As much as I'd like to cite a holiday program this week, the clear stand-out program was a podcast from Open Source at the Watson Institute, Christopher Lydon's interview of political economist Mark Blyth. Blyth presents the concept of "Monetarily Assured Destruction" amongst other reasons why the coming year may not be economically inspiring, but won't be nearly as bad as it theoretically could be in this wide-ranging 27-minute interview.
Listen to MP3 of Open Source "Mark Blyth on 2011"
Showing posts with label economics. Show all posts
Showing posts with label economics. Show all posts
Saturday, December 25, 2010
Wednesday, November 17, 2010
Economics: Even Smith Knew...
TORONTO, ONTARIO - Those on the political left often decry the consumer culture of North America (and, for that matter, most of the world). They point out that wealth--at least above a certain threshold associated with rising out of poverty--does not correlate with happiness. Capitalism, they argue, does not serve to foster human happiness.
What I somehow missed in my education is that the oracle of capitalism, Adam Smith himself, actually acknowledged that free market economics does not lead to happiness. I only learned that from reading Daniel Gilbert's "Stumbling on Happiness." Granted, Smith's analysis of happiness was not in "Wealth of Nations" but in "The Theory of Moral Sentiments," a document I had never read. However, it is pretty stunning prose:
Rather than indicting Smith, I see these statements as indicting those who take a fundamentalist stance on Smith's theories. Smith understood that free markets were not the most efficient way to happiness--just the theoretically most efficient way to organize an advancing economy. Realizing this leaves room for society to value something besides that advancing economy while still pursuing that growth. Market fundamentalists can't seem to countenance that there is anything other free market principles that might matter. Everyone should learn Adam Smith's economic theories--and learn that he understood they weren't linked directly to happiness, and then reach their own conclusions about how they want to see that reflected in their own lives and in society around them.
What I somehow missed in my education is that the oracle of capitalism, Adam Smith himself, actually acknowledged that free market economics does not lead to happiness. I only learned that from reading Daniel Gilbert's "Stumbling on Happiness." Granted, Smith's analysis of happiness was not in "Wealth of Nations" but in "The Theory of Moral Sentiments," a document I had never read. However, it is pretty stunning prose:
In what constitutes the real happiness of human life [the poor] are in no respect inferior to those who would seem so much above them. In ease of body and peace of mind, all the different ranks of life are nearly upon a level, and the beggar, who suns himself by the side of the highway, possesses that security which kings are fighting for.Not only did Smith recognize that happiness was not correlated with wealth, but he actually believed that people needed to be deceived into consumerism in order to create a sustainable economy.
The pleasures of wealth and greatness... strike the imagination as something grand and beautiful and noble, of which the attainment is well worth all the toil and anxiety which we are so apt to bestow upon it... It is this deception which rouses and keeps in continual motion the industry mankind. It is this which first prompted them to cultivate the ground, to build houses, to found cities and commonwealths, and to invent and improve all the sciences and arts, which ennoble and embellish human life...Contrary to what some on the left might prefer, I don't see this as hypocrisy or as an argument to do away with free market economics. Instead, it demonstrates to me that Adam Smith was an even wiser individual than I already believed, and more important to me, a very human one with more than a reductionist view of human behavior. It doesn't diminish his economic theories, but rather puts them in the appropriate context of advancing technology and standards of living, rather than as an end to happiness.
Rather than indicting Smith, I see these statements as indicting those who take a fundamentalist stance on Smith's theories. Smith understood that free markets were not the most efficient way to happiness--just the theoretically most efficient way to organize an advancing economy. Realizing this leaves room for society to value something besides that advancing economy while still pursuing that growth. Market fundamentalists can't seem to countenance that there is anything other free market principles that might matter. Everyone should learn Adam Smith's economic theories--and learn that he understood they weren't linked directly to happiness, and then reach their own conclusions about how they want to see that reflected in their own lives and in society around them.
Friday, September 24, 2010
Economics: Why Isn't It Required Coursework?
TORONTO, ONTARIO - I am sometimes amazed by how little the average person in North America seems to know about economics. The educated can debate vigorously about concepts or fine points of monetary policy, stimulus packages, or tax reform, and I don't mind arguing with someone that treats Milton Friedman as more of a deity than I do. What annoys me is when an interlocutor has no concept of the role of taxation, or the difference between socialism and communism, or doesn't understand that he or she might not be counted as unemployed even though they aren't working.
I guess it shouldn't be surprising. Where I grew up in Washington state, no course in economics was required in order to graduate from high school. I did take economics as an elective in high school, and despite being taught by a football coach, it was one of the most practical courses I took in those four years. That was the first time I ever saw a form from the Internal Revenue Service. It was the first time I ever looked at stock tables in a newspaper (try finding those in most papers today!) in order to see how a fake portfolio was doing (boy do I wish I had really held the shares of Union Pacific that I pretended to have then).
Despite having course materials donated by a business association (I regret that I cannot remember which one), it was not all about capitalism. I specifically remember a test question asking about the difference between socialism and communism--something that was not even covered in the college-level Economics 101 course that I took. After a unit on different economic systems, there was extensive coverage of different ways to save money--I probably would not have known about anything except savings accounts had I not taken that class, never mind the rules for contributing to an Individual Retirement Account.
Combine that semester-long high school course of the basics with years of listening to American Public Media's Marketplace, the first public radio show I ever started listening to not long after its debut in 1989, and not much more education is needed to become economically literate. Marketplace provides information on economic issues from a consumer perspective and does a great job of teaching about contemporary policy issues. In contrast, the college-level course I took on economics was so highly theoretical that I'm not sure I've used any of what I learned there outside of arguing about policy.
Economists spend a lot of time lamenting the lack of savings and reliance on credit in the United States and Canada. It seems to me that investing in a little practical education, mandatory economics courses including things like compound interest would make a lot of sense, and I don't understand why it isn't contemplated more often.
I guess it shouldn't be surprising. Where I grew up in Washington state, no course in economics was required in order to graduate from high school. I did take economics as an elective in high school, and despite being taught by a football coach, it was one of the most practical courses I took in those four years. That was the first time I ever saw a form from the Internal Revenue Service. It was the first time I ever looked at stock tables in a newspaper (try finding those in most papers today!) in order to see how a fake portfolio was doing (boy do I wish I had really held the shares of Union Pacific that I pretended to have then).
Despite having course materials donated by a business association (I regret that I cannot remember which one), it was not all about capitalism. I specifically remember a test question asking about the difference between socialism and communism--something that was not even covered in the college-level Economics 101 course that I took. After a unit on different economic systems, there was extensive coverage of different ways to save money--I probably would not have known about anything except savings accounts had I not taken that class, never mind the rules for contributing to an Individual Retirement Account.
Combine that semester-long high school course of the basics with years of listening to American Public Media's Marketplace, the first public radio show I ever started listening to not long after its debut in 1989, and not much more education is needed to become economically literate. Marketplace provides information on economic issues from a consumer perspective and does a great job of teaching about contemporary policy issues. In contrast, the college-level course I took on economics was so highly theoretical that I'm not sure I've used any of what I learned there outside of arguing about policy.
Economists spend a lot of time lamenting the lack of savings and reliance on credit in the United States and Canada. It seems to me that investing in a little practical education, mandatory economics courses including things like compound interest would make a lot of sense, and I don't understand why it isn't contemplated more often.
Monday, September 13, 2010
Politics: Messaging and Class Warfare
TORONTO, ONTARIO - I have to admit that the "class warfare" accusation that Republicans make against Democrats has never made a whole lot of sense to me. While I can understand the "anti-business" argument Republicans make about taxation even when I disagree with it (and I don't always disagree), the idea that Democrats are trying to foment "warfare" between economic classes by implementing progressive taxation which puts a higher taxation rate on incomes over a certain level strikes me as very bizarre. As someone who has been in a wide variety of marginal tax rate "brackets" in recent years, it just seems intuitive to me that higher-income people can afford to pay a greater amount of their last dollar than lower-income people. I didn't feel like anyone had declared war on me when I paid a marginal rate of 33% on my last dollar of income.
Much of the problem seems to be that people don't understand progressive income taxes. When the tax rate on the first $1 of income is changed, that affects all taxpayers (with income, anyway, but that deserves a separate discussion), not just low-income taxpayers. On that first $1, everyone, regardless of total income, pays the same amount--currently ten cents in the United States. For single people, that rate goes up to an income level of $8,375. Everyone pays $837.50 on that income, even millionaires. It's only income above $8,375 that is taxed at progressive higher rates. For single people earning more than $373,651, the rate on their additional income is 35%. However, they don't pay 35% of the first $373,651 (which would be $130,778), they pay $108,420.24 by my calculation using 2010 rates, a 29% overall rate. If taxes on the income in the lowest bracket go down by $100, EVERYONE with at least that much income has their taxes go down by $100, the "rich" included.
So, when Republicans talk about "maintaining the tax cuts for people with incomes under $250,000," what they really mean is "maintaining the tax cuts for income under $250,000" (and it is not a coincidence that most Democrats will use the latter wording). Technically, those using the first wording are wrong. Maintaining the tax cuts for income under $250,000 means maintaining tax cuts for everybody--including those with incomes higher than that amount.
I don't understand why Democrats don't try to use this language more often. President Obama, for example, wants to maintain the tax cuts implemented in the Bush administration for the low income tax brackets, but not on the higher income tax brackets. That means he's in favor of keeping taxes lower for EVERYBODY. What he is in favor of is restoring previous tax rates on higher brackets--those indeed would affect only the "rich", though not just the "millionaires and billionaires" he cited in a recent speech. The rhetoric of neither side is especially reflective of the reality of the proposals on the table, but it's especially strange in the case of Democrats, who under the accusation of "class warfare" don't defend their proposals by pointing out that they do mean lower taxes for EVERYONE. Where is that campaign rhetoric about "one America"? (Oh, that's right, nobody is actually interested in that.)
Considering the fact that people in the United States don't seem to want to understand the basics of a tax system they've had in more-or-less the same conceptual form since 1939, I'm not very optimistic that an energy tax will be understood, especially if it turns out to be cap-and-trade--and that means that there is little hope of it ever being accepted, even if it is somehow passed.
Much of the problem seems to be that people don't understand progressive income taxes. When the tax rate on the first $1 of income is changed, that affects all taxpayers (with income, anyway, but that deserves a separate discussion), not just low-income taxpayers. On that first $1, everyone, regardless of total income, pays the same amount--currently ten cents in the United States. For single people, that rate goes up to an income level of $8,375. Everyone pays $837.50 on that income, even millionaires. It's only income above $8,375 that is taxed at progressive higher rates. For single people earning more than $373,651, the rate on their additional income is 35%. However, they don't pay 35% of the first $373,651 (which would be $130,778), they pay $108,420.24 by my calculation using 2010 rates, a 29% overall rate. If taxes on the income in the lowest bracket go down by $100, EVERYONE with at least that much income has their taxes go down by $100, the "rich" included.
So, when Republicans talk about "maintaining the tax cuts for people with incomes under $250,000," what they really mean is "maintaining the tax cuts for income under $250,000" (and it is not a coincidence that most Democrats will use the latter wording). Technically, those using the first wording are wrong. Maintaining the tax cuts for income under $250,000 means maintaining tax cuts for everybody--including those with incomes higher than that amount.
I don't understand why Democrats don't try to use this language more often. President Obama, for example, wants to maintain the tax cuts implemented in the Bush administration for the low income tax brackets, but not on the higher income tax brackets. That means he's in favor of keeping taxes lower for EVERYBODY. What he is in favor of is restoring previous tax rates on higher brackets--those indeed would affect only the "rich", though not just the "millionaires and billionaires" he cited in a recent speech. The rhetoric of neither side is especially reflective of the reality of the proposals on the table, but it's especially strange in the case of Democrats, who under the accusation of "class warfare" don't defend their proposals by pointing out that they do mean lower taxes for EVERYONE. Where is that campaign rhetoric about "one America"? (Oh, that's right, nobody is actually interested in that.)
Considering the fact that people in the United States don't seem to want to understand the basics of a tax system they've had in more-or-less the same conceptual form since 1939, I'm not very optimistic that an energy tax will be understood, especially if it turns out to be cap-and-trade--and that means that there is little hope of it ever being accepted, even if it is somehow passed.
Wednesday, July 28, 2010
Economics: It's Already Happening
TORONTO, ONTARIO - In general, I try to not to make points on this blog that appear elsewhere, usually with more supporting data and better writing. After all, this blog is called "Way Out In The Margin," not "The Main Story," and while I style myself as a generalist, I could never claim to be in the mainstream in any way.
