My book Openness to Creative Destruction: Sustaining Innovative Dynamism, is forthcoming from Oxford University Press in June 2019.
The book shows how life has improved through innovation, how innovation has occurred through the efforts of inventors and innovative entrepreneurs, how workers on balance benefit from a system of innovative dynamism, and how policies can be crafted to encourage the innovative entrepreneur to bring us more innovations.
A PDF of a handout that includes the current draft of the Table of Contents of my book can be found on the first page of artdiamond.com.
Several scholars have graciously looked at an advance copy of my book, and offered me early praise for it. During the next several weeks I occasionally will present some of their comments. (These will be presented roughly in the order in which I received them.)
Category: Creative Destruction
Growing Percent of Firms in Developed Countries Are Zombies
ZURICH–The number of profit-constrained “zombie” firms has risen sharply since the late 1980s, according to research published Sunday by the Bank for International Settlements, a sign of the lingering effects from ultralow interest rates since the financial crisis.
Zombie firms are generally defined as companies that can’t service their debt from profits during an extended period. These types of companies, which first gained attention in Japan decades ago and have since gained prevalence in Europe, steer resources away from healthier parts of the economy, weighing on productivity and economic growth.
“The prevalence of zombie firms has ratcheted up since the late 1980s,” according to a paper published Sunday by the Switzerland-based BIS, a consortium of central banks, in its quarterly review of financial market developments.
Under a broad definition–the ratio of earnings before interest and taxes to interest paid is less than one for three-straight years in companies more than 10-years old–the percentage of zombie companies rose from 2% in the late 1980s to 12% in 2016. The data used by the authors covered 14 developed economies including the U.S., Japan, Germany and France.
And they seem to stay that way for longer. The authors found that whereas in the late 1980s zombie firms had a 60% chance of staying in that condition the following year, the probability reached 85% in 2016. Low interest rates have helped these firms stay afloat by reducing their financial pressure to reduce debt.
“Lower rates boost aggregate demand and raise employment and investment in the short run. But the higher prevalence of zombies they leave behind misallocate resources and weigh on productivity growth,” the authors wrote.
For the full story, see:
Brian Blackstone. “Rise of the Zombies: Ranks of Non-Viable Firms Up Sharply Since 1980s, Study Says; Low rates have helped these firms stay afloat by reducing their financial pressure to reduce debt.” The Wall Street Journal (Sunday, Sept. 23, 2018 URL: https://www.wsj.com/articles/rise-of-the-zombies-ranks-of-non-viable-firms-up-sharply-since-1980s-study-says-1537718401?mod=searchresults&page=1&pos=2
(Note: at least as of Oct. 1, 2018, this article appears only to have been published online.)
The study published in BIS Quarterly Review, and mentioned above, is:
Banerjee, Ryan Niladri, and Boris Hofmann. “The Rise of Zombie Firms: Causes and Consequences.” BIS Quarterly Review (Sept. 2018): 67-78.
Low Interest Rates Increased Zombie Firms After Economic Crisis of 2008
Source of graph: online version of the WSJ article quoted and cited below.
(p. A1) Italian clothing maker and retailer Stefanel SpA became famous for its knitted coats and cardigans.
Many economists, investors and bankers know Stefanel as something starkly different: a zombie company. It has posted an annual loss for nine of the last 10 years and restructured its bank debt at least six times, including several grace periods when Stefanel only had to pay interest on what it owed.
After booming during Italy’s post-World War II expansion, Stefanel and its lumbering factories were overwhelmed by Spanish fast-fashion giant Zara and then battered by the economic slowdown that hit Italy in 2008.
Stefanel is still alive but staggering. So are hundreds of other chronically unprofitable, highly indebted companies being kept afloat with new infusions from lenders and shareholders, especially in Southern Europe.
Economists and central bankers say zombies undercut prices charged by healthier competitors, create artificial barriers to entry and prevent the flushing out of (p. A10) weak companies and bad loans that typically happens after downturns.
Now that the European economy is in growth mode, those zombies and their related debt problems could become a drag on the entire continent.
