Economics – Page 144 – artdiamondblog.com

Former French Student Protest Leader: “We’ve Decided that We Can’t Expect Everything from the State”

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

(p. A16) “The euro was supposed to achieve higher productivity and growth by bringing about a deeper integration between economies,” says Simon Tilford, chief economist at the Centre for European Reform, a London think tank. “Instead, integration is slowing. The lack of flexibility in labor and product markets raises serious questions about the likelihood of the euro delivering on its potential.”

Structural changes are the last great hope in part because euro zone members have few other levers for lifting their economies. Individual members can’t tweak interest rates to encourage lending, because those policies are set by the zone’s central bank. The shared euro means countries don’t have a sovereign currency to devalue, a move that would make exports cheaper and boost receipts abroad.
The remaining prescription, many economists say: chip away at the cherished “social model.” That means limiting pensions and benefits to those who really need them, ensuring the able-bodied are working rather than living off the state, and eliminating business and labor laws that deter entrepreneurship and job creation.
That path suits Carlos Bock. The business-studies graduate from Bavaria spent months navigating Germany’s dense bureaucracy in order to open a computer store and Internet café in 2004. Before he could offer a Web-surfing customer a mug of filter coffee, he said, he had to obtain a license to run a “gastronomic enterprise.” One of its 38 requirements compelled Mr. Bock to attend a course on the hygienic handling of mincemeat.
Mr. Bock closed his store in 2008. Germany’s strict regulations and social protections favor established businesses and workers over young ones, he said. He also struggled against German consumers’ reluctance to spend, a problem economists blame in part on steep payroll taxes that cut into workers’ takehome pay, and on high savings rates among Germans who are worried the country’s pension system is unsustainable.
“If markets were freer, there might be chaos to begin with,” Mr. Bock said. “But over time we’d reach a better economic level.”
Even in France, some erstwhile opponents of reforms are changing their tune. Julie Coudry became a French household name four years ago when she helped organize huge student protests against a law introducing short-term contracts for young workers, a move the government believed would put unemployed youths to work.
With her blonde locks and signature beret, Ms. Coudry gave fiery speeches on television, arguing that young people deserved the cradle-to-grave contracts that older employees enjoy at most French companies. Critics in France and abroad saw the protests as a shocking sign that twentysomethings were among the strongest opponents of efforts to modernize the European economy. The measure was eventually repealed.
Today, the now 31-year-old Ms. Coudry runs a nonprofit organization that encourages French corporations to hire more university graduates. Ms. Coudry, while not repudiating her activism, says she realizes that past job protections are untenable.
“The state has huge debt, 25% of young people are jobless, and so I am part of a new generation that has decided to take matters into our own hands,” she says. “We’ve decided that we can’t expect everything from the state.”

For the full story, see:
MARCUS WALKER And ALESSANDRA GALLONI. “Europe’s Choice: Growth or Safety Net.” The Wall Street Journal (Thurs., MARCH 25, 2010): A1 & A16.

Smarter Info Technology Frees Workers from Routine and Creates Jobs

(p. A22) Smarter computing technology, experts say, ought to make the most skilled workers — in science, the arts and business — even more productive and prosperous by freeing them from routine tasks. Their prosperity translates to spending that creates jobs in stores, schools, gyms, construction and elsewhere.

Artificial intelligence, experts say, should also generate new jobs even as it displaces others. The smart machines of the future will need programming, servicing and upgrading — work done, perhaps, by a new class of digital technicians. The intelligent machines, experts add, will be specialists in a field, like the medical assistant project at Microsoft. They must be tailored with specialized software, perhaps igniting a new industry for artificial intelligence applications.
Of course, no one really knows just what artificial intelligence will mean for jobs and the economy, but the technology is marching ahead. “Its potential is far greater than simply substituting technology for human labor,” said Erik Brynjolfsson, an economist at the M.I.T Sloan School of Management.

For the full story, see:
STEVE LOHR. “Jobs Created and Displaced.” The New York Times (Fri., June 25, 2010): A22.
(Note: the date of the online version of the article was June 24, 2010.)

Low End Tech Upstart Moves Up-Market to Compete with Incumbents

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

The MediaTek example briefly mentioned below, seems a promising fit with Christensen’s theory of disruptive innovators.

