Category: Schumpeter

“life is too short”

Source of book image:  http://www.amazon.com/gp/product/customer-reviews/0738204315/ref=cm_cr_dp_2_1/104-9985403-1047968?%5Fencoding=UTF8&customer-reviews.sort%5Fby=-SubmissionDate&n=283155

The Cluetrain Manifesto is a thought-provoking, entertaining, uneven, overly-mystical, somewhat dated classic on the impact of the internet on business and life.  Here is the book’s startling start:

WE DIE.

You will never hear those words spoken in a television ad.  Yet this central fact of human existence colors our world and how we perceive ourselves within it.  "Life is too short," we say, and it is.  Too short for office politics, for busywork and pointless paper chases, for jumping through hoops and covering our asses, for trying to please, to not offend, for constantly struggling to achieve some ever-receding definition of success.  (p. 1)

Locke, Christopher, Rick Levine, Doc Searls, and David Weinberger. The Cluetrain Manifesto: The End of Business as Usual. Cambridge, Mass.:  Perseus Books Group, 2001.

 

 

Radiologist Outsourcing Is Mainly a Myth

LeonhardtDavid.jpg David Leonhardt.  Source of image:  http://www.nytimes.com/2006/04/19/business/19leonhardt.html?_r=1&oref=slogin

 

A few years ago, stories about a scary new kind of outsourcing began making the rounds.  Apparently, hospitals were starting to send their radiology work to India, where doctors who make far less than American radiologists do were reading X-rays, M.R.I.’s and CT scans.

It quickly became a signature example of how globalization was moving up the food chain, threatening not just factory and call center workers but the so-called knowledge workers who were supposed to be immune.  If radiologists and their $350,000 average salaries weren’t safe from the jobs exodus, who was?

On ABC, George Will said the outsourcing of radiology could make health care affordable again, to which Senator Charles E. Schumer of New York retorted that thousands of American radiologists would lose their jobs.  On NPR, an economist said the pay of radiologists was already suffering. At the White House, an adviser to President Bush suggested that fewer medical students would enter the field in the future.

"We’re losing radiologists," Representative Sherrod Brown, an Ohio Democrat, said on CNN while Lou Dobbs listened approvingly.  "We’re losing all kinds of white-collar jobs, all kinds of jobs in addition to manufacturing jobs, which we’re losing by the droves in my state."

But up in Boston, Frank Levy, an economist at the Massachusetts Institute of Technology, realized that he still had not heard or read much about actual Indian radiologists.  Like the once elusive Snuffleupagus of Sesame Street, they were much discussed but rarely seen.  So Mr. Levy began looking.  He teamed up with two other M.I.T. researchers, Ari Goelman and Kyoung-Hee Yu, and they dug into the global radiology business.

In the end, they were able to find exactly one company in India that was reading images from American patients.  It employs three radiologists.  There may be other such radiologists scattered around India, but Mr. Levy says, "I think 20 is an overestimate."

Some exodus.

 

For the full story, see:

Leonhardt, David.  "Political Clout in the Age of Outsourcing."  The New York Times (Weds., April 19, 2006):  C1 & C4.

Google Evolves

Gary Hamel has recently penned some thoughtful observations about what practices of Google have led to its success.  An excerpt from that analysis appears below.  (Hamel earlier wrote a popular book in which he makes extensive use of Schumpeter’s process of creative destruction.)

Only time will tell whether Google has succeeded in building an evolutionary advantage.  But consider:  Since it’s founding, it has repeatedly morphed its business model.  Google 1.0 was a search engine that crawled the Web but generated little revenue; which led to Google 2.0, a company that sold its search capacity to AOL/Netscape, Yahoo and other major portals; which gave way to Google 3.0, an Internet contrarian that rejected banner ads and instead sold simple text ads linked to search results; which spawned Google 4.0, an increasingly global entity that found a way to insert relevant ads into any and all Web content, dramatically enlarging the online ad business; which mutated into Google 5.0, an innovation factory that produces a torrent of new Web-based services, including Gmail, Google Desktop, and Google Base.  More than likely, 6.0 is around the corner.