“The zombification of the corporate sector and banks [is] a risk for future living standards,” Klaas Knot, a European Central Bank governor and the head of the Dutch central bank, said in an interview.
. . .
In some ways, zombie firms are an unintended side effect of years of easy money from the ECB, which rolled out aggressive stimulus policies, including negative interest rates, to support lending and growth. Those policies have been sharply criticized in some richer eurozone countries for making it easier for banks to keep struggling corporate borrowers alive.
For the full story, see:
Eric Sylvers and Tom Fairless. “Zombie Companies Haunt Europe’s Economic Recovery.” The Wall Street Journal (Thursday, November 16, 2017): A1 & A10.
(Note: ellipsis added.)
(Note: the online version of the article has the date Nov. 15, 2017, and the title “A Specter Is Haunting Europe’s Recovery: Zombie Companies.”)
Closed Malls Repurposed as Distribution Centers
(p. B6) The pressure for speedy online package delivery is prompting companies to look for distribution facilities closer to residential areas or highways.
Some of the best locations, it turns out, are dead malls.
Warehouse landlords say they like former malls because the shopping centers occupy swaths of space relatively close to where consumers live or near main highways.
But it isn’t easy to convert a mall into logistics space quickly. Developers say it takes a community ready to accept that the mall has failed as well as understanding that there are viable job opportunities in logistics real estate.
For the full story, see:
Esther Fung. “The Best Location for New Warehouse Is Often an Old Mall.” The Wall Street Journal (Wednesday, Aug. 9, 2017): B6.
(Note: the online version of the article has the date Aug. 8, 2017, and the title “The Best Place for a New Warehouse? An Old Mall.”)
Automation Predicted to Destroy 19 Million Old Jobs and Create 21 Million New Jobs
(p. B5) At least 21 new job categories may soon emerge from technological and other societal changes, says a new report from IT-services and consulting firm Cognizant Technology Solutions Corp.
With titles such as “genetic diversity officer,” “virtual store sherpa” and “personal memory curator,” these roles aren’t science fiction, the study’s authors argue. Rather, they are identified as jobs many employers will have to fill within the next decade.
“It’s easier to understand what types of jobs are going to go away,” says Ben Pring, director of Cognizant’s Center for the Future of Work, . . . The idea behind the report, he says, was “to craft a credible narrative of what we’re going to gain.”
. . .
Mr. Pring and his colleagues say the dawning age of intelligent machines won’t be without painful upheaval: They estimate about 19 million positions in the U.S. will be automated out of existence in the next 15 years, while employers create some 21 million new roles. At the same time, the majority of existing ones will likely be enhanced. “Work will change, but it won’t go away,” Mr. Pring says.
For the full story, see:
Vanessa Fuhrmans. “A Future Without Jobs? Think Again.” The Wall Street Journal (Thursday, November 16, 2017): B5.
(Note: ellipses added.)
(Note: the online version of the story has the date Nov. 15, 2017, and has the title “How the Robot Revolution Could Create 21 Million Jobs.”)
The Cognizant report, mentioned above, is:
Pring, Ben, Robert H. Brown, Euan Davis, Manish Bahl, and Michael Cook. “21 Jobs of the Future: A Guide to Getting – and Staying – Employed for the Next 10 Years.” Teaneck, NJ: Cognizant’s Center for the Future of Work, Nov. 15, 2017.
German Bookstore Thrives Selling Bread and Sausage
(p. A7) BAD SOODEN-ALLENDORF, Germany — At five minutes after seven on a Saturday morning, the bookstore in this idyllic town was not yet officially open — that happens at 7:30 a.m. — but Susanne Frühauf had already rung up the first three customers of the day. At a shelf in the corner, behind a rack of discount paperbacks, her husband Wolfgang was working as quickly as he could.
“They’re like moths,” said Mr. Frühauf, genially, of his customers. “As soon as the lights go on, they come.”
With that, he got back to work, stacking not books, but rows of freshly baked bread rolls sprinkled with poppy, pumpkin, flax, sesame or sunflower seeds that have brought townspeople flocking. Next to him stood a small refrigerator hung with “ahle wurst” — a delicious air-dried, salami-like pork sausage that is one of the region’s culinary specialties — while in the center aisle, organic tomatoes and cucumbers vied with crime novels for table space.
