Economics of Technology – Page 66

Puzzle: Entrepreneurial Silicon Valley Donates Mainly to Democrats

Source of graphic: online version of the NYT article quoted and cited below.

Entrepreneurship thrives when government is small, so it puzzles me when the entrepreneurs in Silicon Valley embrace the Democrats, who generally advocate bigger government.
Of course, my Wabash professor Ben Rogge used to point out that there are always cross-currents that go in a different direction from the mainstream. And among the Democrats, there are what used to be called “new Democrats” who appreciate Schumpeter, and entrepreneurship, and dynamism.
Plus, some Democrats are more respectful of personal, lifestyle choices, and in Silicon Valley, that may be what is given the most weight.
Or, more cynically, maybe there’s a public choice explanation—that Silicon Valley donates to Democrats as a form of ‘insurance,’ in the hope that if the Democrats are elected, they will refrain from over-regulating and over-taxing Silicon Valley. (Even more cynically, compare the case of Florida’s sugar-subsidy-rich Fanjul brothers, one of whom donated huge bucks to the first Bush, while another donated huge bucks to Bill Clinton.)
(Another factor is that, alas, entrepreneurs often do not pay much attention to what conditions encourage entrepreneurship.)

(p. C4) In a flip from the primary season for the 2000 presidential election, 60 percent of the contributions so far from people in the technology field here are going to Democrats. The Democratic candidates raised $1.4 million from the industry in the first half of this year, while Republican candidates raised $890,000. That total is up from $1.2 million in the first six months of each of the last two presidential primary races.

For the full story, see:

LAURIE J. FLYNN. "In Primary, Tech’s Home Is a Magnet." The New York Times (Fri., August 24, 2007): C1 & C4.

Bill Gates Reads Julian Simon

(p. A15) A core belief of Mr. Gates is that technology can erase problems that seem intractable. That belief was deepened, Mr. Gates says, by his study of Julian Simon, a now-deceased business professor who argued that increases in wealth and technology would offset shortages in energy, food and other global resources.
Pacing in his office last week, Mr. Gates retold the story of a famous $10,000 wager between Mr. Simon and Paul Ehrlich, a Stanford University professor who predicted that human population growth would outstrip the earth’s resources. Mr. Simon bet that even as a growing population increased demand for metals such as tin and copper, the price of those metals would fall within the decade ending in 1990. Mr. Simon won the bet. “He cremated the guy,” says Mr. Gates. Mr. Ehrlich’s administrator at Stanford University said he was out of the country and couldn’t comment on the wager.

For the full story, see:

ROBERT A. GUTH. “Bill Gates Issues Call For Kinder Capitalism; Famously Competitive, Billionaire Now Urges Business to Aid the Poor.” The Wall Street Journal (Thurs., January 24, 2008): A1 & A15.

3-D Printers Promise Big Benefits for Consumers

“Lower-price 3-D printers like this one from Z Corp. are spawning new businesses.” Source of caption and photo: online version of the WSJ article quoted and cited below.

Neil Gershenfeld has argued that in the not-too-distant-future, ordinary people will have the ability fabricate objects of their own design, in their own home. His lab at MIT has been developing prototypes to fulfil this vision. The 3-D printers discussed in the article quoted below, are the earliest exemplars of this vision, to make it to the market.

If this vision is realized, the benefits to consumers could be immense, in terms of variety of products, speed in obtaining products, and consumer control over what is consumed.

(p. B1) The expansion by 3-D printers into manufacturing is happening thanks to a steady drop in the price of printers, improvements in the materials they can handle and a proliferation in the amount of 3-D data that can be turned into objects.

Historically, the printers cost hundreds of thousands of dollars and were made by a handful of small companies including Z Corp. and Stratasys Inc. But now those and other new companies are producing more-affordable machines priced below $20,000, a change that has radically expanded sales.

The 3-D printing industry is about 20 years old, and in the past two years alone, it has sold around 8,000 machines, or 36% of the industry’s two-decade world-wide sales total of 22,000, according to consulting firm Wohlers Associates.

And sales are likely to increase further: A Pasadena, Calif., venture called Desktop Factory Inc. has already taken 350 pre-orders for a $5,000 3-D printer it plans to roll out next year, says Cathy Lewis, CEO of the company. About 40% of those orders are from universities and 35% from small businesses, she says. The company predicts printers could start finding their way into homes in five years or so.

For the full story, see:

ROBERT A. GUTH. “How 3-D Printing Figures To Turn Web Worlds Real.” The Wall Street Journal (Weds., December 12, 2007): B1.

The reference to the Gershenfeld book is:

Gershenfeld, Neil. Fab: The Coming Revolution on Your Desktop–from Personal Computers to Personal Fabrication. New York: Basic Books, 2005.