Yet, occasionally, I think that not only the mainstream media, but even the blogosphere misses some really obvious points. Today, the left-wing-pretending-to-be-centrist NPR talk show On Point, produced at WBUR-Boston, ran an hour on pension envy. This phenomenon, not limited to the United States, has caused private-sector workers to become resentful of public-sector workers that may have a relatively-secure retirement because they will have a pension, whereas the private-sector workers have to rely on their own contributions to tax-advantaged accounts to get them through.
This show, as well as a number of commentaries I've seen on the same topic, seems to miss the most important point. They point out that public-sector compensation hasn't significantly changed in real-dollar terms (in fact, including benefits it has declined by some measures). It's private-sector compensation, in real-dollar terms, that has declined to the point that it has fallen well behind the public sector. In other words, the standard of living in the United States is already falling.
For years, we've been hearing that the standard of living in the United States was going to decline if citizens didn't personally save more money and the Federal government didn't get its deficit under control. Sorry folks, but it's already happening. It's become so normalized that people just accept that it is a given, and get upset at those it's not happening to--a subset of public-sector workers.
Of course, technically speaking, I am incorrect. Because the cost of living has declined, most actual measures of standard of living have not actually declined yet. Furthermore, the real difference will not be seen until the Baby Boomers--many of whom no longer have pensions--actually retire and have significantly less income than the generation before them. Then, it's going to be really obvious that a lot of elderly people will not be able to maintain the standard of living that they had while working.
Interestingly, in today's On Point show, the social security system was barely mentioned the entire hour. It says something about how far the debate has moved that not only is it accepted that private-sector jobs don't provide for retirement, but it's completely off the table to suggest using social security to do anything about the issue--instead, people assume that social security will decline or even go bankrupt. Social security was intended to be the main retirement pillar for everyone, or at least one leg of a three-legged stool with pensions and personal retirement accounts. Nobody talks about that stool structure anymore, either.
While I don't like writing about obvious things, I also don't like writing about things without offering a solution. In the case of retirement, I don't see any--all the potential solutions to this issue, like changing social security, are political suicide. The capitalists have already won, the workers have lost, and the workers have only themselves to blame for accepting the new reality.
Yet, occasionally, I think that not only the mainstream media, but even the blogosphere misses some really obvious points. Today, the left-wing-pretending-to-be-centrist NPR talk show On Point, produced at WBUR-Boston, ran an hour on pension envy. This phenomenon, not limited to the United States, has caused private-sector workers to become resentful of public-sector workers that may have a relatively-secure retirement because they will have a pension, whereas the private-sector workers have to rely on their own contributions to tax-advantaged accounts to get them through.
This show, as well as a number of commentaries I've seen on the same topic, seems to miss the most important point. They point out that public-sector compensation hasn't significantly changed in real-dollar terms (in fact, including benefits it has declined by some measures). It's private-sector compensation, in real-dollar terms, that has declined to the point that it has fallen well behind the public sector. In other words, the standard of living in the United States is already falling.
For years, we've been hearing that the standard of living in the United States was going to decline if citizens didn't personally save more money and the Federal government didn't get its deficit under control. Sorry folks, but it's already happening. It's become so normalized that people just accept that it is a given, and get upset at those it's not happening to--a subset of public-sector workers.
Of course, technically speaking, I am incorrect. Because the cost of living has declined, most actual measures of standard of living have not actually declined yet. Furthermore, the real difference will not be seen until the Baby Boomers--many of whom no longer have pensions--actually retire and have significantly less income than the generation before them. Then, it's going to be really obvious that a lot of elderly people will not be able to maintain the standard of living that they had while working.
Interestingly, in today's On Point show, the social security system was barely mentioned the entire hour. It says something about how far the debate has moved that not only is it accepted that private-sector jobs don't provide for retirement, but it's completely off the table to suggest using social security to do anything about the issue--instead, people assume that social security will decline or even go bankrupt. Social security was intended to be the main retirement pillar for everyone, or at least one leg of a three-legged stool with pensions and personal retirement accounts. Nobody talks about that stool structure anymore, either.
While I don't like writing about obvious things, I also don't like writing about things without offering a solution. In the case of retirement, I don't see any--all the potential solutions to this issue, like changing social security, are political suicide. The capitalists have already won, the workers have lost, and the workers have only themselves to blame for accepting the new reality.
Thursday, July 8, 2010
Economics: Ultimate Frisbee Not The Answer
TORONTO, ONTARIO - This blog has long been interested in creative approaches to change the incentive structure in the corporate world, which currently is, to over-simplify in one word, perverse. Therefore, discouraging creativity by criticizing new proposals in this regard is not something this blogger delights in doing. Yet, analyzing a not-completely-serious proposal to have CEO's play ultimate Frisbee offers some insights worth noting.
In a Christian Science Monitor opinion piece last month, well-pedigreed UN employee Christine Bader suggested that having "bankers and other titans of industry join a weekend ultimate Frisbee game in their local park" would "benefit us all" since "they'll spent a few hours in a world where there are no designated enforcers but everyone follows the rules--not just in letter, but in spirit." As someone who played (not very well and not very often) ultimate as an undergraduate myself, I know Bader isn't being misleading about what happens in that sport. Players do call penalties on themselves, and it does work to create an environment that is rare if not unique in western culture.
The problem is that I think business people already know how to operate this way. In essence, an ultimate Frisbee game is the exercise of a duopoly (or, perhaps more accurately in a league of teams, of oligopoly, but the same principles apply). There are only two teams. If one team doesn't cheat, it simplifies its future by not giving the other team any reason to cheat. With a gentleman's agreement (please just consider that a gender-neutral term, though women don't seem to need such things in the first place) to play by the rules that each team has agreed to, the sport can be enjoyed by all.
In too many industries, business are operating in a duopoly, or limited oligopoly. Think of railroads, where depending on what part of North America one is situated, the two choices might be BNSF and Union Pacific, CSX and Norfolk Southern, or Canadian Pacific and Canadian National. Think of beverages, where it's basically Coke and Pepsi. Think of high-speed Internet access, where it's usually the local phone company and the local cable provider. Businesses in these industries don't tend to play dirty with one another. The railroad duopolies compete for business, but they also make deals with each other all the time--the biggest one may have been CSX and Norfolk Southern deciding to carve up third competitor Conrail between themselves in 1999. They may not exactly call penalties on themselves, but they tend just not to commit competitive infractions in the first place.
Why do such situations persist? One doesn't have to go beyond Economics 101. Duopolies may not disadvantage their customers as much as a monopoly, but neither do the supply and demand curves meet at the same point as they do in a pure market. Customers end up paying more for products and services in a duopoly situation. Since the situation is legal, businesses realize this a pretty good situation to be in compared with a true market, and while they may fight to protect the duopoly or oligopoly, they don't tend to do anything that would place it too far out of balance where it might become a monopoly and start receiving public attention.
Too many people don't understand that most narrowly-defined markets in the western world are not really "free" markets in the economic sense of the word; they are oligopolies. Some, because of barriers to entry or other factors, always will be. There's not necessarily anything wrong with that--in fact, in cases like the Canadian banking system, it may actually be an optimal situation--but it is not widely admitted. By pretending that a market is "free" when it really isn't, it distorts the debate about what level of regulation might be appropriate for the market, and sometimes leads to poor political decisions.
So, I would contend that the bankers and other titans of industry wouldn't actually have to adjust all that much to the environment of ultimate Frisbee. They would just have to think of the other team as their duopoly partner and they'd get in to the mind set right away.
Getting them to think of the spectators first--somewhat analogous to their customers in this conceit--might be considerably more difficult. If anyone has any ideas on how to do that, I'm listening.
In a Christian Science Monitor opinion piece last month, well-pedigreed UN employee Christine Bader suggested that having "bankers and other titans of industry join a weekend ultimate Frisbee game in their local park" would "benefit us all" since "they'll spent a few hours in a world where there are no designated enforcers but everyone follows the rules--not just in letter, but in spirit." As someone who played (not very well and not very often) ultimate as an undergraduate myself, I know Bader isn't being misleading about what happens in that sport. Players do call penalties on themselves, and it does work to create an environment that is rare if not unique in western culture.
The problem is that I think business people already know how to operate this way. In essence, an ultimate Frisbee game is the exercise of a duopoly (or, perhaps more accurately in a league of teams, of oligopoly, but the same principles apply). There are only two teams. If one team doesn't cheat, it simplifies its future by not giving the other team any reason to cheat. With a gentleman's agreement (please just consider that a gender-neutral term, though women don't seem to need such things in the first place) to play by the rules that each team has agreed to, the sport can be enjoyed by all.
In too many industries, business are operating in a duopoly, or limited oligopoly. Think of railroads, where depending on what part of North America one is situated, the two choices might be BNSF and Union Pacific, CSX and Norfolk Southern, or Canadian Pacific and Canadian National. Think of beverages, where it's basically Coke and Pepsi. Think of high-speed Internet access, where it's usually the local phone company and the local cable provider. Businesses in these industries don't tend to play dirty with one another. The railroad duopolies compete for business, but they also make deals with each other all the time--the biggest one may have been CSX and Norfolk Southern deciding to carve up third competitor Conrail between themselves in 1999. They may not exactly call penalties on themselves, but they tend just not to commit competitive infractions in the first place.
Why do such situations persist? One doesn't have to go beyond Economics 101. Duopolies may not disadvantage their customers as much as a monopoly, but neither do the supply and demand curves meet at the same point as they do in a pure market. Customers end up paying more for products and services in a duopoly situation. Since the situation is legal, businesses realize this a pretty good situation to be in compared with a true market, and while they may fight to protect the duopoly or oligopoly, they don't tend to do anything that would place it too far out of balance where it might become a monopoly and start receiving public attention.
Too many people don't understand that most narrowly-defined markets in the western world are not really "free" markets in the economic sense of the word; they are oligopolies. Some, because of barriers to entry or other factors, always will be. There's not necessarily anything wrong with that--in fact, in cases like the Canadian banking system, it may actually be an optimal situation--but it is not widely admitted. By pretending that a market is "free" when it really isn't, it distorts the debate about what level of regulation might be appropriate for the market, and sometimes leads to poor political decisions.
So, I would contend that the bankers and other titans of industry wouldn't actually have to adjust all that much to the environment of ultimate Frisbee. They would just have to think of the other team as their duopoly partner and they'd get in to the mind set right away.
Getting them to think of the spectators first--somewhat analogous to their customers in this conceit--might be considerably more difficult. If anyone has any ideas on how to do that, I'm listening.
Monday, May 31, 2010
Economics: Not Just Pay
TORONTO, ONTARIO - This evening on the PBS NewsHour, an interesting discussion was aired on the public reaction to the oil spill in the Gulf of Mexico. Science educator Bill Nye, energy expert Amy Jaffe and technology forecaster Paul Saffo weighed in on why the spill was being perceived in the way that it is by the average citizen.
A fair portion of the discussion focused on the lack of public confidence in engineers, and the idea that "poor engineering" has been a hallmark of the United States for a generation. Bill Nye took it back "all the way back to the Ford Pinto" and emphasized the two space shuttle disasters as destroying the pride in engineering that had once existed in the country following the NASA missions to the moon in the 1960's and 1970's. Jaffe pointed out that many mathematicians and engineers are going to Wall Street and financial firms instead of working in engineering, a phenomenon I have written about before on this blog.
Yet, I think there is a separate trend here being highlighted in talking about the quality of engineering. It's not just that higher salaries are luring qualified "quantitative people" away from engineering, it's also that the corporate environment in United States (and apparently in Great Britain, if BP is any indication) explicitly eschews good engineering in favor of cutting corners to achieve short-term financial results.
As I think about my personal experiences in engineering, both in the companies I have worked for and in partner companies that I came to know and companies that friends have worked for, there have been two kinds of companies that actually emphasized making a well-engineered product that would meet market demand (and hence make money in the medium to long-term). The first were privately-held companies, both large and small, in the United States whose executives did not have to worry about what happened to a stock price each quarter. The second were foreign companies, based in either continental Europe or Asia.
Venture-funded and publicly-traded companies in the United States often do wonderful research on advanced technologies, but once feasibility is demonstrated, the product development process is short-changed. Everything is about shipping a product, regardless of how well it works, and meeting quarterly forecasts for raw revenue. In an odd market distortion, customer satisfaction with the product is an afterthought, something that can be addressed down the road. The barrier to entry for competitors is often so high that only huge companies can realistically enter the market and compete, and companies figure that in the meantime, they can drive up their stock prices by shipping inferior product. (This probably also explains the exceptions to the generality I've made here--companies that buck this trend like Apple are in competitive consumer markets where the barrier to entry is not so high and ignoring customer satisfaction is fatal.) It's not that their engineers can't make a better product for their customers; they are not allowed to do so.