Of course Google may ultimately fall victim to hubris and imperial overstretch as it takes on Microsoft, Yahoo, eBay, the occasional telecom giant and pretty much everyone else in cyberspace.  Or like Microsoft, it may simply become like every other big company as it grows.  But that’s not the way I’d bet.  Google seems to have grasped the new century’s most important business lesson:  The capacity to evolve is the most important advantage of all.

 

For the full commentary, see:

Hamel, Gary.  "Management à la Google."  The Wall Street Journal  (Weds., April 26, 2006):  A16.

 

 

 

And here is the information on Hamel’s most recent book:

 

Hamel, Gary. Leading the Revolution: How to Thrive in Turbulent Times by Making Innovation a Way of Life. Revised & Updated ed.  Harvard Business School Press, 2002.

 

 Source of image: http://www.amazon.com/gp/product/B000EPFVBE/sr=8-1/qid=1146333251/ref=pd_bbs_1/104-5668094-9083929?%5Fencoding=UTF8

Europe’s Antitrust Policies Based on “Pathological Revulsion” to Creative Destruction

One of the EU’s findings is that Microsoft uses its desktop dominance to capture the market for Web server software, and now the EU further charges Microsoft with failing to honor its ruling.  So Microsoft’s takeover of serverware proceeds apace?  Er, Brussels we have a problem.

At last count,  Apache-Linux had 62% of the market, Windows 25%,  with various others capturing smaller slices.  True, Microsoft saw a nearly five-point increase in market share last quarter thanks to GoDaddy.com shifting its 3.5 million hosted sites from Linux to Windows.  Maybe the EU should subpoena GoDaddy on grounds that for Microsoft to compete successfully for a customer is illegal.

The other pillar of Europe’s case is Microsoft’s alleged ability to foreclose the market to rival media-playing software.  This week, EU lawyers are trying to swat down the inconvenient fact that, since their ruling, Apple’s iTunes and Macromedia’s Flash Player have carved out big niches for themselves.  The Apple example is worth inspecting up close.  It demonstrates that people don’t buy computers to run software, but to consume information and entertainment "content."  Apple gave them the music they wanted, and its software easily found a home on their computers.

Yet the EU simply rejects the example as irrelevant because it doesn’t fit its mental category about what constitutes a "media player."  More than stupid — this suggests a pathological revulsion against the kind of disorder in which an Apple can come along and upend all the procrustean assumptions of the EU’s drearily youthful staff of economists and lawyers.  We’re not kidding when we say there’s a connection between the Microsoft case and the European 20-somethings who riot in the streets because they’d rather have no job than take a job from which they might fail and be fired.

 

For the full commentary, see: 

HOLMAN W. JENKINS, JR.  "BUSINESS WORLD; The Land (and Antitrust Case) That Time Forgot."  The Wall Street Journal  (Weds., April 26, 2006):  A17.

Doctors Erect Barriers to Keep Out Competition

RadiologistBangalore.jpg A Bangalore radiologist.  One of three radiologists in India known to be reading U.S. scans.  Each of the three has a U.S. degree, as required by U.S. law.  Source of image:  http://www.nytimes.com/2006/04/19/business/19leonhardt.html?_r=1&oref=slogin

 

(p. C1) Radiologists seem like just the sort of workers who should be scared.  Computer networks can now send an electronic image to India faster than a messenger can take it from one hospital floor to another.  Often, those images are taken during emergencies at night, when radiologists here are sleeping and radiologists in India are not.

There also happens to be a shortage of radiologists in the United States.  Sophisticated new M.R.I. and CT machines can detect tiny tumors that once would have gone unnoticed, and doctors are ordering a lot more scans as a result.

When I talked this week to E. Stephen Amis Jr., the head of the radiology department at Montefiore Medical Center in the Bronx, he had just finished looking at some of the 700 images that had been produced by a single abdominal CT exam.  "We were just taking pictures of big, thick slabs of the body 20 years ago," Dr. Amis said.  "Now we’re taking thinner and thinner slices."

