HarperBusiness Press, 2019.

Last Blockbuster Store Flourishes

(p. B3) The second-to-last Blockbuster, a squat blue-and-yellow slab wedged next to a real estate agency in Western Australia, will stop renting videos on Thursday and shut down for good at the end of the month. Two stores in Alaska, part of the final group of Blockbuster outlets in the United States, closed in July.
That will make the Blockbuster in Bend, Ore., one of a kind: a corporate remnant, just off the highway, near a cannabis retailer and a pet cremation service.
. . .
Some Tower Records stores still thrive in Japan long after their parent company declared bankruptcy and closed all of its American stores. There is a Howard Johnson’s in Lake George, N.Y., that is the lone survivor of what was once the country’s largest restaurant chain.
Such holdouts have bucked the norm in the retail and restaurant industries, which have shed stores by the hundreds in recent years.
. . .
The Bend store became a Blockbuster franchise in 2000. It has about 4,000 active accounts and signs up a few fresh ones each day, Ms. Harding said. Some of the new customers are tourists who have traveled hours out of their way to stop in.
. . .
One possible explanation for the store’s long life: Bend is in a region that the city’s mayor, Sally Russell, describes as having “huge expanses with really small communities” that often do not have easy access to the high-speed internet necessary for content streaming.
Many residents of outlying areas stop at Blockbuster during their weekly trips to town to run errands, drawn in part by the store’s seven-day rental policy, Ms. Russell said, adding that the store’s last-in-the-world status could even give it a lift.
“It’s like with old vinyl, and how everyone wants to have turntables again,” she said. “We get to a place where something out of date comes back in — there’s definitely interest in keeping this almost-extinct way of enjoying movies alive.”

For the full story, see:
Tiffany Hsu. “A 9,000-Store Chain Has Closed 8,999. How Does That Work?” The New York Times (Thursday, March 7, 2019): B3.
(Note: ellipses added.)
(Note: the online version of the story has the date March 6, 2019, and has the title “The World’s Last Blockbuster Has No Plans to Close.”)

Former Biggest Retailer Sears Limps into Bankruptcy

(p. A1) For much of the 20th century, Sears defined American retailing with catalogs and department stores that brought toys, tools and appliances to millions of homes.
By the time Sears Holdings Corp. limped into bankruptcy on Monday [Oct. 15, 2018], the once-great company was shriveled and sickly. Decades earlier, it had been dethroned by Walmart Inc. as the biggest U.S. retailer. Then it was crippled by a chief executive with unorthodox strategies, and Amazon.com Inc., an endless online catalog that sucked profits out of the business.

For the full story, see:
Suzanne Kapner. “Sears, Once Retail Colossus, Enters Painful New Era.” The Wall Street Journal (Tuesday, Oct. 16, 2018): A1 & A6.
(Note: bracketed date added.)
(Note: the online version of the story has the date Oct. 15, 2018, and has the title “Sears Reshaped America, From Kenmore to Allstate.”)

A Tale of Two Bookstores: New York City Subsidizes Amazon and Regulates the Strand

(p. A22) Since it opened in 1927, the Strand bookstore has managed to survive by beating back the many challenges — soaring rents, book superstores, Amazon, e-books — that have doomed scores of independent bookshops in Manhattan.
With its “18 Miles of Books” slogan, film appearances and celebrity customers, the bibliophile’s haven has become a cultural landmark.
Now New York City wants to make it official by declaring the Strand’s building, at the corner of Broadway and 12th Street in Greenwich Village, a city landmark.
There’s only one problem: The Strand does not want the designation.
Nancy Bass Wyden, who owns the Strand and its building at 826 Broadway, said landmarking could deal a death blow to the business her family has owned for 91 years, one of the largest book stores in the world.
So at a public hearing on Tuesday before the city’s Landmarks Preservation Commission, her plea will be simple, she said: “Do not destroy the Strand.”
Like many building owners in New York, Ms. Wyden argues that the increased restrictions and regulations required of landmarked buildings can be cumbersome and drive up renovation and maintenance costs.
“By landmarking the Strand, you can also destroy a piece of New York history,” she said. “We’re operating on very thin margins here, and this would just cost us a lot more, with this landmarking, and be a lot more hassle.”
. . .
Another rich twist, Ms. Wyden said, was that the move coincides with the announcement that Amazon — not exactly beloved by brick-and-mortar booksellers — plans to open a headquarters in Queens, after city and state leaders offered upwards of $2 billion in incentives to Amazon and its multibillionaire chief executive, Jeff Bezos.
“The richest man in America, who’s a direct competitor, has just been handed $3 billion in subsidies. I’m not asking for money or a tax rebate,” Ms. Wyden said. “Just leave me alone.”
. . .
Owners of buildings with landmark status are in many cases barred from using plans, materials and even paint colors that vary from the original design without the commission’s approval.
. . .
Ms. Wyden — who is married to Senator Ron Wyden of Oregon, whom she met at the similarly renowned Powell’s book store in Portland — is a third-generation owner of the Strand, which stocks roughly 2.5 million used, rare and new books and employs 230 people.
. . .
While she would not divulge the bookstore’s finances, she said that she could make more money renting out the Strand’s five floors, but she loves the family business too much.
She accused city officials of trying to hurry the landmarking process, leaving her little time to prepare a defense, especially during the holiday rush.
“It’s our busiest time of year, and we should be focused on customers and Christmas, which is where we make our most money,” Ms. Wyden said. “But they have no sympathy for that.”