. . .
Mr. Frühauf’s grandfather founded a bookbindery nearly a century ago, right here on the ground floor of the family house on the market square; Mr. Frühauf grew up above the bookstore, which his parents and uncle ran together. Five years ago, when he saw the numbers, Mr. Frühauf — who still lives upstairs, with his mother and his wife — said the situation was clear: “We had to do something.”
At the same time, news came that the town’s last two bakeries were closing. For residents like Mr. Frühauf, who remember when half a dozen local bakers strove to make the town’s best cream-covered plum cake, cumin roll or pumpernickel loaf, this blow was followed by hopeful news: Norbert Schill, who had lost his storefront lease, wanted to keep baking.
“I said, ‘before there’s no fresh bakery, I’ll clear a shelf, and we can sell the bread here,'” Mr. Frühauf said. Mr. Schill agreed to give it a try.
The experiment was a success. Mr. Frühauf began keeping baker’s hours, and Mr. Schill’s former customers started coming to the bookstore to buy their daily bread. Some, like Norbert Bergmann, a retired Catholic priest, got into the habit of picking up a book or TV guide, too.
Some of Mr. Frühauf’s regular customers found the idea strange at first, but they came around quickly. “It’s fun to eat breakfast again,” said Regina Kistner, who raised her family here, and had been making do with the processed rolls sold at the supermarket. “These taste good,” she added, leaving the store with two rolls (one rye and one sesame), a tabloid paper (for her neighbor) and the British romance novel “A Summer at Sea.”
Mr. Schill, the baker, said he for one was very happy to have found such an open-minded partner in the bookseller. “There’s a saying, I remember learning as a child, from the old people. ‘Go with the times, or with time, you’ll go.'”
. . .
Locking up after a long, warm morning, Mr. Frühauf paused. He took a look around at the 17th century building that houses his eclectic store, and said he enjoys being at the center of a new network of butchers, bakers and beekeepers. “In Germany, I think there’s a tendency now, to be very backward-looking, to say, ‘everything used to be better,'” said Mr. Frühauf. “But all you really need are some new ideas.”
For the full story, see:
Sally McGrane. “‘To Stay Afloat After 100 Years, a German Bookstore Sells Sausage.” The New York Times (Saturday, Sept. 22, 2018): A7.
(Note: ellipses added.)
(Note: the online version of the story has the title “‘Would You Like Some Sausage With Your Novel?”)
E-Commerce Creates “More and Better Jobs than It Destroys”
(p. A17) . . . , the men and women who go to work each day in e-commerce fulfillment centers are much better-equipped with information technology–and therefore more productive and better-paid. Our research shows that fulfillment center weekly wages are 31% higher on average than brick-and-mortar retail in the same area.
. . .
But does e-commerce destroy more jobs than it creates? So far the answer seems to be no. From the third quarter of 2015 to the third quarter of 2017, brick-and-mortar retail full-time-equivalent jobs fell by roughly 123,000, or about 1%, according to my think tank’s analysis of the latest Labor Department data.
Over the same two-year stretch, the e-commerce industry has added some 178,000 jobs in fulfillment centers and electronic shopping firms. In addition, express delivery companies and other local couriers boosted their full-time-equivalent workers by another 58,000.
. . .
The Internet of Goods–our term for the fast-growing digitization of the production, sorting and movement of physical products–will be the next major step in the internet’s evolution.
If e-commerce is any guide, the jobs created for the Internet of Goods will require workers who have a good mix of physical and cognitive skills, just like the industrial jobs of the early-20th century. Moreover, they will be more evenly spread around the country, boosting growth in America’s heartland as well as the coasts.
For the full commentary, see:
Michael Mandel. “Get Ready for the Internet of Goods; Already, e-commerce has been creating more and better jobs than it destroys.” The Wall Street Journal (Monday, Oct. 15, 2017): A17.
(Note: ellipses added.)
(Note: the online version of the commentary has the date Oct. 15, 2017.)