Economically, in other words, ra-(p. C6)diology has a lot in common with industries that are outsourcing jobs.  It has high labor costs, it’s growing rapidly and it’s portable.

Politically, though, radiology could not be more different.  Unlike software engineers, textile workers or credit card customer service employees, doctors have enough political power to erect trade barriers, and they have built some very effective ones.

To practice medicine in this country, doctors are generally required to have done their training here.  Otherwise, it is extremely difficult to be certified by a board of other doctors or be licensed by a state government.  The three radiologists Mr. Levy found in Bangalore did their residencies at Baylor, Yale and the University of Massachusetts before returning home to India.

"No profession I know of has as much power to self-regulate as doctors do," Mr. Levy said.

So even if the world’s most talented radiologist happened to have trained in India, there would be no test he could take to prove his mettle here.  It’s as if the law required cars sold here to have been made by the graduates of an American high school.

Much as the United Automobile Workers might love such a law, Americans would never tolerate it, because it would drive up the price of cars and keep us from enjoying innovations that happened to come from overseas.  But isn’t that precisely what health care protectionism does?  It keeps out competition.

 

For the full story, see:

Leonhardt, David.   "Political Clout in the Age of Outsourcing."  The New York Times  (Weds., April 19, 2006):  C1 & C4.

Seeing How Life Has Improved Since the Days of the Cowboys

cowboyPBS.jpg A cowboy on "Texas Ranch House."   Source of image:  the WSJ article cited below.

 

"Texas Ranch House" — circa 1867 — is the latest PBS experiment in transporting a group of people back to another era so we can watch them live and struggle the way our ancestors did.  (Part one of eight begins Monday, 8-9 p.m. ET, but check local listings.)  As with past series such as "Colonial House," everything — clothing, tools, food, housing and all-around deprivation — is authentic.  Once again, though, stuffing 21st-century mentalities into period costumes and situations is a tough fit. And once again, it’s the folks wearing the bodices that chafe the most.

The Western setting is fascinating for two reasons:  What seems familiar from movies and TV takes on fresh significance when there are real people — not pampered actors — trying to scratch out an existence on the frontier 24/7, with no plot to guide them.  There is also the fact, as one of the participants points out early on, that many of us exist today only because a forebear actually did make the real journey West and manage to survive there long enough to bear children.  What luck, we are reminded more than once during this series, that those ancestors were so different from contemporary Americans.

. . .

The trouble that threatens to sabotage the entire experiment develops in the widening gap between the cowboys and the Cooke family.  The first time one of the employees disses boss man Mr. Cooke, yelling "Don’t let your wife run your life," we react with disgust at the insult.  As one of the women in the household explains to the camera, all the cowboys "are sexist bastards."  Besides, instead of rising early to ride the range in search of mavericks for 10 hours, the cowboys — mostly young Americans plus one frisky British boarding-school boy playing the part of 19th-century remittance man — indulge in long naps during the 100-degree days and often wake up in the morning with hangovers after nights of hard drinking.

At some point, though, certain facts begin to sink in:  Mr. Cooke does have management shortcomings and Mrs. Cooke is far more involved in running the business side of the ranch than a frontier wife would have been.  The ladies, in general, don’t enjoy the roles or status that historical reality would dictate, and some act out in defiant, liberated ways.  A fatal flaw, if not the only one, for the success of the ranch enterprise.  In 1867, spending days making cornhusk dolls while the house filled with flies and vegetables rotted in the garden wasn’t an option for folks who wanted to stay alive.  And, like it or not, keeping the ranch hands happy, as obnoxious as they might be, was more important than maintaining marital bliss.

This being a made-for-television environment, no one perishes, but there are no happy endings here, either.  When one of the Cooke daughters says to the camera, "I feel lost and dazed and hurt," you feel genuinely sorry for her.  At the same time, it’s clearer than ever that emotional pampering, navel-gazing and gender warfare are modern luxuries.  Like it or not, if these had been features of daily life in the West 100 years ago, many of the people reading this would never have been born.