For the full story, see:
Corey Kilgannon. “‘Declaring Strand Bookstore a Landmark Would Kill It, Says Strand.” The New York Times (Tuesday, Dec. 4, 2018): A22.
(Note: ellipses added.)
(Note: the online version of the story has the date Dec. 3, 2018, and has the title “Declare the Strand Bookstore a City Landmark? No Thanks, the Strand Says.” The online version says that the New York print edition appeared on p. A20 and had the title: “A Bid to Preserve Strand Bookstore Would Destroy It, Owner Says.” The page and title in the citation I give further above, is from the National print edition that I receive.)

“Profit Feeds Impact at Scale”

(p. 1) Eric Reynolds will tell you that he is on the verge of freeing much of humanity from the deadly scourge of the cooking fire. He can halt the toxic smoke wafting through African homes, protect what is left of the continent’s forest cover and help rescue the planet from the wrath of climate change.
He is happy to explain, at considerable length, how he will systematically achieve all this while constructing a business that can amass billions in profit from an unlikely group of customers: the poorest people on earth.
He will confess that some people doubt his hold on reality.
“A lot of people think it’s too good to be true,” says Mr. Reynolds, a California-born entrepreneur living in Rwanda. “Most people think I am pretty out there.”
The company he is building across Rwanda, Inyenyeri, aims to replace Africa’s overwhelming dependence on charcoal and firewood with clean-burning stoves powered by wood pellets. The business has just a tad more than 5,000 customers and needs perhaps 100,000 to break even. Even its chief operating officer, Claude Mansell, a veteran of the global consulting company Capgemini, wonders how the story will end.
“Do we know that it’s going to work?” he asks. “I don’t know. It’s never been done before.”
Inyenyeri presents a real-world test of an idea gaining traction among those focused on economic development — that profit-making businesses may be best positioned to deliver critically needed services to the world’s poorest communities.
Governments in impoverished countries lack the finance to attack threats to public health, and many are riddled with corruption (though, by reputation, not Rwanda’s). Philanthropists and international aid organizations play key roles in areas such as immunizing children. But turning plans for basic services into mass-market realities may require the potent incentives of capitalism. It is a notion that has provoked the creation of many businesses, most of them failures.
“Profit feeds impact at scale,” says Mr. Reynolds, now in the midst of a global tour (p. 8) as he courts investment on top of the roughly $12 million he has already raised. “Unless somebody gets rich, it can’t grow.”
More than four decades have passed since Mr. Reynolds embarked on what he portrays as an accidental life as an entrepreneur, an outgrowth of his fascination with mountaineering. He dropped out of college to start Marmot, the outdoor gear company named for the burrowing rodent. There, he profited by protecting Volvo-driving, chardonnay-sipping weekend warriors against the menacing elements of Aspen. Now, he is trying to build a business centered on customers for whom turning on a light switch is a radical act of upward mobility.
. . .
To succeed, a stove had to be so convenient and clean burning that women preferred it over their existing cooking method.
Mr. Reynolds began testing stoves made in Italy, India, the United States and China. He tried making his own.
He came to realize that the magic was in the combination of stove and fuel. He experimented with making charcoal out of corncobs. (“A stupid idea,” he says.) He tried burning banana leaves. Then he discovered wood pellets, which involve compressing wood and eliminating water, the element that produces much of the smoke.
He settled on a Dutch-made stove that reduces wood down to clean-burning gases. Using pellets reduced the need for wood by 90 percent compared with charcoal. But those stoves cost more than $75.
Then came the epiphany: Inyenyeri could supply the stoves for free while collecting revenue from subscriptions for pellets. Rwanda was urbanizing rapidly, and city dwellers rely on charcoal. They would be eager to switch to pellets, which were 30 to 50 percent cheaper.
. . .
(p. 9) The business model would get more attractive as the cost of charcoal climbed, and as innovation inevitably made stoves more efficient. Inyenyeri would also stand to collect revenue from an arrangement it later entered into with the World Bank to sell credits for reducing emissions.
In 2010, Mr. Reynolds sold his house in Boulder and went all in on Inyenyeri. He unloaded his wine cellar, liquidated his retirement accounts and moved to Rwanda with no plan to leave.
. . .
“This business model will happen,” he says. “If it’s not Inyenyeri that’s the first mover, then it will be someone else who learns from our mistakes and does it better. It’s too big of an opportunity.”