The same pressures apply to safety, as seen most dramatically in the Deep Water Horizon disaster. Engineers knew how to deal with a situation such as what has happened--but it required spending money on a remote-control shut-off valve that would have been effectively mandatory in Brazil and Norway. Call it a regulatory issue or a corporate issue, but don't call it an engineering issue--the problem was foreseeable and a solution was available that would have had only a very small impact on the overall cost of the operation.
There's also a self-perpetuating effect within these companies. As engineers observe that quality and ethical practices are regarded by their employers as unimportant or even downright undesirable, they respond by no longer even trying to follow such practices. The culture of the companies becomes one of emphasizing short-term financial returns over any other consideration.
The net effect is that the public sees a shoddy product or safety disaster, and they begin to regard engineers in society as incompetent and incapable of doing things correctly. The United States has gotten to this point, as the panel tonight on the NewsHour expressed. Until the corporate environment in the country somehow changes, I don't see the impression ever changing back.
A fair portion of the discussion focused on the lack of public confidence in engineers, and the idea that "poor engineering" has been a hallmark of the United States for a generation. Bill Nye took it back "all the way back to the Ford Pinto" and emphasized the two space shuttle disasters as destroying the pride in engineering that had once existed in the country following the NASA missions to the moon in the 1960's and 1970's. Jaffe pointed out that many mathematicians and engineers are going to Wall Street and financial firms instead of working in engineering, a phenomenon I have written about before on this blog.
Yet, I think there is a separate trend here being highlighted in talking about the quality of engineering. It's not just that higher salaries are luring qualified "quantitative people" away from engineering, it's also that the corporate environment in United States (and apparently in Great Britain, if BP is any indication) explicitly eschews good engineering in favor of cutting corners to achieve short-term financial results.
As I think about my personal experiences in engineering, both in the companies I have worked for and in partner companies that I came to know and companies that friends have worked for, there have been two kinds of companies that actually emphasized making a well-engineered product that would meet market demand (and hence make money in the medium to long-term). The first were privately-held companies, both large and small, in the United States whose executives did not have to worry about what happened to a stock price each quarter. The second were foreign companies, based in either continental Europe or Asia.
Venture-funded and publicly-traded companies in the United States often do wonderful research on advanced technologies, but once feasibility is demonstrated, the product development process is short-changed. Everything is about shipping a product, regardless of how well it works, and meeting quarterly forecasts for raw revenue. In an odd market distortion, customer satisfaction with the product is an afterthought, something that can be addressed down the road. The barrier to entry for competitors is often so high that only huge companies can realistically enter the market and compete, and companies figure that in the meantime, they can drive up their stock prices by shipping inferior product. (This probably also explains the exceptions to the generality I've made here--companies that buck this trend like Apple are in competitive consumer markets where the barrier to entry is not so high and ignoring customer satisfaction is fatal.) It's not that their engineers can't make a better product for their customers; they are not allowed to do so.
The same pressures apply to safety, as seen most dramatically in the Deep Water Horizon disaster. Engineers knew how to deal with a situation such as what has happened--but it required spending money on a remote-control shut-off valve that would have been effectively mandatory in Brazil and Norway. Call it a regulatory issue or a corporate issue, but don't call it an engineering issue--the problem was foreseeable and a solution was available that would have had only a very small impact on the overall cost of the operation.
There's also a self-perpetuating effect within these companies. As engineers observe that quality and ethical practices are regarded by their employers as unimportant or even downright undesirable, they respond by no longer even trying to follow such practices. The culture of the companies becomes one of emphasizing short-term financial returns over any other consideration.
The net effect is that the public sees a shoddy product or safety disaster, and they begin to regard engineers in society as incompetent and incapable of doing things correctly. The United States has gotten to this point, as the panel tonight on the NewsHour expressed. Until the corporate environment in the country somehow changes, I don't see the impression ever changing back.
Monday, May 17, 2010
Economics: Enforcing the Law Is Redistribution?
TORONTO, ONTARIO - If one wants to learn why the rest of the world hates economists, one need look no farther than a recent column by David R. Francis in the Christian Science Monitor. The Monitor is not exactly a right-wing newspaper like the Wall Street Journal, but this column looks like something off that paper's editorial page. Do economists see anything in the world except money, even laws?
In recounting how "wealth redistribution" is coming to the United States--a common refrain on the political right, as if the rich actually wanted a flat tax with no loopholes--Francis starts by citing the Medicare tax hike that will start in 2016 as a result of health care reform. That's fair enough, and a legitimate debate could take place on the fairness of that tax increase affecting the richest 1 percent of all families.
But, Francis then runs off more examples. The first two have nothing to do with changes in tax policy. The first is citing the increase in auditing by the Internal Revenue Service by 33 percent of those making between $1 million and $5 million. Basically, the argument is that because the auditing is taking place, people making between $1 million and $5 million will be paying more in taxes. This completely overlooks the fact that they were supposed to already be paying these taxes, and were breaking the law by not doing so. Apparently, like a surprising number of economists, Francis considers it legitimate to evade taxes, and considers it "wealth redistribution" to enforce the law!
The next example is exactly on the same lines. He cites the increased "cracking down" on overseas tax shelters "used mostly by the affluent" as more "wealth redistribution." It's apparently okay for the rich to hide their earnings overseas and enforcing the law that already exists to prohibit this practice is no different than a targeted tax increase.
Francis' last two examples return to tax policy (the fate of the Bush tax cuts and a mused increase in the top income tax bracket). I don't mind debating tax policy with people more economically conservative that I am don't believe in the same level taxation or degree of progressiveness in taxation that I happen to believe in. That's a legitimate debate worth having, even if too often it plays out like the promotion for the Lang and O'Leary Exchange here in Canada--"Shouldn't we just lower taxes?" "I like to drive on a road that is paved, so no."
Laws are not subject to such debate. Unless they are under court challenge for constitutionality, which neither of Francis' examples happen to be, there is nothing to debate. They are the foundation of the cohesiveness of the country, and they should be expected to be enforced. It's not acceptable to disobey the law, and it's not "wealth redistribution" to enforce the law. The fact that many economists don't see things that way is exactly why so many non-economists have so little respect for the profession. Francis' column has added to that impression.
In recounting how "wealth redistribution" is coming to the United States--a common refrain on the political right, as if the rich actually wanted a flat tax with no loopholes--Francis starts by citing the Medicare tax hike that will start in 2016 as a result of health care reform. That's fair enough, and a legitimate debate could take place on the fairness of that tax increase affecting the richest 1 percent of all families.
But, Francis then runs off more examples. The first two have nothing to do with changes in tax policy. The first is citing the increase in auditing by the Internal Revenue Service by 33 percent of those making between $1 million and $5 million. Basically, the argument is that because the auditing is taking place, people making between $1 million and $5 million will be paying more in taxes. This completely overlooks the fact that they were supposed to already be paying these taxes, and were breaking the law by not doing so. Apparently, like a surprising number of economists, Francis considers it legitimate to evade taxes, and considers it "wealth redistribution" to enforce the law!
The next example is exactly on the same lines. He cites the increased "cracking down" on overseas tax shelters "used mostly by the affluent" as more "wealth redistribution." It's apparently okay for the rich to hide their earnings overseas and enforcing the law that already exists to prohibit this practice is no different than a targeted tax increase.
Francis' last two examples return to tax policy (the fate of the Bush tax cuts and a mused increase in the top income tax bracket). I don't mind debating tax policy with people more economically conservative that I am don't believe in the same level taxation or degree of progressiveness in taxation that I happen to believe in. That's a legitimate debate worth having, even if too often it plays out like the promotion for the Lang and O'Leary Exchange here in Canada--"Shouldn't we just lower taxes?" "I like to drive on a road that is paved, so no."
Laws are not subject to such debate. Unless they are under court challenge for constitutionality, which neither of Francis' examples happen to be, there is nothing to debate. They are the foundation of the cohesiveness of the country, and they should be expected to be enforced. It's not acceptable to disobey the law, and it's not "wealth redistribution" to enforce the law. The fact that many economists don't see things that way is exactly why so many non-economists have so little respect for the profession. Francis' column has added to that impression.
Tuesday, May 11, 2010
Politics: US Headed for Greece
TORONTO, ONTARIO - There are some pretty bizarre "truths" floating around about the need to bail out Greece (and potentially Portugal, Spain, Ireland, and Italy), most of them centering around socialism. While the degree of entitlement spending is an element of the problem in Greece and cutting it will have to be part of the solution, it's absurd on the face to claim that it is the root cause. There are plenty of countries with bigger social safety nets who are not in danger of needing bailout (look at basically any country in northern Europe--and no, I don't count Iceland as part of Europe; it deserves a whole separate analysis).
It doesn't take a Nobel Prize in economics to understand the basics of the problem in Greece. Corruption is rampant--listen to any coverage of the Greek economy, and it soon turns to envelopes stuffed with cash in quite a variety of contexts. As a corollary that is not surprising when corruption is common, trust in government is almost non-existent, and hence people openly don't pay taxes. It's not hard to understand the mentality that leads one to deal with corruption in daily life and reject contributing to generic corruption. When the government doesn't receive the expected income from taxes, it's very hard for it to impose measures that allow it to deal with a financial shortfall such as has occurred in the current worldwide economy. All it takes are a few added factors--say, an financial firm helping a government to falsify its books--and a situation like the one in Greece comes to pass.
Greece isn't going to get out of its problems just by cutting public spending. It will require a cultural transformation. People will have to pay taxes. People will have to report and not participate in corruption. People will have to believe in government. Exactly how that's going to happen when the government has just demonstrated that it certainly did not deserve trust in recent times, I really have no idea. Whereas there does seem to be some hope of restored faith in government in most of the other countries currently on verge of crisis in Europe, it's hard to see how it happens in Greece, and thus it's hard not to expect Greece to have to leave the European Union and go through an extended period of economic collapse.
Those in the United States should not be sanguine about what is happening in Europe. The call for evading taxes has been on the rise in the United States my entire life. The attitude of the editorial page of the largest-circulation newspaper, the Wall Street Journal, regularly glorifies the concept of avoiding taxes. Some readers of the paper have been known to argue that it is patriotic to NOT pay taxes. It's not a long conceptual road from that attitude to the inability of government to collect taxes as has happened in Greece, especially when government is completely ineffective. I've made this argument before--California is in deep financial trouble precisely because it cannot act to resolve it; its government is too divided to agree on a plan to resolve its problems, not because there is no conceptual way to do it. Combine lack of government will with tax evasion and getting out of a bad financial situation is close to impossible. California in particular, and the United States as a whole, are heading that direction.
Funny how socialist countries that do have functional governments, minimal corruption, and near-universal tax compliance seem to be doing just fine.
It doesn't take a Nobel Prize in economics to understand the basics of the problem in Greece. Corruption is rampant--listen to any coverage of the Greek economy, and it soon turns to envelopes stuffed with cash in quite a variety of contexts. As a corollary that is not surprising when corruption is common, trust in government is almost non-existent, and hence people openly don't pay taxes. It's not hard to understand the mentality that leads one to deal with corruption in daily life and reject contributing to generic corruption. When the government doesn't receive the expected income from taxes, it's very hard for it to impose measures that allow it to deal with a financial shortfall such as has occurred in the current worldwide economy. All it takes are a few added factors--say, an financial firm helping a government to falsify its books--and a situation like the one in Greece comes to pass.
Greece isn't going to get out of its problems just by cutting public spending. It will require a cultural transformation. People will have to pay taxes. People will have to report and not participate in corruption. People will have to believe in government. Exactly how that's going to happen when the government has just demonstrated that it certainly did not deserve trust in recent times, I really have no idea. Whereas there does seem to be some hope of restored faith in government in most of the other countries currently on verge of crisis in Europe, it's hard to see how it happens in Greece, and thus it's hard not to expect Greece to have to leave the European Union and go through an extended period of economic collapse.