“World of Warcraft figure made with a 3-D printer.” Source of caption and photo: online version of the WSJ article quoted and cited above.

Information Technology Increases Choices on Where to Live

Stephanie and Bill Faunce moved their marketing company from Los Angeles to Steamboat Springs, Colorado. Source of photo: online version of the NYT article quoted and cited below.

Information technology is making life better by providing greater choice on where to live. There is still a lively debate about which regions and cities will prosper.

One popular take on this issue is Richard Florida’s The Rise of the Creative Class.

(p. A1) As technology enables people to live and work wherever they want, increasingly they are clustering in resort playgrounds like Steamboat Springs (pop. 9,315) that have natural amenities, good weather — and, now, lots of people like themselves.

In places like Nantucket, the Upper Peninsula of Michigan and Teton County, Idaho, the migrants are creating hybrid communities, implanting urban incomes, tastes, careers, ambitions, restaurants, cultural activities and networking opportunities into small towns that un-(p. A15)til recently could support none of these, and for which there has been little planning and still no consensus.

“You are seeing a transformation of rural communities,” said Jonathan Schechter, executive director of the Charture Institute in Jackson, Wyo., a nonprofit organization that studies small recreational towns.

Into quiet resort spots the migrants have come, laptops on their knees: fund managers from New York, software developers from California, consultants, proofreaders, engineers, inventors. “The same processes that led to the suburbanization of the United States after World War II,” Mr. Schechter said, “are now producing a virtual suburbanization in places like Jackson or Steamboat Springs.”

From 2000 to 2006, population in the 297 counties rated highest in natural amenities by the United States Department of Agriculture grew by 7.1 percent, 10 times the rate for the 1,090 rural counties with below-average amenities, the department reported.

In towns that once emptied after the ski season or the beach season, these “location-neutral” migrants are complicating the traditional dynamic between tourists and locals. Here as elsewhere, average homes have become unaffordable for teachers, firefighters and others — the people who created the good schools and community closeness that newcomers said drew them. The rate of change “is causing a whiplash,” Mr. Schechter said, “because the towns don’t have the political and economic systems in place to deal with them.”

Routt County, which includes Steamboat Springs, is one of the first places to identify these new émigrés as a source of economic growth and, paradoxically, community stability. A 2005 survey found that as many as 1 in 10 year-round households was involved in a location-neutral business. Unlike retirees and second-home buyers, who are also roosting in vacation towns, they send children to the local schools. “Without kids, you don’t have a community,” said Scott Ford, a counselor at the Small Business Resource Center at Colorado Mountain College.

Cloistered in home offices, isolated from the local economy, location-neutrals are often invisible even to one another, except when they appear on local committees.

Many work as hard as their urban counterparts, often juggling commitments in several time zones, but can step from their offices to a hiking trail or mountain stream.

. . .

For Bill and Stephanie Faunce, who run a marketing company for cable operators, small-town life often means starting work at 7 a.m. and quitting at 11 p.m., but with breaks to hike, ski or be with their two young children. Their goal in coming here was not to slow down but to eliminate urban distractions and pressures.

“There are no stressors here,” said Mr. Faunce, 43. “In L.A., it took 90 minutes to get to the office, so we had a Mercedes and a Land Rover. Now we drive a Suburban. In three years we’ve put 15,000 miles on it.”

For the full story, see:

JOHN LELAND. "Off to Resorts, and Carrying Their Careers." The New York Times (Mon., August 13, 2007): A1 & A15.

(Note: ellipsis added.)

The reference for Florida’s book, is:

Florida, Richard. The Rise of the Creative Class: And How It’s Transforming Work, Leisure, Community and Everyday Life. New York: Basic Books, 2002.

Source of maps: online version of the NYT article quoted and cited above.

Marconi Matters

Source of book image: http://palmaddict.typepad.com/photos/uncategorized/big_larsonthunderstruckdrm_1.jpg

Larson’s book plays off a murder mystery against Marconi as the innovator who brought us communication through the air.

I’m most enthused about hte Marconi part. It shows how he proceeded against the theorists of the day, whose theories told them that what he was trying to do was impossible. He was more entrepreneur, than scientist. And it turned out that it was a good thing that the theoretical scientists did not rule, as they might if all decisions about technology were made by the government.

What happened here is an example of what Taleb would call a Black Swan.

Source:

Larson, Erik. Thunderstruck. New York: Crown, 2006.

Perverse Incentives Undemine Air-Travel Efficiency

Source of graph: online version of the WSJ article quoted and cited below.

Why not solve the problem discussed below by privatizing airports, which would then have a profit-maximizing incentive to reduce congestion by charging more for landing rights? And if the prices were bid high enough, that, in turn would provide an incentive to build more airports.