For the full story, see:
Peter S. Goodman. “‘A Low-Cost Fix for Africa’s Silent Killer.” The New York Times, SundayBusiness Section (Sunday, Dec. 6, 2018): 1 & 8-9.
(Note: ellipses added.)
(Note: the online version of the story has the date Dec. 5, 2018, and has the title “Toxic Smoke Is Africa’s Quiet Killer. An Entrepreneur Says His Fix Can Make a Fortune.”)

Richest Man in World in 1836 Died of an Infection that Modern Antibiotics Cure

(p. A2) Rising incomes alone cannot capture how much better life has gotten. “Nathan Rothschild was surely the richest man in the world when he died in 1836,” economists Max Roser and Esteban Ortiz-Ospina wrote in 2017. “But the cause of his death was an infection–a condition that can now be treated with antibiotics sold for less than a couple of cents. Today, only the very poorest people in the world would die in the way that the richest man of the 19th century died.”
Mr. Roser is the founder of Our World in Data, a website that tracks the evolution of human welfare over the last few centuries. Scroll through the charts, articles and data sets, and you will be stunned by how much better life has become in just the last few decades: Child mortality, illiteracy and deaths from violence have all plummeted, and life expectancy has gone up.

For the full commentary, see:
Greg Ip. “Stop Calling It ‘Vocational Training’; How we speak about education reflects class prejudice.” The Wall Street Journal (Wednesday, January 3, 2019): A2.
(Note: the online version of the commentary has the date Jan. 2, 2019, and has the title “CAPITAL ACCOUNT; The World Is Getting Quietly, Relentlessly Better.”)

The Roser and Oritz-Ospina piece mentioned above, is:
Max Roser and Esteban Ortiz-Ospina (2018) – “Global Extreme Poverty”. Published online at OurWorldInData.org. Retrieved from: ‘https://ourworldindata.org/extreme-poverty’ [Online Resource]

Technologies That Enable Driverless Cars May Also Enable Virtual Experiences That Reduce Desire to Drive

(p. A13) Audi, at the 2013 Las Vegas Consumer Electronics Show, unveiled a self-driving vehicle, supposedly soon to be available to the public, which would handle highway driving until it didn’t, at which point a passenger would be expected to take over within seconds. Elon Musk seemingly promised every year that a completely capable self-driving car was just a year away. . . .
Toyota, at the same time, was routinely ignored for saying the new technology would compensate for a driver’s errors long before it was ready to accommodate his desire to be doing something else.
. . .
Toyota was right. For the foreseeable future, autonomous features will mainly serve to stop us from screwing up. And yet what’s being cooked up today may prove more transformative in the long run than even the hype-mongers predicted.
Take the machine vision, 3-D mapping and ubiquitous low-latency broadband networks needed to make driverless cars possible. These technologies will also make many trips superfluous. They will bring us not just convincing simulations but improvements: If a rain is falling the day you want to visit Venice, punch in better weather. And why drive to a mall when a virtual store can bring you a selection of items designed to your tastes, which you can even sample virtually?
The signs are already visible. On average, each of us drives less per year than we did in 2004. More Americans work at home, watch Netflix instead of venturing to the movies, and rely on Peapod and Amazon to save them trips to the grocer. For all the blue-sky thinking about how self-driving cars might change vehicle-ownership patterns and urban planning, it’s always assumed people crave to be more mobile. Like many technological forecasts, these visions may be slightly off-kilter from the future that actually unfolds.