Those in the United States should not be sanguine about what is happening in Europe. The call for evading taxes has been on the rise in the United States my entire life. The attitude of the editorial page of the largest-circulation newspaper, the Wall Street Journal, regularly glorifies the concept of avoiding taxes. Some readers of the paper have been known to argue that it is patriotic to NOT pay taxes. It's not a long conceptual road from that attitude to the inability of government to collect taxes as has happened in Greece, especially when government is completely ineffective. I've made this argument before--California is in deep financial trouble precisely because it cannot act to resolve it; its government is too divided to agree on a plan to resolve its problems, not because there is no conceptual way to do it. Combine lack of government will with tax evasion and getting out of a bad financial situation is close to impossible. California in particular, and the United States as a whole, are heading that direction.
Funny how socialist countries that do have functional governments, minimal corruption, and near-universal tax compliance seem to be doing just fine.
Wednesday, March 24, 2010
Politics: That Sounds Familiar
TORONTO, ONTARIO - When Toronto Mayor David Miller made his "significant announcement" earlier this month, revising the city's budget projections, he followed up with verbiage about how the city was trying to dig itself out of deficit. The plan involved three basic elements, raising taxes by a modest amount (his announcement that day meant property taxes would rise less than expected), restraining growth in spending, and then hoping for economic growth to kick in and start raising tax revenues.
That sounded quite familiar. Just the day before, I had heard Washington state governor Chris Gregoire say almost exactly the same thing. Washington state, while in far better shape than most states fiscally, still is having trouble balancing its budget, and the state legislature actually suspended a citizen's initiative requiring a two-thirds majority to pass new taxes in order to make it easier for the majority Democrats to pass a budget including some tax increases. Governor Gregoire explained the general budget balancing strategy, saying that there would necessarily be spending cuts in some areas and restrained growth in other areas, that some taxes would be raised (mostly eliminating exemptions and the imposition of "sin" taxes), and then the "third leg" to return to surpluses would involve economic growth.
That politicians at different levels of government most of a continent apart seemed to be reading from the same playbook seemed significant. Indeed, what they are arguing makes sense. Raising taxes too much discourages growth, but so does slashing spending, as jobs are inevitably eliminated in the process. Doing a little of both and hoping that the economy recovers enough to grow out of the hole that has been dug does seem a reasonable strategy, and both Miller and Gregoire could point to a list of economists saying that was the right strategy to take.
The three-pronged strategy certainly seems to make more sense than the alternative offered by those to these leaders' political right. If Republicans had their way in Washington state, there would be slashed budgets including the end to the state's Basic Health system that more than 100,000 rely on as their only way to purchase health insurance because of pre-existing conditions or because they are self-employed or employed by a small business that does not offer insurance. The strategy of simply lowering taxes and hoping for growth to make up the difference certainly didn't seem to work in the second term of the Bush administration.
Yet, there's a certain similarity in the rhetoric from the conservative opposition across the continent as well. Listen to a TEA party activist being asked about policy and every other word out of their mouth is "no." They want to say "no" to taxes, any additional government programs, and even existing government benefits. Meanwhile, while she is normally quite eloquent in explaining her policy positions, Wildrose Alliance Party leader Danielle Smith in the province of Alberta was asked a series of questions by CBC comedian Rick Mercer (see about 3:15) and was reduced to just saying "no" to every permutation of energy and climate policy proposal that Mercer could offer until he got to recycling. For the first time, the ideological similarity between the Wilrose Alliance and TEA party was somewhat revealed, since normally they come across quite differently.
These correlations can only go so far. Somehow, I have a hard time seeing Jim Flaherty telling Stephen Harper that he was about to talk about a "big f*#@ing deal"... (or, if we insist on correlating the Liberals with the Democrats, Bob Rae saying that to Michael Ignatieff...)
That sounded quite familiar. Just the day before, I had heard Washington state governor Chris Gregoire say almost exactly the same thing. Washington state, while in far better shape than most states fiscally, still is having trouble balancing its budget, and the state legislature actually suspended a citizen's initiative requiring a two-thirds majority to pass new taxes in order to make it easier for the majority Democrats to pass a budget including some tax increases. Governor Gregoire explained the general budget balancing strategy, saying that there would necessarily be spending cuts in some areas and restrained growth in other areas, that some taxes would be raised (mostly eliminating exemptions and the imposition of "sin" taxes), and then the "third leg" to return to surpluses would involve economic growth.
That politicians at different levels of government most of a continent apart seemed to be reading from the same playbook seemed significant. Indeed, what they are arguing makes sense. Raising taxes too much discourages growth, but so does slashing spending, as jobs are inevitably eliminated in the process. Doing a little of both and hoping that the economy recovers enough to grow out of the hole that has been dug does seem a reasonable strategy, and both Miller and Gregoire could point to a list of economists saying that was the right strategy to take.
The three-pronged strategy certainly seems to make more sense than the alternative offered by those to these leaders' political right. If Republicans had their way in Washington state, there would be slashed budgets including the end to the state's Basic Health system that more than 100,000 rely on as their only way to purchase health insurance because of pre-existing conditions or because they are self-employed or employed by a small business that does not offer insurance. The strategy of simply lowering taxes and hoping for growth to make up the difference certainly didn't seem to work in the second term of the Bush administration.
Yet, there's a certain similarity in the rhetoric from the conservative opposition across the continent as well. Listen to a TEA party activist being asked about policy and every other word out of their mouth is "no." They want to say "no" to taxes, any additional government programs, and even existing government benefits. Meanwhile, while she is normally quite eloquent in explaining her policy positions, Wildrose Alliance Party leader Danielle Smith in the province of Alberta was asked a series of questions by CBC comedian Rick Mercer (see about 3:15) and was reduced to just saying "no" to every permutation of energy and climate policy proposal that Mercer could offer until he got to recycling. For the first time, the ideological similarity between the Wilrose Alliance and TEA party was somewhat revealed, since normally they come across quite differently.
These correlations can only go so far. Somehow, I have a hard time seeing Jim Flaherty telling Stephen Harper that he was about to talk about a "big f*#@ing deal"... (or, if we insist on correlating the Liberals with the Democrats, Bob Rae saying that to Michael Ignatieff...)
Wednesday, February 17, 2010
Transport: Fare Incentives
TORONTO, ONTARIO - At this juncture, I ought to be traveling almost exclusively by rail. I have the time and I prefer traveling by rail anyway for environmental reasons, never mind the railfanning opportunities. Yet, whenever I have headed west farther than Michigan since becoming unemployed, it has been by air. How can this be? Simple. It's cheaper.
As hard as it is to believe, airfares--even relatively last-minute airfares--have been cheaper for every trip segment over 400 miles I have taken in the past two years, with one exception--Amtrak was slightly cheaper than Southwest Airlines for Sacramento, California to Portland, Oregon last December, so that segment occurred by rail. While I have never done a comprehensive analysis, this can't possibly be reflective of the actual costs. Even taking into account that rail travel takes longer, the fewer number of people involved in the infrastructure of running a train versus running a plane means the labor costs of going by rail can't be significantly higher, and everything else should be lower. Most significantly, the fuel costs should be radically lower--trains use just over one-third as much fuel per passenger-mile as an airplane according to the Sierra Club.
(I would have guessed a much larger difference, but that's still huge. Looking at the derivation--such as here--it seems to come from a passenger load on a train of twenty, which is too low by a factor of at least five for most Amtrak trains, even long-distance ones. It also gives a passenger load of 90 for aircraft, which would be a loading factor of less than 0.7 on a 737 when most airlines are averaging a load factor of 0.85, but that's a more mild underestimate than the rail underestimate. I have a feeling that all of these estimates were intended to favor the automobile).
Yet, it's actually not surprising that rail fares are often higher than air fares. Both the railroads (Amtrak and VIA Rail Canada) and the airlines use yield-management techniques on their fares to maximize revenues. Assuming their models are working properly, it's entirely possible that the demand for rail services is high enough that the railroad can charge fares higher than airlines and still maximize their revenues, whether from people that physically or emotionally cannot or will not fly, or those traveling to intermediate destinations. VIA Rail Canada obviously offers enough amenities and convenience that its regular fare from Toronto to Montreal is equivalent to the base fare on Porter Airlines (both about $144), though more discounts are probably available for the train.
I'd like to propose that the fact that rail fares are not cheaper than air fares means that our taxes on fuel are clearly not high enough, as it should cost less to transport a passenger by rail. However, if we believe the revenue-management software is actually working, it implies that airlines cannot actually charge more money for their tickets and earn more revenue. Raising the fuel taxes would decrease the airline profit margin, and at some point the airlines would simply stop flying a route because it would not be profitable.
Maybe that is what needs to happen. If the weakest airlines disappear from a route, the decreased supply would mean that the remaining airlines would be able to charge a higher fare and maintain profitability. Rail fares could also rise some because of increased demand from people that could no longer afford to fly, but not as much as the air fares. The impact would be modestly higher rail fares and significantly higher air fares.
In other words, there's no way I'm going to be able to financially justify taking the train unless it costs more than it does now. That may be the right outcome from a national policy perspective, but I'm not looking forward to that.
As hard as it is to believe, airfares--even relatively last-minute airfares--have been cheaper for every trip segment over 400 miles I have taken in the past two years, with one exception--Amtrak was slightly cheaper than Southwest Airlines for Sacramento, California to Portland, Oregon last December, so that segment occurred by rail. While I have never done a comprehensive analysis, this can't possibly be reflective of the actual costs. Even taking into account that rail travel takes longer, the fewer number of people involved in the infrastructure of running a train versus running a plane means the labor costs of going by rail can't be significantly higher, and everything else should be lower. Most significantly, the fuel costs should be radically lower--trains use just over one-third as much fuel per passenger-mile as an airplane according to the Sierra Club.
(I would have guessed a much larger difference, but that's still huge. Looking at the derivation--such as here--it seems to come from a passenger load on a train of twenty, which is too low by a factor of at least five for most Amtrak trains, even long-distance ones. It also gives a passenger load of 90 for aircraft, which would be a loading factor of less than 0.7 on a 737 when most airlines are averaging a load factor of 0.85, but that's a more mild underestimate than the rail underestimate. I have a feeling that all of these estimates were intended to favor the automobile).
Yet, it's actually not surprising that rail fares are often higher than air fares. Both the railroads (Amtrak and VIA Rail Canada) and the airlines use yield-management techniques on their fares to maximize revenues. Assuming their models are working properly, it's entirely possible that the demand for rail services is high enough that the railroad can charge fares higher than airlines and still maximize their revenues, whether from people that physically or emotionally cannot or will not fly, or those traveling to intermediate destinations. VIA Rail Canada obviously offers enough amenities and convenience that its regular fare from Toronto to Montreal is equivalent to the base fare on Porter Airlines (both about $144), though more discounts are probably available for the train.
I'd like to propose that the fact that rail fares are not cheaper than air fares means that our taxes on fuel are clearly not high enough, as it should cost less to transport a passenger by rail. However, if we believe the revenue-management software is actually working, it implies that airlines cannot actually charge more money for their tickets and earn more revenue. Raising the fuel taxes would decrease the airline profit margin, and at some point the airlines would simply stop flying a route because it would not be profitable.
Maybe that is what needs to happen. If the weakest airlines disappear from a route, the decreased supply would mean that the remaining airlines would be able to charge a higher fare and maintain profitability. Rail fares could also rise some because of increased demand from people that could no longer afford to fly, but not as much as the air fares. The impact would be modestly higher rail fares and significantly higher air fares.
In other words, there's no way I'm going to be able to financially justify taking the train unless it costs more than it does now. That may be the right outcome from a national policy perspective, but I'm not looking forward to that.
Thursday, November 19, 2009
Economics: So They Are Disappearing
TORONTO, ONTARIO - Longtime readers of this blog may remember an entry I did earlier this year in which I noted that I saw few of my peers educated in science and engineering actually working in the field, and questioned why anyone would. Well, researchers at the John J. Heldrich Center for Workforce Development at Rutgers University have collected the data that back up my anecdotal experience.
In a report released last late month, Professor Harold Salzman of Rutgers and B. Lindsay Lowell of Georgetown were intending to research whether United States educational institutions were actually producing the Science, Technology, Engineering and Mathematics (STEM) graduates at an adequate rate, which many have been questioning. They did not find a drop in the number of people studying STEM, but to their credit they did find and note another phenomenon--the top quintile of students was substantially abandoning STEM careers for finance and other, more lucrative careers--exactly the phenomenon I described in my undergraduate class, except in that case, it extended through the top three quartiles of a small class.
Yet, the researchers didn't seem to emphasize what strikes me as most significant finding in their report. Burying this in their section on the top quintile, they state, "All quintiles shared in an across-the-board decline from the 1993/96 to the 1997/00 cohorts" in taking a first job that was in the STEM area after graduating with a STEM degree. In other words, students in the late 1990's quit going to work in STEM roles--and the data indicate the decrease was nearly a factor of two in the case of the top quintile, statistically significant but lower in magnitude across the board.