(p. A1) The nation’s air-travel system approached gridlock early this summer, with more than 30% of June flights late, by an average of 62 minutes. The mess revved up a perennial debate about whether billions of dollars should be spent to modernize the air-traffic control system. But one cause of airport crowding and flight delays is receiving scant attention. Airlines increasingly bring passengers into jammed airports on smaller airplanes. That means using more flights — and increasing the congestion at airports and in the skies around them.

At La Guardia, half of all flights now involve smaller planes: regional jets and turboprops. It’s the same at Chicago’s O’Hare, which is spending billions to expand runways. At New Jersey’s Newark Liberty and New York’s John F. Kennedy, 40% of traffic involves smaller planes, according to Eclat Consulting in Reston, Va. Aircraft numbers tell the tale: U.S. airlines grounded a net 385 large planes from 2000 through 2006 — but they added 1,029 regional jets — says data firm Airline Monitor.

As air-travel woes have spread, some aviation officials and regulators, including the head of the Federal Aviation Administration, have begun saying delays could be eased if airlines would consolidate some of their numerous flights on larger planes.

Just two problems with that. One is that airlines like having more flights with smaller jets. The other is that passengers like it, too.

. . .

Former American Airlines boss Robert Crandall says Congress should let the FAA go back to controlling slots, matching scheduling to capacity. Airport overcrowding is "fixable, but it’s not fixable without major policy change," the former AMR Corp. CEO said at a recent conference.

Another proposal: Change the structure of landing fees. Airports now set them by weight. A small jet pays a smaller landing fee than a large plane, even though its use of the runway is the same. Why not charge a flat fee per landing, suggest some economists — or even charge the small jets more, to encourage airlines to shift to fewer flights on larger jets?

Yet another idea is to tie landing fees to the level of demand through the day, so they’d cost more at peak hours. This would encourage airlines to spread out flights and use bigger planes, says Dorothy Robyn, a consultant at Brattle Group and former aviation adviser in the Clinton administration. She says the current system "guarantees overuse of the air-traffic-control system because airlines aren’t charged the true cost."

For the full story, see:

SCOTT MCCARTNEY. "FREQUENT FLYING; Small Jets, More Trips Worsen Airport Delays FAA Likes Bigger Craft But Passengers, Airlines Prefer Busy Schedules." The Wall Street Journal (Mon., August 13, 2007): A1 & A13.

(Note: ellipsis added.)

Alaska Air Used Skunk Works to Develop Check-In Innovation

Source of graphic: online version of the WSJ article cited below.

The innovation described in the article excerpted below is credited as arising from a ‘skunk works’ project. There’s a neat book called Skunk Works that describes how Lockheed set up an autonomous unit to develop the first stealth air force technology. (Their plant was in a smelly part of town, so it was dubbed the ‘Skunk Works.’)

Clayton Christensen has recommended that established incumbent companies set up skunk works operations in order to develop disruptive technologies that would not survive if they were developed within the main corporate culture and infrastructure.

(In the article excerpted below, it is puzzling to read that Alaska Air went to the trouble to take out a patent, even though they apparently have no intention of enforcing it.)

(p. B1) ANCHORAGE, Alaska — When the Ted Stevens Anchorage International Airport was planning a new concourse, prime tenant Alaska Airlines insisted on a counterintuitive design: "The one thing we don’t want is a ticket counter," said Ed White, the airline’s vice president of corporate real estate.

So the 447,000-square-foot Concourse C, which opened in 2004, has only one small, traditional ticket counter, even though the carrier’s 1.2 million Anchorage passengers checked in through that area last year. This unconventional approach — which uses self-service check-in machines and manned "bag drop" stations in a spacious hall that looks nothing like a typical airport — has doubled Alaska’s capacity here, halved its staffing needs and cut costs, while speeding travelers through the building in far less time.

. . .

(p. B4) Alaska’s design in Anchorage has turned heads in the industry, and in 2006 the airline was awarded a U.S. patent for the check-in process, something it calls the two-step flow-through. Mr. White says his company isn’t trying to keep competitors from going down the same path, but pursued the patent more to reward the many employees who helped to bring the idea to fruition.

Other airlines quickly sent scouts up to Anchorage to check out the new concourse, including a team from Delta Air Lines Inc., Mr. White says. A few months ago, Delta completed a $26 million renovation of its check-in hall at Hartsfield-Jackson Atlanta International Airport, and the finished product looks remarkably similar to that of Alaska Airlines. Greg Kennedy, Delta’s vice president for customer service there, says the new layout has enabled the airline to process passengers checking in during the peak spring break travel period in 20 to 30 minutes at most, compared with two or three hours three years ago — and all in the same amount of square footage but 50% more usable space. Mr. Kennedy says he isn’t aware of a visit to Anchorage but doesn’t dispute it.

. . .