(p. B7) TAIPEI–A little-known Taiwanese chip-design company is making waves in the cellphone business, grabbing market share from larger U.S. rivals and helping drive down phone prices for consumers.
. . .
While MediaTek isn’t known for cutting-edge innovation, it has been able to apply the nimble, cost-cutting approach of Taiwan’s contract manufacturers to the business of designing semiconductors, in which engineers use advanced software to lay out the microscopic circuits that make gadgets like cellphones function.
“MediaTek has brought down the cost significantly,” says Jessica Chang, an analyst at Credit Suisse Group AG, who says mobile-phone makers are increasingly drawn to MediaTek’s products because of their functionality and low cost.

For the full story, see
TING-I TSAI. “Taiwan Chip Firm Shakes Up Cellphone Business.” The Wall Street Journal (Mon., APRIL 19, 2010): B7.
(Note: ellipsis added.)

On Christensen’s theories, see:
Christensen, Clayton M., and Michael E. Raynor. The Innovator’s Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

Porter Airlines Beats Incumbents in Serving High End Customers

“Robert Deluce set up Porter Airlines at Billy Bishop Toronto City Airport in October 2006.” Source of caption and photo: online version of the WSJ article quoted and cited below.

Clayton Christensen explains why upstart entrepreneurs who move up-market to serve under-served customers, will almost always lose to motivated incumbents.
Apparently Robert Deluce has not read Christensen.

(p. B8) TORONTO–As a teenager, Robert Deluce learned to fly at this city’s small airport just outside the downtown on a Lake Ontario island.
Lately, the 59-year-old airline entrepreneur has been giving his own brand of flying lessons there in a dogfight with larger competitors over a lucrative flying niche: the high-margin business traveler.
n 2005, Mr. Deluce bought the airport’s ramshackle terminal and later kicked out an Air Canada regional partner named Jazz Air. Then, he set up Porter Airlines, which has become a hit with business fliers for its top-notch service and convenient location, a one-minute ferry ride from the downtown waterfront. Earlier this month, closely held Porter opened the first phase of a gleaming, 150,000-square-foot terminal that eventually will house two passenger lounges and 10 aircraft gates.
. . .
The new carrier’s mascot is a raccoon. “He’s mischievous and determined and pretty much always achieves his desired goal,” said Mr. Deluce, chuckling over breakfast at a Toronto hotel. “Air Canada and Jazz probably think he’s over-mischievous.”
. . .
In recent years, Toronto’s waterfront has been revitalized, with high-rise condos and parks replacing grain elevators and industrial warehouses. Air Canada’s partner Jazz and a predecessor, which had been flying to and from the downtown airport for years, reduced service even as the redevelopment was progressing. The airport’s traffic waned to 25,000 fliers in 2005 from 400,000 a year in the late 1980s.
Smelling opportunity, Mr. Deluce pounced, acquiring the old terminal and evicting Jazz. He raised C$126 million in start-up capital and placed a US$500 million order for 20 Canadian-built turboprop aircraft. With 70 seats, they are perfectly sized for the airport’s short, 4,000-foot runway. Porter took wing in October 2006.
His aggressive tactics as CEO have earned him both criticism and grudging respect. Brian Iler, chairman of CommunityAir, a Toronto citizens advocacy group that wants the airport shut because of noise issues and other concerns, gives Mr. Deluce his due. “Everything he has done, he’s managed to turn things his way,” Mr. Iler says. “It’s an amazing run of luck.”
. . .
Porter now flies to four U.S. destinations and seven other cities in Eastern Canada, with an eighth coming this month. It had its first month of profitability in June 2007 and paid out to its employee profit-sharing plan that year and in 2008, Mr. Deluce says. He won’t say whether Porter was profitable in 2009.
The new airline has attracted a following for its downtown location, competitive fares, leather seats with generous legroom and complimentary beer, wine and snacks. Female flight attendants wear retro pillbox hats and peplum jackets.
Christopher Sears, vice president of research for Montreal-based brokerage firm MacDougall, MacDougall & MacTier Inc., said he has flown Porter 30 to 40 times between Montreal and Toronto. Once he arrives in Toronto, he grabs a free shuttle to a hotel two blocks from his firm’s Toronto office.
“Porter has built up a lot of goodwill with me,” he says, vowing to stick with the company even if rivals break into the downtown airport.