In its conclusion, the report states, "Highly qualified students may be choosing a non-STEM job because these other occupations are higher paying, offer better career prospects such as advancement, employment stability, and/or prestige, as well as less susceptible to offshoring." This is exactly what I have personally been observing; I couldn't have summarized it better.
At one point in graduate school, I remember having a conversation with a chemical engineering colleague who had just talked to a graduate that had been working in investment banking for about a year, and had just gotten a raise in salary to something in six figures before bonuses (I don't remember the exact amount). He was clearly excited. "That's a lot of money," he said. Sure enough, that's the career path he chose--leaving chemical engineering along with the majority of our peers.
Frankly, I don't see STEM careers becoming any more attractive or lucrative, so my guess is that STEM retention will stay low for the foreseeable future.
In a report released last late month, Professor Harold Salzman of Rutgers and B. Lindsay Lowell of Georgetown were intending to research whether United States educational institutions were actually producing the Science, Technology, Engineering and Mathematics (STEM) graduates at an adequate rate, which many have been questioning. They did not find a drop in the number of people studying STEM, but to their credit they did find and note another phenomenon--the top quintile of students was substantially abandoning STEM careers for finance and other, more lucrative careers--exactly the phenomenon I described in my undergraduate class, except in that case, it extended through the top three quartiles of a small class.
Yet, the researchers didn't seem to emphasize what strikes me as most significant finding in their report. Burying this in their section on the top quintile, they state, "All quintiles shared in an across-the-board decline from the 1993/96 to the 1997/00 cohorts" in taking a first job that was in the STEM area after graduating with a STEM degree. In other words, students in the late 1990's quit going to work in STEM roles--and the data indicate the decrease was nearly a factor of two in the case of the top quintile, statistically significant but lower in magnitude across the board.
In its conclusion, the report states, "Highly qualified students may be choosing a non-STEM job because these other occupations are higher paying, offer better career prospects such as advancement, employment stability, and/or prestige, as well as less susceptible to offshoring." This is exactly what I have personally been observing; I couldn't have summarized it better.
At one point in graduate school, I remember having a conversation with a chemical engineering colleague who had just talked to a graduate that had been working in investment banking for about a year, and had just gotten a raise in salary to something in six figures before bonuses (I don't remember the exact amount). He was clearly excited. "That's a lot of money," he said. Sure enough, that's the career path he chose--leaving chemical engineering along with the majority of our peers.
Frankly, I don't see STEM careers becoming any more attractive or lucrative, so my guess is that STEM retention will stay low for the foreseeable future.
Tuesday, November 3, 2009
Economics: Boeing Move Unsurprising
TORONTO, ONTARIO - News sources outside of Washington state and South Carolina largely ignored Boeing's decision last week to place a second 787 assembly line in South Carolina instead of Everett, Washington. Nobody should have been surprised at the decision; no matter what the unions in Washington had offered, Boeing's decision reinforces what I see as clear tenets in North American business in this era, none of which make any sense from a long-term perspective but seem to have been adopted by most businesses anyway.
These tenets apply to the manufacturing of finished goods that are not interchangeable commodities produced by oligopolic companies (which are actually most durable goods and branded consumer goods, and thus quite of a few of the things still manufactured on this continent), and apply less or not at all in highly-competitive commodities, including some of the components of the finished goods.
(1) Timelines don't matter. Because customers have relatively few options in these products, taking a delay in the launch of a product does not lead to significant loss of market share or customer goodwill. Boeing already has taken delays in the 787 launch because of outsourcing, and the complication of two geographically distant lines will inevitably add more, but this is not perceived to hurt the company relative to the labor cost reduction.
(2) Quality doesn't matter. Again, mostly because of limited options, companies can afford to have modest quality problems and then fix them on finished products as customers have nowhere else to turn. While I have no doubt that the quality of planes from the non-union line in South Carolina will eventually match that of the line in Everett, a new line of recently-trained workers always starts at a disadvantage. Boeing is making the common calculation that the initial quality issues will not be significant in the long run.
(3) Experience is not worth paying for. Mostly because of points (1) and (2) above, companies would rather hire new workers that will work more cheaply and bring "new ideas" to a situation than continue to do things the way they have been done in the past. The working assumption seems to be that processes used in any given industry must automatically be flawed if they are time-tested, rather than things that have been refined with time into an efficient form. Thus, moving to a location with relative inexperience in an industry and cheap labor is always favored over expansion in an area with a qualified pool of workers that demand higher salaries, union or not. Boeing is saving a lot of money in labor costs by moving to South Carolina, but relative to Everett, the pool of potential employees is relatively inexperienced.
(4) Internal competition is always desirable. Rather than having to position themselves against competitors, any company of adequate size prefers to create "internal competition" between units at different locations doing similar things to push their productivity, with the threat of shutdown omnipresent. Companies that acquire competitors--such as pharmaceutical companies--are particularly adept at using this tactic between sites of the original and acquired company. The situation leads to undesirable conditions for workers at the sites under internal competition. Boeing has clearly set up this kind of situation between South Carolina and Washington.
While the union in Washington state can rightfully be accused of handling the situation poorly, in light of the above four tenets, there was probably nothing they could do to convince Boeing to place a second line next to the first. In fact, it was probably only for public relations and political negotiation with the union that the company made it seem like there was any possibility for a second line in Everett at all.
Much of the validity of these tenets depends on specific business circumstances that do not lend themselves to generalization, but in general I think they're crazy. Not living up to timelines and producing a quality product erodes one's customer base and makes it possible for competitors to gain market share, ultimately hurting profits in most situations. More importantly, creating internal competition leads to more stressed employees who care less about the success of the company, rather than building a team atmosphere with everyone working toward a common goal and rewarded for that. It's basically management by fear instead of management by positive incentive. It's harder to find ways to motivate people than it is to try to scare them, but it almost always leads to better work--that may actually be worth what it costs in salaries.
However, that's not how businesses are run on this continent today. Instead, they seem to be run on misguided principles like those cited above.
These tenets apply to the manufacturing of finished goods that are not interchangeable commodities produced by oligopolic companies (which are actually most durable goods and branded consumer goods, and thus quite of a few of the things still manufactured on this continent), and apply less or not at all in highly-competitive commodities, including some of the components of the finished goods.
(1) Timelines don't matter. Because customers have relatively few options in these products, taking a delay in the launch of a product does not lead to significant loss of market share or customer goodwill. Boeing already has taken delays in the 787 launch because of outsourcing, and the complication of two geographically distant lines will inevitably add more, but this is not perceived to hurt the company relative to the labor cost reduction.
(2) Quality doesn't matter. Again, mostly because of limited options, companies can afford to have modest quality problems and then fix them on finished products as customers have nowhere else to turn. While I have no doubt that the quality of planes from the non-union line in South Carolina will eventually match that of the line in Everett, a new line of recently-trained workers always starts at a disadvantage. Boeing is making the common calculation that the initial quality issues will not be significant in the long run.
(3) Experience is not worth paying for. Mostly because of points (1) and (2) above, companies would rather hire new workers that will work more cheaply and bring "new ideas" to a situation than continue to do things the way they have been done in the past. The working assumption seems to be that processes used in any given industry must automatically be flawed if they are time-tested, rather than things that have been refined with time into an efficient form. Thus, moving to a location with relative inexperience in an industry and cheap labor is always favored over expansion in an area with a qualified pool of workers that demand higher salaries, union or not. Boeing is saving a lot of money in labor costs by moving to South Carolina, but relative to Everett, the pool of potential employees is relatively inexperienced.
(4) Internal competition is always desirable. Rather than having to position themselves against competitors, any company of adequate size prefers to create "internal competition" between units at different locations doing similar things to push their productivity, with the threat of shutdown omnipresent. Companies that acquire competitors--such as pharmaceutical companies--are particularly adept at using this tactic between sites of the original and acquired company. The situation leads to undesirable conditions for workers at the sites under internal competition. Boeing has clearly set up this kind of situation between South Carolina and Washington.
While the union in Washington state can rightfully be accused of handling the situation poorly, in light of the above four tenets, there was probably nothing they could do to convince Boeing to place a second line next to the first. In fact, it was probably only for public relations and political negotiation with the union that the company made it seem like there was any possibility for a second line in Everett at all.
Much of the validity of these tenets depends on specific business circumstances that do not lend themselves to generalization, but in general I think they're crazy. Not living up to timelines and producing a quality product erodes one's customer base and makes it possible for competitors to gain market share, ultimately hurting profits in most situations. More importantly, creating internal competition leads to more stressed employees who care less about the success of the company, rather than building a team atmosphere with everyone working toward a common goal and rewarded for that. It's basically management by fear instead of management by positive incentive. It's harder to find ways to motivate people than it is to try to scare them, but it almost always leads to better work--that may actually be worth what it costs in salaries.
However, that's not how businesses are run on this continent today. Instead, they seem to be run on misguided principles like those cited above.
Thursday, October 1, 2009
Economics: Not a Fast Recovery
TORONTO, ONTARIO - Nearly a year ago, buried near the bottom of this post, I presented Canadian economist Hugh Mackenzie's view that recovery from the 1991 recession was slower than from the deeper 1980 recession because factories were actually dismantled in the later recession, whereas workers could simply be called back in the earlier case. He predicted that because the 2008 recession was deep and factories were being dismantled and moved to China that recovery would be even slower than during the 1991 recession.
Place that view in the context of a recent article in Chemical and Engineering News (C&EN; this article is not available on-line). In the piece entitled "Vanishing Plants," staff writer Michael McCoy describes how various sectors, from manufacturers of auto hoses to safety gloves to pond liners, are no longer able to get needed component chemicals in North America because they are no longer made here. Plants closed because of the recession have ended the production of such basic chemicals as formic acid and such specialized ones as chlorosulfonated polyethylene (CSPE).
The bottom line for the affected manufacturers is that without a local source of these chemicals, they are placed at a disadvantage to competitors located closer to remaining chemical suppliers in the Middle East, Asia, or even Europe. Rather than being able to return to business as usual as the economy recovers, their costs will rise and they will recover more slowly, if they can compete with their overseas competitors at all. In some cases, as the article points out, the burden is even heavier, as changing suppliers means re-validating products if they are produced for regulated industries such as the safety gloves.
Why are the plants closing permanently? McCoy's C&EN article presents a lot of opinions similar to this one expressed by Stephen Fitzpatrick: "U.S. managers look at a declining market as something they don't want to be involved with. They tend to turn tail an run." Change the "U.S." to "western" and "managers" to "managers of publicly-traded companies" and I couldn't agree more with this view, based on what I've observed. In some cases, the "declining market" may even still be profitable, but the profits aren't as large as other sectors and hence the decision is made to stop production to avoid exposure to any further declines.
In fact, it's not that different than what's happened in a completely different industry, radio. Rather than accepting "lackluster" profits, even before the recession the radio industry was being decimated by corporate parents that demanded double-digit growth in profits and slashed talent at their radio station to improve their margins, in many cases making their products unlistenable. If a station didn't look like it could give that kind of growth, virtually its entire local staff would be fired and it would start running a satellite-fed format with no local content. Newspapers are another classic example of an industry that in many cases was profitable, but not profitable enough to satisfy its investors, ending up in a downward spiral.
The pressure of today's capitalism is so strong that nobody can justify something that makes only a small profit anymore, or that might take some time to recover in a recession. Instead, those fundamentally riskier things just aren't done, resulting in everything from the loss of local radio to the inability to make innovative new pool liners--and jobs and quality of life go away as a result.
Fundamentally, the incentive structures are messed up here--short-term returns are trumping long-term investment and quality of life. The solutions are not unknown and can even come from relatively small interventions in the market--changing the time scale of executive compensation to force them to think in longer terms and even taxing short-term profits that aren't re-invested at higher rates are things people talk about all the time, but there just isn't enough of a groundswell to actually make these things happen politically, both in government and on boards of directors.
Meanwhile, the market realities make a recovery even tougher to occur, and Mackenzie comes off looking like an optimist.
Place that view in the context of a recent article in Chemical and Engineering News (C&EN; this article is not available on-line). In the piece entitled "Vanishing Plants," staff writer Michael McCoy describes how various sectors, from manufacturers of auto hoses to safety gloves to pond liners, are no longer able to get needed component chemicals in North America because they are no longer made here. Plants closed because of the recession have ended the production of such basic chemicals as formic acid and such specialized ones as chlorosulfonated polyethylene (CSPE).