Emmanuel Macron Invokes the Spirit of Joseph Schumpeter
(p. A7) PARIS–Speaking at the annual gathering of the business and political elite in Davos earlier this year, French President Emmanuel Macron invoked the spirit of one of his favorite early-20th-century thinkers, Joseph Schumpeter.
The economist is the father of “creative destruction,” the theory that innovation sustains growth by destroying old business models. The embrace of such thinking has made Mr. Macron, an investment banker turned head-of-state, a darling of the globalist set. But this time, Mr. Macron warned that disruption was descending into a battle for the survival of the fittest.
“Schumpeter is very soon going to look like Darwin. And living in a completely Darwinian world is not good,” Mr. Macron said.
France’s president is on a mission to save globalism from itself and, lately, that has become a lonely road.
For the full story, see:
Stacy Meichtry and William Horobin. “Macron Walks a Line on Globalism.” The Wall Street Journal (Saturday, April 21, 2018): A7.
(Note: the online version of the story has the date April 20, 2018, and has the title “Macron’s Lonely Road: Saving Globalism From Itself.” In the last couple of sentences quoted, the wording follows the online version rather than the slightly different print version.)
Even the Mighty Fall: Dow Drops GE
(p. B1) General Electric Co. will drop out of the Dow Jones Industrial Average next week, a milestone in the decline of a firm that once ranked among the mightiest of blue-chips and was a pillar of the U.S. economy.
. . .
The decision to drop GE, an original member of the Dow that has been a part of the 30-stock index continuously since 1907, marks the latest setback for a company that once was the most valuable U.S. firm but has been hit hard in recent years by the unraveling of its finance business and competitive problems.
For the full story, see:
Michael Wursthorn and Thomas Gryta. “GE Drops Out of the Dow After A Century.” The Wall Street Journal (Wednesday, June 20, 2018): B1 & B12.
(Note: ellipsis added.)
(Note: the online version of the story has the date June 19, 2018, and has the title “GE Drops Out of the Dow After More Than a Century.” The passages quoted above follow the slightly longer wording in the online version.)
After Losing Circus Job, Clown Applies His Skills by Running for Congress as a Democrat
(p. A1) As an elephant handler for Ringling Bros. and Barnum & Bailey Circus, Lauren Ramsay used to spend her time herding four-ton pachyderms.
As an elephant handler for Ringling Bros. and Barnum & Bailey Circus, Lauren Ramsay used to spend her time herding four-ton pachyderms.
Last May, the circus closed down after 146 years traveling the country and thrilling millions with “the Greatest Show on Earth.” In the year since, the contortionists, acrobats, stilt walkers and other per-(p. A8)formers have walked a tightrope trying to adapt to more-conventional jobs, while sometimes using their circus skills. It takes some professional clowns a while to find a second act: One is now running for Congress.
Former clown Sandor Eke, of Las Vegas, Nev., wanted to put his entertaining and juggling skills to work behind a bar after 20 years with the circus. But nobody would hire him without experience. He’s now picking up random clown jobs and painting houses. “I try to have fun with it, but it’s not exactly what I wanted with life. I mean, I used to be a clown!”
In April, Mr. Eke auditioned for a mascot job with the Oakland Raiders once they move to Las Vegas for the 2020 season. He tried on the “Rushing Raider” costume, and did what he called a “crowd-pleasing routine.” He’s waiting to hear back, but remains hopeful. “I got good vibes,” he says.
. . .
Former clown Steve Lough, of Camden, S.C., who left the circus in 2004, later found employment working for McDonald’s at special events and volunteering for political campaigns.
This spring, Mr. Lough decided to run for office himself and is running in the Democratic primary for U.S. Congress in South Carolina. “I juggle at every campaign stop now,” he says.
He did a pratfall at the South Carolina Democratic Convention in April that “got a big reaction and laugh.”
. . .
. . . Mr. Lough says the crowds love his clown skills.
For the full story, see:
John Clarke. “Ex-Clown Is Hard to Hide on a Résumé.” The Wall Street Journal (Tuesday, May 22, 2018): A1 & A8.
(Note: ellipses added.)
(Note: the online version of the story has the date May 21, 2018, and has the title “What’s A Clown to Do After the Circus? One Is Running for Congress.”)