For the full story, see
SUSAN CAREY. “Tiny Airline Flies Circles Around Its Rivals; Top-Notch Service, Proximity to Downtown Toronto Make Porter a Hit With High-Margin Business Travelers.” The Wall Street Journal (Weds., MARCH 17, 2010): B8.
(Note: ellipses added.)
(Note: the online version of the article has the slightly different title “Tiny Airline Flies Circles Around Rivals; Top-Notch Service, Proximity to Downtown Toronto Makes Porter a Hit With High-Margin Business Travelers.”)

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

China Exports to U.S. Are Smaller than Trade Stats Imply

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

(p. A2) The WTO says world trade fell 12.2% in 2009. On Friday, the organization predicted that trade would bounce back sharply this year, rising 9.5%.

But these figures don’t tell the whole truth about trade.
According to some economists, trade in finished products–the things consumers actually buy, such as cars, computers and iPods–declined by much less than 12.2% last year. That is because as much as two-thirds of the value of goods that go into trade statistics represent intermediate parts, which are imported from other countries and used to make finished products that then get re-exported. Economists call this the “valued-added effect.” If the value of imported parts were stripped out, however, global trade would have declined by between 4% and around 8% last year, economists say.
By ignoring the multinational composition of goods, conventional trade data also make trade imbalances between some trading partners seem larger than they really are.
China imports a huge quantity of parts from places like Japan and South Korea, but when those components are assembled into finished goods and shipped to the U.S., all the pieces count as Chinese exports, inflating the U.S. trade imbalance with its most polarizing trade partner.
A study by the Sloan Foundation in 2007, for example, found that only $4 of an iPod that costs $150 to produce is made in China, even though the final assembly and export occurs in China. The remaining $146 represents parts imported to China. If only the value added by manufacturers in China were counted, the real U.S.-China trade deficit would be as much as 30% lower than last year’s gap of at $226.8 billion, according to a number of economists.
At the same time, the U.S. trade deficit with Japan would have been 25% higher than the $44.8 billion reported last year, because many goods that China and others export to the U.S. contain parts purchased in Japan.

For the full story, see:
JOHN W. MILLER. “THE NUMBERS GUY; Some Say Trade Numbers Don’t Deliver the Goods .” The Wall Street Journal (Sat., MARCH 27, 2010): A2.

Government Financing Is Not Best Method to Finance Creativity

(p. B4) Government financing is not the best method to prod companies to be creative, said Edmund S. Phelps Jr., a professor of economics at Columbia University who won the Nobel Prize in 2006. But he said it could work.

He spoke at the forum about dwindling innovation in the United States economy. China, India and Brazil are catching up with innovative output, he said, but not Russia.
A high-technology start-up, he said, inherently runs more risk if it can present its product to only one potential buyer — the government — rather than to a range of customers, some of whom may want the product, he said.
“If Russian politicians see that their own prosperity, and that of their people, lies in a more arms-length relationship between the government and business, that would open a lot of possibilities,” he said.

For the full story, see:
ANDREW E. KRAMER. “Russia Plans to Promote Technology Innovations.” The Wall Street Journal (Mon., February 4, 2010): B4.

Not All Entrepreneurs Believe in Property Rights

“Titan Cement’s Bob Odom in March at the site of a proposed plant near Wilmington, N.C. The company says hundreds of jobs would be created.” Source of book image: online version of the WSJ review quoted and cited below.

Is it just me, or does entrepreneur Lloyd Smith, quoted below, come across as a bit arrogant in believing the government should enforce his view of what Wilmington should be like, even if that means violating the property rights of the owner of the land on which the cement plant will be built? (And even if that means that would-be janitor Ron Givens remains unemployed.)

(p. A3) WILMINGTON, N.C.–The old economy and the new economy are squaring off in this coastal city, which is having second thoughts about revisiting its roots in heavy industry.