The bottom line for the affected manufacturers is that without a local source of these chemicals, they are placed at a disadvantage to competitors located closer to remaining chemical suppliers in the Middle East, Asia, or even Europe. Rather than being able to return to business as usual as the economy recovers, their costs will rise and they will recover more slowly, if they can compete with their overseas competitors at all. In some cases, as the article points out, the burden is even heavier, as changing suppliers means re-validating products if they are produced for regulated industries such as the safety gloves.
Why are the plants closing permanently? McCoy's C&EN article presents a lot of opinions similar to this one expressed by Stephen Fitzpatrick: "U.S. managers look at a declining market as something they don't want to be involved with. They tend to turn tail an run." Change the "U.S." to "western" and "managers" to "managers of publicly-traded companies" and I couldn't agree more with this view, based on what I've observed. In some cases, the "declining market" may even still be profitable, but the profits aren't as large as other sectors and hence the decision is made to stop production to avoid exposure to any further declines.
In fact, it's not that different than what's happened in a completely different industry, radio. Rather than accepting "lackluster" profits, even before the recession the radio industry was being decimated by corporate parents that demanded double-digit growth in profits and slashed talent at their radio station to improve their margins, in many cases making their products unlistenable. If a station didn't look like it could give that kind of growth, virtually its entire local staff would be fired and it would start running a satellite-fed format with no local content. Newspapers are another classic example of an industry that in many cases was profitable, but not profitable enough to satisfy its investors, ending up in a downward spiral.
The pressure of today's capitalism is so strong that nobody can justify something that makes only a small profit anymore, or that might take some time to recover in a recession. Instead, those fundamentally riskier things just aren't done, resulting in everything from the loss of local radio to the inability to make innovative new pool liners--and jobs and quality of life go away as a result.
Fundamentally, the incentive structures are messed up here--short-term returns are trumping long-term investment and quality of life. The solutions are not unknown and can even come from relatively small interventions in the market--changing the time scale of executive compensation to force them to think in longer terms and even taxing short-term profits that aren't re-invested at higher rates are things people talk about all the time, but there just isn't enough of a groundswell to actually make these things happen politically, both in government and on boards of directors.
Meanwhile, the market realities make a recovery even tougher to occur, and Mackenzie comes off looking like an optimist.
Thursday, August 6, 2009
Economics: New Ethical Era? I Doubt It
TORONTO, ONTARIO - In the past few weeks, the mainstream media (what we used to call "the press" even though most didn't use printing presses) seems to have taken renewed attention in changes toward progressive policies in the business world. Two aspects of this supposed trend, both well-covered by the Christian Science Monitor, are the "B Corporation" and the "MBA Oath." Put all this together, and it might sound like North America business climate is headed for a new era of ethics, an ethics redefined beyond human interactions to integrity in interactions with the planet as well. However, I'm not expecting any of it to take hold--outside of very limited situations, there's no way to make money off being a "B Corporation" or living up to the "MBA Oath", and in the United States, if you can't make money off it, it probably isn't going to happen.
The "B Corporation" concept is particularly intriguing, as on the surface it seems to resolve the recognized problem that the modern corporation by law cannot make decisions based on anything other than shareholder return. If a corporation were to decide to do some environmental mitigation just because its CEO decided it was the right thing to do, if it impacted profit at all (as it would), he could be removed by the board for not living up to fiduciary responsibility--and this has happened. One analyst last week pointed out that Google probably didn't want to take legal action against Yahoo and Microsoft for their recent marketing agreement, but would be forced to legally--their own shareholders would sue them if they didn't at least try, in a case in which it probably would even be most profitable for Google to just keep improving and promoting their own products. "B Corporations" are supposed to resolve the issue by including in their charters that they will make decisions based not only on the interests of their shareholders but also their employees, business partners, and even the environment.
That sounds good, but the article points out that the concept is legally untested--shareholders may still sue a "B Corporation" for following its charter, or even having the charter in the first place, and conceivably win. Even if it stands up legally, the article points out that some of the few hundred companies with such a charter did it in part to help raise money. If "B Corporations" prove to be less profitable than traditional corporations, as seems likely, then there's the distinct possibility that such money will not be there in the future, and that investors will avoid "B Corporations" because they don't have a good enough return on investment. In a climate in which profitable radio stations are letting go employees because investors aren't getting a 15% return at the parent company, it seems incredible to believe that the same investors would tolerate a "B Corporation." At best, it seems like a possible arrangement for niche and quasi-public sectors.
The "MBA oath" offers a solution at the individual, rather than corporate level. In the wake of MBA's being blamed for everything from Enron to bundled mortgages to the actions of the Bush presidency, it was felt by some MBA candidates that some concrete action was needed to rehabilitate the meaning of the degree. Their solution was to pledge to "act with utmost integrity" and to "strive to create sustainable economic, social, and environmental prosperity worldwide." That sounds good, but as one critic put it, "Those who are morally strong don’t need the oath, those that are not won’t honor it." In the article, it is pointed out that some taking the pledge have been accused of doing it strictly to help them find a job in a difficult job market. I have a hard time seeing past those criticisms--for a supposed "accountability" measure there doesn't seem to be any consequence to violating the pledge, not losing one's degree or anything else. It seems to be the ultimate in the kind of substance-less promise that caused the MBA degree to get its current reputation in the first place. Then, there's the whole issue of profitability again--how does one make more money for a company by following the pledge? It doesn't seem possible.
I hate to be one to discourage any steps toward more holistic and broad thinking in the business world, but neither the "B Corporation" nor the "MBA Oath" seems to be an effective measure. To get real change, it will need to happen at a much more fundamental level in laws affecting all companies and individuals within them. That takes political will, and I don't see that happening when the United States Senate can't even reach consensus on a Supreme Court nominee. Some may think a new ethical era is starting, but I'm afraid that I just don't see any evidence.
The "B Corporation" concept is particularly intriguing, as on the surface it seems to resolve the recognized problem that the modern corporation by law cannot make decisions based on anything other than shareholder return. If a corporation were to decide to do some environmental mitigation just because its CEO decided it was the right thing to do, if it impacted profit at all (as it would), he could be removed by the board for not living up to fiduciary responsibility--and this has happened. One analyst last week pointed out that Google probably didn't want to take legal action against Yahoo and Microsoft for their recent marketing agreement, but would be forced to legally--their own shareholders would sue them if they didn't at least try, in a case in which it probably would even be most profitable for Google to just keep improving and promoting their own products. "B Corporations" are supposed to resolve the issue by including in their charters that they will make decisions based not only on the interests of their shareholders but also their employees, business partners, and even the environment.
That sounds good, but the article points out that the concept is legally untested--shareholders may still sue a "B Corporation" for following its charter, or even having the charter in the first place, and conceivably win. Even if it stands up legally, the article points out that some of the few hundred companies with such a charter did it in part to help raise money. If "B Corporations" prove to be less profitable than traditional corporations, as seems likely, then there's the distinct possibility that such money will not be there in the future, and that investors will avoid "B Corporations" because they don't have a good enough return on investment. In a climate in which profitable radio stations are letting go employees because investors aren't getting a 15% return at the parent company, it seems incredible to believe that the same investors would tolerate a "B Corporation." At best, it seems like a possible arrangement for niche and quasi-public sectors.
The "MBA oath" offers a solution at the individual, rather than corporate level. In the wake of MBA's being blamed for everything from Enron to bundled mortgages to the actions of the Bush presidency, it was felt by some MBA candidates that some concrete action was needed to rehabilitate the meaning of the degree. Their solution was to pledge to "act with utmost integrity" and to "strive to create sustainable economic, social, and environmental prosperity worldwide." That sounds good, but as one critic put it, "Those who are morally strong don’t need the oath, those that are not won’t honor it." In the article, it is pointed out that some taking the pledge have been accused of doing it strictly to help them find a job in a difficult job market. I have a hard time seeing past those criticisms--for a supposed "accountability" measure there doesn't seem to be any consequence to violating the pledge, not losing one's degree or anything else. It seems to be the ultimate in the kind of substance-less promise that caused the MBA degree to get its current reputation in the first place. Then, there's the whole issue of profitability again--how does one make more money for a company by following the pledge? It doesn't seem possible.
I hate to be one to discourage any steps toward more holistic and broad thinking in the business world, but neither the "B Corporation" nor the "MBA Oath" seems to be an effective measure. To get real change, it will need to happen at a much more fundamental level in laws affecting all companies and individuals within them. That takes political will, and I don't see that happening when the United States Senate can't even reach consensus on a Supreme Court nominee. Some may think a new ethical era is starting, but I'm afraid that I just don't see any evidence.
Tuesday, August 4, 2009
Economics: Government-Run Companies
TORONTO, ONTARIO - Recently, New York Times columnist Paul Krugman pointed out that for all the people whining about a government takeover of health care in the United States, his experiences with two government-run organizations, the United States Post Office (USPS) and his state's Department of Motor Vehicles, were actually quite positive compared with interactions with private-sector companies. Nate Silver, as he often does, backs up this opinion with data from Yelp that shows that, in Brooklyn at least, the USPS gets better experience ratings than FedEx/Kinko's, though both trail United Parcel Service (er, UPS) significantly. Putting aside the fact that President Obama (if not some of the Democrats in Congress) actually doesn't want government running health care, just financing it, the argument is an interesting one. I am biased by living in Canada, where most bureaucracies (private and public) seem to work more efficiently, but there seems ample reason to believe that government-run organizations do not inherently provide poor service.
The USPS offers an interesting case study. I've had my share of fighting with the USPS, most notably for poor delivery (sometimes three weeks late) of the then-daily Christian Science Monitor while I was in college. I remember when, twenty years ago, it could take weeks for a letter to cross the United Sates. However, that isn't the reality anymore. I've been shocked at how quickly first-class mail is delivered, including during the peak period of December, in recent years. I've mailed things from Boston that arrived in Seattle two days later. Furthermore, mail delivery is now quite consistent--it's very rare for a letter to take more than a week in any situation--and my counter experiences with the USPS in the past few years have all been positive. I don't care how they've done it--apparently much of the improved delivery comes from outsourcing long-distance deliveries to competitors like FedEx and UPS--the bottom line is that I actually favor the USPS over its private competitors for any shipment that isn't large and doesn't require tracking, as the USPS is usually cheaper and just as fast. While my experiences are anecdotal, Nate Silver's look at Yelp seems to statistically back up my observations.
I often point to Revenue Canada as an example of a government agency that does things well from a customer service perspective, especially compared with the Internal Revenue Service (IRS) in the United States. Granted, I've never been audited by either organization or had a major dispute with either, but in terms of day-to-day interactions, Revenue Canada wins hands down. Revenue Canada's forms may be long, but they are quite clear with instructions that are comprehensible for an educated person. I have found the IRS instructions fine for simple situations--such as for people that can fill out the 1040EZ form--but on more complicated situations, they can be extremely hard to understand. When I've tried to call the IRS to ask a question, I've waded through a menu system, waited on hold for nearly an hour, and then gotten what proved to be an incorrect answer, since they revised my tax (in my favor) exactly where I had the question. When I've called Revenue Canada, I got through to a person within five minutes and gotten extremely thorough and correct answers. When the experience is over, Revenue Canada sends a letter thanking you for paying your taxes. I've never received such a letter from the IRS. Of course, the IRS is fighting an anti-tax bias in the US that simply isn't as large in Canada, but that seems to me to a reason to pay more attention to the customer experience, not less.
Another interesting comparison exists between VIA Rail Canada and Amtrak, both government-subsidized train operations competing with other travel modes. Generally speaking, VIA is known (even outside Canada) for having excellent customer service. Amtrak is at best known for uneven customer service. VIA may provide limited train service in some regions, but what trains it does run generally have good reputations in the areas where it operates. Amtrak may have a good reputation in certain corridors (California's Capitol Corridor between San Jose and Sacramento, and the Cascades Corridor between Eugene, Oregon and Vancouver, British Columbia come to mind), but I personally can't recommend most of their long-distance trains even to other railroad enthusiasts because the on-time performance has been so poor and it is too common to run into employees with terrible attitudes. What's the difference? It's not subsidy levels. It's mostly that VIA management chose to re-organize its staffing around the customer experience (some don't like how they imposed that on their unions), whereas Amtrak has maintained traditional railroad staff organization and furthermore has generally not made any attempt to enforce appropriate staff behavior. It's a classic difference in culture--one organization chose to address it and improve it, the other hasn't done it.