Alaska, the nation’s ninth-largest carrier by traffic, started a "skunk works" lab a decade ago to figure out how to use technology to make air travel less of a hassle for passengers. Out of that effort came the airline’s ground-breaking ability to sell tickets on the Internet and allow fliers to check in online, developments other carriers quickly followed.

For the full story, see:

SUSAN CAREY. "Case of the Vanishing Airport Lines; Alaska Air Speeds Up Flow Of Passengers by Jettisoning Traditional Ticket Counters." The Wall Street Journal (Thurs., August 9, 2007): B1 & B4.

Source of graphic: online version of the WSJ article cited above.

Scientists at Private Firms Publish More Research Than Expected

Dr. Terence Kealey is currently Vice-Chancellor at England’s only private university, the University of Buckingham. Source of photo: http://www.buckingham.ac.uk/publicity/academics/vc.html

Terence Kealey argues that science would be better done if it were all privately done, without government support. As you might expect, Kealey has not won any popularity contests among those receiving government support.

At the January American Economic Association (AEA) meetings in New Orleans, I heard a paper by Belenzon and Patacconi that presented evidence that scientists at private firms publish more research than Belenzon and Patacconi had expected to find.

Sounds like a bit of grist for Kealey’s mill?

The reference to the AEA paper is:

Belenzon, Sharon, and Andrea Patacconi. "Firm Size and Innovation: Evidence from European Panel Data." Presented at meetings of the American Economic Association. New Orleans, Jan., 4, 2008.

The reference to Kealey’s book is:

Kealey, Terence. The Economic Laws of Scientific Research. New York: St. Martin’s Press, 1996.

“The Tender Ship” is a Great, but Unknown, Book

Source of book image: http://www.amazon.com/gp/product/081763312X/ref=cm_rdp_product

Many years ago, I presented a paper on polywater at a conference at VPI (now called "Virginia Tech"). An old man in the audience came up to me afterwards, and told me about a book he had written called The Tender Ship. It sounded intriguing so eventually I bought a copy and read it.

It is well-written, creative, and rich with examples.

The central thesis is that the government usually is not very good at directing technology.

The book reference is:

Squires, Arthur M. The Tender Ship: Government Management of Technological Change. Boston, Massachusetts: Birkhauser, 1986.

“Adopt the Schumpeterian Ethos of Creative Destruction”

Source of graphic: online version of the WSJ article quoted and cited below.

(p. R10) High-technology industries are tough places to do business.

Competition is constant, fierce and characterized by only temporary advantage, fueled by the ease with which software makers and other high-tech companies can copy and distribute new products and services.

Instantaneous delivery through the Internet to hundreds of millions of consumers means a company with a slightly better online marketplace or search engine, for example, can quickly dominate the market, and just as easily be dethroned by a rival with a new approach.

If this brutal competitive cycle — first described as "creative destruction" by Austrian economist Joseph Schumpeter in 1942 — makes you uncomfortable, we’ve got some bad news.

We’ve been studying competition in all U.S. industries, not just the high-tech ones, and we’ve observed a remarkable pattern: On average, the whole U.S. economy has become more "Schumpeterian" since the mid-1990s. What’s more, these changes have been greatest in the industries that buy the most software and computer hardware.

Over the past dozen years, in other words, information-technology consumption is associated with the kinds of competitive dynamics we’re accustomed to seeing in the IT-producing industries. And because every industry will become even more IT-intensive over the next decade, we expect competition to become even more Schumpeterian.

. . .

(p. R11) For executives, the key lesson is to treat information-technology efforts as opportunities to define and deploy new ways of working, rather than just projects to install, configure or integrate systems. Our work suggests three broad areas of focus for top managers:

– First, they need to look at how the company should be doing business differently. That means deciding what new tasks should be enabled with technology, and how widely they should be deployed.

– Second, managers need to lead the deployment of new procedures to success. People don’t like changes to their jobs dictated from outside and embedded in software. Overcoming this inertia and resistance requires skillful leadership.

– Third, managers need to foster innovation by encouraging experimentation, collaboration, dialogue and all of the other activities that generate good ideas. That means building a technology infrastructure and an accompanying set of practices that reduce the cost of creating and replicating process innovations.

Managers might not want competition in their industry to become more Schumpeterian, but they don’t have a choice. Companies are using IT to increase the speed of process innovation and replication. These companies drive the competitive dynamics of their industries, rather than reacting to them, leaving their rivals with a stark choice: Adopt the Schumpeterian ethos of creative destruction, or watch from the sidelines as others increasingly gain market share and value.

For the full story, see:

ANDREW MCAFEE and ERIK BRYNJOLFSSON. "Technology; Dog Eat Dog; Be warned: Industries that buy a lot of technology are becoming as cutthroat as those that produce technology." The Wall Street Journal (Sat., April 28, 2007): R10 & R11.

(Note: ellipsis added.)