Titan Cement Co. of Greece wants to build one of the largest U.S. cement plants on the outskirts of the city and is promising hundreds of jobs. The factory would be on the site of a cement plant that closed in 1982 and today is populated mainly by fire ants, copperhead snakes and the occasional skateboarder.
The proposed $450 million plant by Titan America LLC, Titan’s U.S. unit, is welcome news to Ron Givens Sr., a 44-year-old unemployed Wilmington native. Mr. Givens’s father supported 12 children while working at the former Ideal Cement plant, and Mr. Givens and two brothers have now applied for jobs with Titan. “I will apply for janitor if that’s what is going to get me into that plant,” he said.
But thousands of opponents have petitioned local and state politicians to block the plan. They object to the emissions from the plant and say it will scare off tourists, retirees, entrepreneurs and others who might otherwise want to live here.
An initial state environmental review has dragged on for two years, and critics of the plant have filed a lawsuit seeking to further broaden the review. The governor, amid public pressure, has asked the State Bureau of Investigation to probe the plant’s permitting process.
“That’s their tactic: Delay, delay, and at some point Titan will leave,” said Bob Odom, Titan’s general manager in Wilmington, of opposition efforts.
Among the most vocal opponents is a fast-growing class of high-tech entrepreneurs and telecommuters who moved to Wilmington in recent years, drawn to the temperate climate, sandy beaches and good fishing. They argue the plant, by curbing the community’s appeal, will cost more jobs and tax revenue in the long run than it produces.
“I think we can be discriminating,” said Lloyd Smith, a 43-year-old entrepreneur who moved here from northern Virginia in 2001 and founded Cortech Solutions Inc., a neuroscience company with nine employees and about $5 million in annual sales.
The standoff in Wilmington reflects a broader tug-of-war across the country as communities try to kick-start employment. It is unclear how much manufacturing will power the long-term U.S. economic recovery–even in southern states that have long embraced heavy industry but have begun to feel the new economy’s pull.

For the full story, see:
MIKE ESTERL. “Clash of Old, New Economy; Cement Plant Is Resisted by Some Neighbors Who Would Rather Lure High-Tech Jobs.” The Wall Street Journal (Tues., April 6, 2010): A3.

Source of graph: scanned from print version of the WSJ article quoted and cited above.

Wozniak on the Motives and Rewards of Inventor and Innovator

(p. 147) The whole thing used forty-five chips, and Steve paid me half the seven hundred bucks he said they paid him for it. (They were paying us based on how few chips I could do it. in.) Later I found out he got paid a bit (p. 148) more for it–like a few thousand dollars–than he said at the time, but we were kids, you know. He got paid one amount, and told me he got paid another. He wasn’t honest with me, and I was hurt. But I didn’t make a big deal about it or anything.

Ethics always mattered to me, and I still don’t really understand why he would’ve gotten paid one thing and told me he’d gotten paid another. But, you know, people are different. And in no way do I regret the experience at Atari with Steve Jobs. He was my best friend and I still feel extremely linked with him. I wish him well. And it was a great project that was so fun. Anyway, in the long run of money–Steve and I ended up getting very comfortable money-wise from our work founding Apple just a few years later–it certainly didn’t add up to much.
Steve and I were the best of friends for a very, very long time. We had the same goals for a while. They jelled perfectly at forming Apple. But we were always different people, different people right from the start.
You know, it’s strange, hut right around the time I started working on what later became the Apple I board, this idea popped into my mind about two guys who die on the same day. One guy is really successful, and he’s spending all his time running companies, managing them, making sure they are profitable, and making sales goals all the time. And the other guy, all he does is lounge around, doesn’t have much money, really likes to tell jokes and follow gadgets and technology and other things he finds interesting in the world, and he just spends his life laughing.
In my head, the guy who’d rather laugh than control things is going to be the one who has the happier life. That’s just my opinion. I figure happiness is the most important thing in life, just how much you laugh. The guy whose head kind of floats, he’s so happy. That’s who I am, who I want to be and have always wanted to be.
(p. 149) And that’s why I never let stuff like what happened with Breakout bother me. Though you can disagree–you can even split from a relationship–you don’t have to hold it against the other. You’re just different. That’s the best way to live life and be happy
And I figured this all out even before Steve and I started Apple.

Source:
Wozniak, Steve, and Gina Smith. iWoz: Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It. New York: W. W. Norton & Co., 2006.

U.S. Jobs Lost Due to Law Restricting Mexican Truck Drivers

“Carbonless paper comes off a coating machine at Appleton Papers in March. Mexican tariffs have hit sales.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A5) APPLETON, Wis.–Congress’s vote last year to keep Mexican truck drivers south of the border was good news for DuWayne Marshall.