Of course, then there's the Canada Post. The customer service aspect of that organization is fine--the regular clerk at my local post office smiles when he sees me coming and remembers my shipping preferences--but their core service, mail delivery, is pathetic compared with its US counterpart. Where the USPS regularly delivers first-class mail across the country in just a couple days, it is not uncommon for Canada Post to take weeks. The CBC, when it had country-wide mail-in contest, had to be on a two-week cycle because one week wasn't enough for people to mail in their entries. Some years ago, I actually had a letter take two months to go from Boston to Toronto--and I'm pretty sure the delay wasn't south of the border. Many companies in the US refuse to send anything to Canada using the postal system, using private carriers instead. The list of anecdotal and real evidence could go on and on, and I don't know what the fundamental problem might be, as Swiss Post and even the USPS show that government-run postal services can work quite efficiently.
The lesson here seems to be that it's not whether something is government-run that determines whether it works well, but the culture of the organization. If an organization is motivated to provide good service through accountability for its actions, it usually does. Canadian governmental organizations stay accountable because the public expects good service from them, and throws out the government in charge if they don't. The USPS stays accountable through competition with private carriers like FedEx and UPS. Canada Post, on the other hand, is not held accountable, and it doesn't stack up so well.
It's fundamentally harder to hold a government organization accountable, as the market will not automatically cause them to fail and go away if they don't stack up. However, government agencies in Canada and even the USPS show that it is possible. If people in the United States demand good health care service, they will probably get it even if it is government-run--and indeed, that may explain the real problem with health care, escalating costs.
The USPS offers an interesting case study. I've had my share of fighting with the USPS, most notably for poor delivery (sometimes three weeks late) of the then-daily Christian Science Monitor while I was in college. I remember when, twenty years ago, it could take weeks for a letter to cross the United Sates. However, that isn't the reality anymore. I've been shocked at how quickly first-class mail is delivered, including during the peak period of December, in recent years. I've mailed things from Boston that arrived in Seattle two days later. Furthermore, mail delivery is now quite consistent--it's very rare for a letter to take more than a week in any situation--and my counter experiences with the USPS in the past few years have all been positive. I don't care how they've done it--apparently much of the improved delivery comes from outsourcing long-distance deliveries to competitors like FedEx and UPS--the bottom line is that I actually favor the USPS over its private competitors for any shipment that isn't large and doesn't require tracking, as the USPS is usually cheaper and just as fast. While my experiences are anecdotal, Nate Silver's look at Yelp seems to statistically back up my observations.
I often point to Revenue Canada as an example of a government agency that does things well from a customer service perspective, especially compared with the Internal Revenue Service (IRS) in the United States. Granted, I've never been audited by either organization or had a major dispute with either, but in terms of day-to-day interactions, Revenue Canada wins hands down. Revenue Canada's forms may be long, but they are quite clear with instructions that are comprehensible for an educated person. I have found the IRS instructions fine for simple situations--such as for people that can fill out the 1040EZ form--but on more complicated situations, they can be extremely hard to understand. When I've tried to call the IRS to ask a question, I've waded through a menu system, waited on hold for nearly an hour, and then gotten what proved to be an incorrect answer, since they revised my tax (in my favor) exactly where I had the question. When I've called Revenue Canada, I got through to a person within five minutes and gotten extremely thorough and correct answers. When the experience is over, Revenue Canada sends a letter thanking you for paying your taxes. I've never received such a letter from the IRS. Of course, the IRS is fighting an anti-tax bias in the US that simply isn't as large in Canada, but that seems to me to a reason to pay more attention to the customer experience, not less.
Another interesting comparison exists between VIA Rail Canada and Amtrak, both government-subsidized train operations competing with other travel modes. Generally speaking, VIA is known (even outside Canada) for having excellent customer service. Amtrak is at best known for uneven customer service. VIA may provide limited train service in some regions, but what trains it does run generally have good reputations in the areas where it operates. Amtrak may have a good reputation in certain corridors (California's Capitol Corridor between San Jose and Sacramento, and the Cascades Corridor between Eugene, Oregon and Vancouver, British Columbia come to mind), but I personally can't recommend most of their long-distance trains even to other railroad enthusiasts because the on-time performance has been so poor and it is too common to run into employees with terrible attitudes. What's the difference? It's not subsidy levels. It's mostly that VIA management chose to re-organize its staffing around the customer experience (some don't like how they imposed that on their unions), whereas Amtrak has maintained traditional railroad staff organization and furthermore has generally not made any attempt to enforce appropriate staff behavior. It's a classic difference in culture--one organization chose to address it and improve it, the other hasn't done it.
Of course, then there's the Canada Post. The customer service aspect of that organization is fine--the regular clerk at my local post office smiles when he sees me coming and remembers my shipping preferences--but their core service, mail delivery, is pathetic compared with its US counterpart. Where the USPS regularly delivers first-class mail across the country in just a couple days, it is not uncommon for Canada Post to take weeks. The CBC, when it had country-wide mail-in contest, had to be on a two-week cycle because one week wasn't enough for people to mail in their entries. Some years ago, I actually had a letter take two months to go from Boston to Toronto--and I'm pretty sure the delay wasn't south of the border. Many companies in the US refuse to send anything to Canada using the postal system, using private carriers instead. The list of anecdotal and real evidence could go on and on, and I don't know what the fundamental problem might be, as Swiss Post and even the USPS show that government-run postal services can work quite efficiently.
The lesson here seems to be that it's not whether something is government-run that determines whether it works well, but the culture of the organization. If an organization is motivated to provide good service through accountability for its actions, it usually does. Canadian governmental organizations stay accountable because the public expects good service from them, and throws out the government in charge if they don't. The USPS stays accountable through competition with private carriers like FedEx and UPS. Canada Post, on the other hand, is not held accountable, and it doesn't stack up so well.
It's fundamentally harder to hold a government organization accountable, as the market will not automatically cause them to fail and go away if they don't stack up. However, government agencies in Canada and even the USPS show that it is possible. If people in the United States demand good health care service, they will probably get it even if it is government-run--and indeed, that may explain the real problem with health care, escalating costs.
Tuesday, July 14, 2009
Media: Get the Economists out of the Internet
TORONTO, ONTARIO - I get very wary when economists weigh in on something other than economic policy. Economists try to put a value on a human life to justify environmentally or otherwise egregious actions by companies, try to convince us that proper health care is unaffordable, and perpetuate the idea that government is to be disdained by not considering government spending to be part of certain macroeconomic activity figures. Yet another example has come up of late in Canada, as Terence Corcoran, editor of the conservative National Post newspaper, has argued in a column that the Internet is like a swimming pool, and that the people that built the pool should be able to manage it however they want--in other words, "Net Neutrality" should be scuttled and Bell and Rogers should be allowed to only allow their products to work at normal speed on the Internet. Corcoran thinks this will lead to greater competition and hence better Internet service for Canadians.
I'll mostly defer to TVO's Jesse Brown, host of the Search Engine podcast, for the refutation of the swimming pool argument. Extending Brown's arguments, if the Internet is a swimming pool, Bell and Rogers at most built some of the ladders into the pool, not the entire pool. They have some right to the management of those ladders, but seeing as the pool itself was publicly funded and should be--whether it legally is at this point or not--a public utility, then government regulation of the entrances to the pool--the private ladders--is entirely rational.
I definitely agree with Corcoran that the primary reason that Internet access in Canada is worse than in most other developed countries is because of a lack of competition. In some cases, there isn't even a choice between Bell and Rogers--only one actually offers service to an address. Only in a selected few places are there any other broadband choices besides Bell and Rogers. It is absolutely true that the reason Bell and Rogers can get away with customer-unfriendly practices is a lack of competition.
The main reason for the lack of additional players is that there are too many barriers to entry. While some are political, the main thing is the simple cost of building the "last mile" to where people want service--only large companies like Bell and Rogers really have the ability to invest in that. The way to get more competition is not to increase the profitability of the connectivity providers at the expense of "Net Neutrality"--which is really what Corcoran is arguing--but to work on those barriers to entry. One way to is allow re-selling, which commonly occurs on DSL lines in the United States and is allowed in certain circumstances in Canada, and other ways involve subsidies or new technology. None of those require the scuttling of "Net Neutrality," or the treatment of all Internet traffic as equivalent, rather than favoring certain content, such as services that the connectivity provider owns.
The whole competition aspect really has nothing to do with "Net Neutrality," no matter how Corcoran tries to argue that it does. The only reason people like Corcoran want to do away with "Net Neutrality" is that it allows Bell and Rogers to force people to use more of their products and hence make more money. The real competition occurs when there is "Net Neutrality" and people have real choices, not when their access only works when using their connectivity provider's products. How this aspect of the issue is missed by supposedly free-market-loving individuals has never ceased to amaze me.
These kind of strange economic arguments that in the end would benefit only large businesses and not actually create purported competition are yet another reason why I want to keep the economists out of debates about the Internet. Now, how about debating additional economic stimulus packages by the government?
I'll mostly defer to TVO's Jesse Brown, host of the Search Engine podcast, for the refutation of the swimming pool argument. Extending Brown's arguments, if the Internet is a swimming pool, Bell and Rogers at most built some of the ladders into the pool, not the entire pool. They have some right to the management of those ladders, but seeing as the pool itself was publicly funded and should be--whether it legally is at this point or not--a public utility, then government regulation of the entrances to the pool--the private ladders--is entirely rational.
I definitely agree with Corcoran that the primary reason that Internet access in Canada is worse than in most other developed countries is because of a lack of competition. In some cases, there isn't even a choice between Bell and Rogers--only one actually offers service to an address. Only in a selected few places are there any other broadband choices besides Bell and Rogers. It is absolutely true that the reason Bell and Rogers can get away with customer-unfriendly practices is a lack of competition.
The main reason for the lack of additional players is that there are too many barriers to entry. While some are political, the main thing is the simple cost of building the "last mile" to where people want service--only large companies like Bell and Rogers really have the ability to invest in that. The way to get more competition is not to increase the profitability of the connectivity providers at the expense of "Net Neutrality"--which is really what Corcoran is arguing--but to work on those barriers to entry. One way to is allow re-selling, which commonly occurs on DSL lines in the United States and is allowed in certain circumstances in Canada, and other ways involve subsidies or new technology. None of those require the scuttling of "Net Neutrality," or the treatment of all Internet traffic as equivalent, rather than favoring certain content, such as services that the connectivity provider owns.
The whole competition aspect really has nothing to do with "Net Neutrality," no matter how Corcoran tries to argue that it does. The only reason people like Corcoran want to do away with "Net Neutrality" is that it allows Bell and Rogers to force people to use more of their products and hence make more money. The real competition occurs when there is "Net Neutrality" and people have real choices, not when their access only works when using their connectivity provider's products. How this aspect of the issue is missed by supposedly free-market-loving individuals has never ceased to amaze me.
These kind of strange economic arguments that in the end would benefit only large businesses and not actually create purported competition are yet another reason why I want to keep the economists out of debates about the Internet. Now, how about debating additional economic stimulus packages by the government?
Tuesday, June 23, 2009
Economics: Name Any Big Company...
TORONTO, ONTARIO - It occurred to me recently that I could not think of a single large (say, 1000 employees or greater) company for which I have any degree of loyalty. In contrast, there are a multitude of smaller companies, too many to list, from the C. Crane Company for electronics to Bob Slate Stationers for notebooks to my local barber for which I do have great deal of loyalty. Is there any wonder I generally favor legislation making things hard for large businesses and easier for small business?
One thing that really brought the concept home was an Internet outage that I suffered this past weekend. My Internet access was completely non-functional for most of Sunday because Bell mis-configured a server and didn't seem in any hurry to fix it. While some individual Bell contractors (and they were contractors, not employees, another point of contention) have impressed me, their Internet service definitely has not. A previous outage occurred because an employee arbitrarily decided to physically pull out my connection, and it took two weeks to get it restored--and no compensation was offered. This time, when I called, there was no sympathy offered on the phone and in fact the first person I talked to claimed that there was no record of any service to my residence in the past five years; apparently access to records was part of the server problem. Frankly, if I had any other options for true high-speed access, I'd dump Bell in an instant. However, I don't have any other options (other than companies re-selling Bell service), so if I want high-speed access, I have to put up with them.
Contrast that with past experiences with small Internet providers like the now-defunct Brazoria.net in Brazoria County, Texas, Shore.net and 110.net in Massachusetts, or Best Internet in the San Francisco Bay Area, all of which were always responsive and creative in their problem-solving in then-state-of-the-art dial-up service, and I almost long for the days of modems. Each of these companies has been forced out of the access business or purchased by a larger provider, and all of them no longer offer the kind of service that I always appreciated.