 

For the full review, see:

Nancy deWolf  Smith.  "TV REVIEW; The West That Never Was."  The Wall Street Journal  (Fri., April 28, 2006):   W10.

Labor Market Flexibility Increases Employment and Prosperity

“France is definitely behind,” says William Keylor, professor of International Relations and history at Boston University. “If France were to create a more-flexible labor market it would eventually increase productivity and prosperity, but the short-term transition would be difficult and people just aren’t thinking long term.”
There have been labor changes across continental Europe recently. Denmark’s measures to liberalize hiring and firing have helped the country cut its unemployment rate in half from about 10% in the early 1990s to under 5%. Spain, too, has introduced short-term employment contracts which have helped cut its unemployment rate by more than half from 20% a decade ago.
But elsewhere, attempts at change have met with staunch opposition, often resulting in watered-down measures. Italy passed changes to its labor laws in 2004, introducing an extension of temporary-work contracts that were introduced in 1997 and were credited with helping cut Italy’s overall unemployment rate to 7.1% from 12% when the contracts began. Yet many economists say Italy, which recorded zero growth last year, hasn’t gone far enough.
In Germany, where unemployment stands at 11%, a coalition government headed by conservative leader Angela Merkel has promised to reduce unemployment by introducing similar measures to those hotly debated in France. The government had to settle on compromise measures that can extend a current probation period for workers to 24 months, from the current six. But companies don’t have the right to terminate contracts within those two years without giving just cause. Other, more difficult, provisions, are still on hold.
The new measures that will be introduced in Parliament as early as today are targeted at “disadvantaged” youths, which refer to people between 18 and 25 who have left school without any qualifications and who are unemployed. The provisions include increasing financial incentives to employers to hire people under 26 who face the most difficulties.
It would apply to some 160,000 young people currently hired under government-subsidized job contracts, according to an interview with Employment Minister Jean-Louis Borloo in an interview with Le Monde newspaper. The cost to the government would be around €150 million ($180 million) in the second half of 2006, Mr. Borloo was quoted as saying.
But economists said the change of tack was a bad signal. “The real problem is that the results obtained by opponents of the new law…show that it is very difficult to introduce reforms in France,” Dominique Barbet, economist at BNP Paribas, wrote in a research note. “This will give opponents of reform confidence for future actions.”

For the full story, see:
ALESSANDRA GALLONI. “Bowing to Protesters, Chirac Abandons Youth-Labor Law; Reversal Highlights Europe’s Difficulties With Painful Reforms.” The Wall Street Journal (Tues., April 11, 2006): A3 & A10.
(Note: the title and version of the article quoted here are from the online version. The title and content of the version in the printed paper was a little different in a couple of places.)

Wage Security Inversely Related to GDP Per Capita



Source of graph: Siems, Thomas F. “Beyond the Outsourcing Angst: Making America More Productive.” Economic Letter 1, no. 2 (2006): 1-8.
Schumpeter’s theory of creative destruction implies that more flexible labor markets will result in greater productivity per worker. The above recently published evidence, supports the implication.

Studies Show Economic Freedom Boosts Economic Growth

A trio of European economists have just published a meta-analysis on the effects of economic freedom (EF) on economic growth. After many pages, here is their bottom-line conclusion:

(p. 182) Most studies reviewed in this paper have serious drawbacks, including lacking senstitivity analysis and poor specifications of the growth model used. However, studies that have applied some kind of sensitivity analysis and sensible specfications generally find support for a positive relationship between changes in EF and growth. This suggests that liberalization will indeed boost economic growth.

For the full article, see:
De Haan, Jakob, Susanna Lundström, and Jan-Egbert Sturm. “Market-Oriented Institutions and Policies and Economic Growth: A Critical Survey.” Journal of Economic Surveys 20, no. 2 (2006): 157-91.