Mr. Marshall, 49 years old, owns a truck and hauls loads all over the U.S. from his home in Wisconsin. “Why should I have to compete against Third World drivers within my own borders?” Mr. Marshall asked during a break on a run to San Diego. “By closing down the borders, we are saving American jobs.”
Elizabeth Villagomez, 38, isn’t so sure. A single mother of two teens, she has worked at a paper plant in this community near Green Bay for 15 years. After the Mexican government retaliated against the trucking ban by slapping $2 billion in tariffs on U.S. paper, produce and other goods, orders plunged and managers began slashing shifts and overtime for the unionized work force.
“The company has done all it can to cut costs,” Ms. Villagomez said. “I’m at the bottom of the list if they have layoffs. It’s kind of scary, not knowing if you’re going to have a job.”
. . .
At Appleton Papers Inc., the fight over who can drive a truck across a border 1,600 miles away has translated into falling wages and rising anxiety.
Rick Bahr, head of the United Steelworkers union local that represents more than 500 employees at the Appleton plant, said six shifts have already been cut, cutting down on overtime.
“The battle ends up union versus union, truckers versus the paper workers,” Mr. Bahr said. The national steelworkers’ union has been supporting the Teamsters on the issue of Mexican trucks in the U.S.
Nearly half the company’s revenue, about $420 million last year, comes from carbonless paper sales. Its largest foreign customer is Mexico. After Mexico put a 10% tariff on carbonless paper, revenue from Mexico fell to $37 million in 2009 from $46 million in 2008.
Now, more Mexican customers say they will look for alternative suppliers to avoid having to bear part of the tariff costs. Just last month a major customer told Appleton it was going to get its carbonless paper from a European producer.
Even before the tariffs were imposed, the company had seen business hit by the economic slowdown and had cut its work force in 2008 and stopped other benefits, such as reimbursing tuition and matching workers’ contributions to their 401K retirement plans. Company officials said it was hard to quantify what part of the business downturn could be blamed directly on the tariffs, but they noted that Appleton sold 18% fewer tons of carbonless paper in the U.S. last year, compared with 2008. The number of tons sold to Mexican customers was down 24%.
Inside the plant, the machine that coats 4,000-pound rolls of paper to make it carbonless was idle one recent afternoon. Once run 24 hours a day, it is now used only half that time.
Kevin Bunnow, 50, a 33-year veteran of the plant, said the reduction in shifts had meant a wage cut of several thousand dollars last year.
“When elephants fight, the grass loses,” he said. “It didn’t take me long to realize, we’re the grass.”

For the full story, see:
GARY FIELDS. “Trade Dispute Divides Workers; It’s ‘Union vs. Union’ as Ban on Mexican Trucks Cheers Drivers, Triggers Cut in Hours at Paper Plant.” The Wall Street Journal (Tues., April 6, 2010): A5.
(Note: ellipsis added.)

The ‘First Mover Advantage’ May Be a Disadvantage

During the dot.com era one of the rationalizations for dot.com firms to be losing money was that they had to be the ‘first mover’ that would grab the demand-side economies of scale arising from network effects.
For a variety of reasons, including the clarity of hindsight, the current consensus if that profitability is always worth worrying about, and being first is far from a guarantee of success.
On the other hand, if the authors quoted below are correct that everyone should be a “fast follower,” then who will ever make the first move?
Maybe the problem lies in the metrics of success. Maybe the main measure of success lies in moving an important project forward, rather than being the one who ends up best positioned to monetize the advance?
So, for example, maybe those who built Netscape should be proud of what they did, even though Internet Explorer ended up dominating the market.
(I use “maybe” a lot above, not out of some rhetorical pose of modesty, but because these are issues that I am really grappling with.)

(p. R4) One of the fiercest rivalries in the information-technology world has long been over platforms–products that link users in networks, like iTunes for online music or Windows for computer operating systems. It’s often a winner-take-all business; platform leaders can earn huge profits as they tend to dominate markets with few serious competitors.

A myth, however, has attached itself to the history of platforms: that each platform’s originator has the best chance of dominating its market for years to come.
The truth is, that is rarely the case.
Instead of there being an advantage to being first, we found the opposite to be true. Most owners of leading IT platforms today did not create the markets they now rule. In almost all of the industries we studied, the current platform leaders introduced their products after a different company had already established the market with a platform of its own.
Out of the 15 platform industries that we studied, 14 of the current leaders began as followers in a market created by a competitor’s platform. In only one market, for integrated business software, was the original platform creator still the leader–SAP AG. Five were fast followers, which we define as the second, third or fourth company to enter a market. The other nine were later followers.

For the full commentary, see:
GEZINUS J. HIDDING, JEFFREY R. WILLIAMS And JOHN J. SVIOKLA. “Technology; The IT Platform Principle: The First Shall Not Be First .” The Wall Street Journal (Mon., January 25, 2010): R4.