For the full commentary, see:
Holman W. Jenkins, Jr. “BUSINESS WORLD; Self-Driving Car Returns to Earth.” The Wall Street Journal (Wednesday, Dec. 1, 2018): A13.
(Note: ellipses added.)
(Note: the online version of the commentary has the date Nov. 30, 2018.”)

Buyers Trust Amazon’s Delivery Speed

(p. B1) SEATTLE — Olivia Zimmermann started her holiday shopping early this year, buying a Bluetooth speaker from Best Buy for her sister. It was supposed to arrive by Dec. 10 [2018], two weeks before Christmas.
The speaker never showed up — and the post office said it had delivered the package to a different town. Best Buy apologized and offered to reship it. But Ms. Zimmermann, who works in marketing in Chicago, was over it.
“I just want a refund,” she told the retailer, and then added: “At this point, I have already ordered from Amazon because I know for a fact it will be here when they say it will.”
Amazon is far and away the leader in e-commerce, outpacing competitors like Walmart, Target and eBay. But its dominance is never more pronounced than in the nail-biter last-minute sprint before Christmas.
The company, based in Seattle, has had a two-decade-long obsession with shrinking the time from click to doorstep. It has built warehouses in more than 30 states and a sophisticated web of delivery methods, giving it a logistical advantage.
Amazon has used that edge to lead people to expect near instant gratification that, for a while, only it could deliver. The company built trust in its delivery speed with its Prime membership, which costs $119 a year and includes two-day shipping. This year, in the days leading up to Christmas, Amazon’s share of online sales will increase by almost 50 percent — to about half of all digital sales — while most rivals fade, according to the market research firm Rakuten Intelligence.
“Amazon’s ability to fulfill more quickly and effectively than competitors has been a key differentiator back to the earliest days,” said Kenneth Cassar, an analyst with Rakuten Intelligence, which is an independent subsidiary of the Japanese e-retailer Rakuten.

For the full story, see:
Karen Weise. “‘For Christmas, All They Want Is From Amazon.” The New York Times (Saturday, Dec. 22, 2018): B1 & B7.
(Note: bracketed year added.)
(Note: the online version of the story has the date Dec. 21, 2018, and has the title “Last-Minute Shoppers Increasingly Trust Only Amazon to Deliver.”)

“New York Needs to Embrace Entrepreneurs, Not Repel Them”

(p. A15) For centuries New York has evolved. With its deep port, the city dominated U.S. trade through the late 1800s. But that wasn’t enough to employ the swarms of immigrants coming through Ellis Island. So the city transformed, creating higher-paying jobs. By 1910 some 40% of all New York workers were employed in manufacturing–the garment industry, sugar refining, publishing and even bread making. My grandfather was in the millinery business. Manufacturing lasted even through the 1960s. I remember seeing shirts made in the Empire State Building. Total employment in the city peaked in 1969.
As post-World War II technology drove transportation costs down, manufacturing moved to the suburbs (and eventually Asia). Most large American cities stagnated. But New York transformed itself again, this time into a service economy with high-paying jobs in finance, media, fashion, law, accounting and health care. It also remained home to the most important stock market in the world. Today well over 90% of New York employment is in services, according to the New York state government.
But the city has arrived at a nasty inflection point again. New York risks becoming another Detroit. New York needs to embrace entrepreneurs, not repel them.

For the full commentary, see:
Andy Kessler. “Can New York Reinvent Itself Again? It risks becoming another Detroit if it keeps repelling entrepreneurs.” The Wall Street Journal (Monday, Sept. 11, 2017): A15.
(Note: the online version of the commentary has the date Sept. 10, 2017.)

Stephen Moore Offers Advance Praise for Openness to Creative Destruction

An invaluable reminder that all human progress derives from innovation, entrepreneurship and inventiveness. Wealth creation depends on creative destruction.

Stephen Moore, economist at the Heritage Foundation, economics commentator on CNN. Co-author of It’s Getting Better All the Time, and other works.

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