It might seem like I would have loyalty to the Ford Motor Company, as all of the vehicles my family and friends have purchased from Ford since the 1990's have been reliable vehicles that have stood up well with time. However, because most of their money in recent years was made from oversize sport utility vehicles (Jay Leno didn't joke about their new model, the "Ford Extinction," for nothing), I actually don't have any warm feelings for them. While I have respect for their ability to make it through the current hard times in the industry better than their domestic competitors, I'm not one of those guys who would go to a Ford dealership and not look anywhere else.
People might think I have loyalty to Coca-Cola, as I have long professed a taste preference for Coke over Pepsi, regular or diet. Furthermore, arguably my favorite soft drink, the European-bottled orange flavor of Fanta (which is not the same as what is offered in North America), is a Coca-Cola brand, Minute Maid orange juice is a Coca-Cola brand, and who doesn't like polar bear advertisements. But, on mass-market consumables, price is king. I might choose a Coke product if everything had the same price, but there are currently no Coke products in my refrigerator.
I could go on, but it raised a question--is there actually anything wrong with any of these companies, or is the nature of a large company with multiple product lines just fundamentally set in a manner that picky consumers can't be satisfied? For example, is it impossible to create a relationship between a large staff and an individual consumer? I don't think that's the case. A few different policies about notifications and changing terms and I would have been extremely loyal to Washington Mutual Bank, now defunct, even though I probably could not have named a single one of their employees. Some large consumer electronics and computer manufacturers could have easily gained my loyalty had they not had quality issues with the products I purchased. There's nothing inherent about a large company that makes it impossible for them to instill loyalty.
Yet, the very fact that I can't come up with a single large company that I am loyal to, whereas I can roll off plenty of small ones, says something. If people wonder why I favor legislation to favor small companies, it's no harder to explain than I haven't had enough good experiences with large companies.
One thing that really brought the concept home was an Internet outage that I suffered this past weekend. My Internet access was completely non-functional for most of Sunday because Bell mis-configured a server and didn't seem in any hurry to fix it. While some individual Bell contractors (and they were contractors, not employees, another point of contention) have impressed me, their Internet service definitely has not. A previous outage occurred because an employee arbitrarily decided to physically pull out my connection, and it took two weeks to get it restored--and no compensation was offered. This time, when I called, there was no sympathy offered on the phone and in fact the first person I talked to claimed that there was no record of any service to my residence in the past five years; apparently access to records was part of the server problem. Frankly, if I had any other options for true high-speed access, I'd dump Bell in an instant. However, I don't have any other options (other than companies re-selling Bell service), so if I want high-speed access, I have to put up with them.
Contrast that with past experiences with small Internet providers like the now-defunct Brazoria.net in Brazoria County, Texas, Shore.net and 110.net in Massachusetts, or Best Internet in the San Francisco Bay Area, all of which were always responsive and creative in their problem-solving in then-state-of-the-art dial-up service, and I almost long for the days of modems. Each of these companies has been forced out of the access business or purchased by a larger provider, and all of them no longer offer the kind of service that I always appreciated.
It might seem like I would have loyalty to the Ford Motor Company, as all of the vehicles my family and friends have purchased from Ford since the 1990's have been reliable vehicles that have stood up well with time. However, because most of their money in recent years was made from oversize sport utility vehicles (Jay Leno didn't joke about their new model, the "Ford Extinction," for nothing), I actually don't have any warm feelings for them. While I have respect for their ability to make it through the current hard times in the industry better than their domestic competitors, I'm not one of those guys who would go to a Ford dealership and not look anywhere else.
People might think I have loyalty to Coca-Cola, as I have long professed a taste preference for Coke over Pepsi, regular or diet. Furthermore, arguably my favorite soft drink, the European-bottled orange flavor of Fanta (which is not the same as what is offered in North America), is a Coca-Cola brand, Minute Maid orange juice is a Coca-Cola brand, and who doesn't like polar bear advertisements. But, on mass-market consumables, price is king. I might choose a Coke product if everything had the same price, but there are currently no Coke products in my refrigerator.
I could go on, but it raised a question--is there actually anything wrong with any of these companies, or is the nature of a large company with multiple product lines just fundamentally set in a manner that picky consumers can't be satisfied? For example, is it impossible to create a relationship between a large staff and an individual consumer? I don't think that's the case. A few different policies about notifications and changing terms and I would have been extremely loyal to Washington Mutual Bank, now defunct, even though I probably could not have named a single one of their employees. Some large consumer electronics and computer manufacturers could have easily gained my loyalty had they not had quality issues with the products I purchased. There's nothing inherent about a large company that makes it impossible for them to instill loyalty.
Yet, the very fact that I can't come up with a single large company that I am loyal to, whereas I can roll off plenty of small ones, says something. If people wonder why I favor legislation to favor small companies, it's no harder to explain than I haven't had enough good experiences with large companies.
Tuesday, June 16, 2009
Economics: Real Meaning of "Disruptive"
TORONTO, ONTARIO - Some weeks ago, Christian Science Monitor language columnist Ruth Walker explored the meaning of the term "disruptive" and its application to technology, going so far even as to wade into the argument between John C. Dvorak and Clayton Christensen about what constitutes a disruptive technology. (Anyone who has ever heard an argument with Dvorak on any topic knows that's pretty much a hopeless exercise--just listen to an episode of "This Week in Technology".) I think they all missed the point. The use of the term "disruptive" has only one real purpose in today's economy--to try to turn off all the economic rules.
I'm not saying that what Dvorak or Christensen would consider "disruptive technologies" have not existed, or won't exist in the future. Clearly, there have been technologies that create what can legitimately be called paradigmatic or disruptive change in the world, from the wheel to sliced bread to the Internet to more incremental things like color television, the personal computer, or the facsimile machine. Few would dispute their impact on society.
My point is that truly disruptive contributors usually don't go around touting "disruptive technology." They just take their technology and try to show how it can be used. Tim Berners-Lee was trying to figure out a better way to share information amongst scientists when he proposed the World Wide Web, not change the world. Steve Jobs--who has since taken to over-using the term "disruptive" (for reasons discussed below)--was trying to figure out a better way to listen to his music when his company came up with the iPod.
I've had the privilege in my life of working for a series of companies that were working with either genuinely disruptive technology or potentially disruptive technology, in areas from microfluidics to genetics to diagnostics. If there's one thing I've learned from these experiences, it's that people turn off their normal judgments once they see the "cool stuff" and see that it could potentially be disruptive. Suddenly, risks that make no business sense are taken, follow-on investments are made in companies that would have been considered failures in more mature fields, and delays and inefficiencies that would never be allowed in the product development processes for, say, a new consumer item are ignored or viewed as excusable. The big potential return from the hoped-for disruption outweighs all other consideration until, at some point, it finally becomes clear that the market for the technology just isn't as large as people thought. The technology may even work, but if the early adopters don't consider it the best thing since sliced bread (whether because someone else also has something like sliced bread, the toaster and sandwich haven't been thought of yet to use the sliced bread, or people just seem to be satisfied with tearing bread), the normal rules come into play. By those rules, it's obvious that development should stop--or at least radically change--and it does.
I'm clearly not the only one that has seen this effect. Entrepreneurs, and even mature companies like Apple, tout the products that they are working on as "more disruptive than iTunes" in an attempt to more easily access money or publicity (which leads to money, even if in the case of Apple it's mostly money that doesn't need to spent on advertising). It's hard to blame the companies for doing this, as it's pretty clear that it has been working.
Personally, I blame the investors that have poured their money into the "disruptive" companies. The average investor--even the exceptional one--isn't equipped to evaluate technology for its future impact. Probably only a handful of people actually are; I'm certainly not one of them. But, looking back at one of my former employers more than a few years ago, a number of signs were there that investment was not likely to pay off--staff scientists skeptical of the reliability of the technology, other companies reaching commercialization in similar markets, and a lack of a clear market to dominate. (I'll grant that the latter is a bit tricky, as the nature of disruptive technologies is that they create their own markets that didn't exist before--but they tend to at least displace or extend something that already exists, and if that something is not clear, that's a problem.) Yet, a second round of financing went through anyway at a significantly increased valuation of the company. The company lived on, but the fundamentals did not change, and those investors did not get their return.
So, when I hear the word "disruptive," I run--or at least start doing a lot of research to see how plausible it might be. That company is probably trying to avoid the normal rules and scrutiny. On the other hand, if a company spends most of its time talking about how its technology can be used and backing it up with a business plan that would pass muster internally at General Electric, well, that sounds interesting and potentially like fun due diligence.
I'm not saying that what Dvorak or Christensen would consider "disruptive technologies" have not existed, or won't exist in the future. Clearly, there have been technologies that create what can legitimately be called paradigmatic or disruptive change in the world, from the wheel to sliced bread to the Internet to more incremental things like color television, the personal computer, or the facsimile machine. Few would dispute their impact on society.
My point is that truly disruptive contributors usually don't go around touting "disruptive technology." They just take their technology and try to show how it can be used. Tim Berners-Lee was trying to figure out a better way to share information amongst scientists when he proposed the World Wide Web, not change the world. Steve Jobs--who has since taken to over-using the term "disruptive" (for reasons discussed below)--was trying to figure out a better way to listen to his music when his company came up with the iPod.
I've had the privilege in my life of working for a series of companies that were working with either genuinely disruptive technology or potentially disruptive technology, in areas from microfluidics to genetics to diagnostics. If there's one thing I've learned from these experiences, it's that people turn off their normal judgments once they see the "cool stuff" and see that it could potentially be disruptive. Suddenly, risks that make no business sense are taken, follow-on investments are made in companies that would have been considered failures in more mature fields, and delays and inefficiencies that would never be allowed in the product development processes for, say, a new consumer item are ignored or viewed as excusable. The big potential return from the hoped-for disruption outweighs all other consideration until, at some point, it finally becomes clear that the market for the technology just isn't as large as people thought. The technology may even work, but if the early adopters don't consider it the best thing since sliced bread (whether because someone else also has something like sliced bread, the toaster and sandwich haven't been thought of yet to use the sliced bread, or people just seem to be satisfied with tearing bread), the normal rules come into play. By those rules, it's obvious that development should stop--or at least radically change--and it does.
I'm clearly not the only one that has seen this effect. Entrepreneurs, and even mature companies like Apple, tout the products that they are working on as "more disruptive than iTunes" in an attempt to more easily access money or publicity (which leads to money, even if in the case of Apple it's mostly money that doesn't need to spent on advertising). It's hard to blame the companies for doing this, as it's pretty clear that it has been working.
Personally, I blame the investors that have poured their money into the "disruptive" companies. The average investor--even the exceptional one--isn't equipped to evaluate technology for its future impact. Probably only a handful of people actually are; I'm certainly not one of them. But, looking back at one of my former employers more than a few years ago, a number of signs were there that investment was not likely to pay off--staff scientists skeptical of the reliability of the technology, other companies reaching commercialization in similar markets, and a lack of a clear market to dominate. (I'll grant that the latter is a bit tricky, as the nature of disruptive technologies is that they create their own markets that didn't exist before--but they tend to at least displace or extend something that already exists, and if that something is not clear, that's a problem.) Yet, a second round of financing went through anyway at a significantly increased valuation of the company. The company lived on, but the fundamentals did not change, and those investors did not get their return.
So, when I hear the word "disruptive," I run--or at least start doing a lot of research to see how plausible it might be. That company is probably trying to avoid the normal rules and scrutiny. On the other hand, if a company spends most of its time talking about how its technology can be used and backing it up with a business plan that would pass muster internally at General Electric, well, that sounds interesting and potentially like fun due diligence.
Thursday, June 11, 2009
Economics: Not the End of Capitalism
TORONTO, ONTARIO - I am often amused by some of the hand-wringing which has come out of some United States commentators in recent months about how "we may need to enter a post-Capitalist world" and that "the end of consumerism means the end of the economy as we know it." Their belief seems to be that the entire United States economy was based on out-of-control spending for goods, that the era of such spending has ended forever because it is unsustainable, and this means that the entire United States economy will never recover.
Have these people never traveled outside the United States? The degree of consumerism in the vast majority of the rest of the developed world never rivaled the spending rates in the United States--just look at the savings rate in countries like Germany and Great Britain as compared with the United States. Yet, somehow the economies in these countries were sustainable, and last I checked they were all based on capitalism, even they might have had a few more socialist elements.
One need look no farther than Canada for an example. The vast majority of Canadians never spent like their southern neighbors. The average Canadian kept (and probably still keeps) their car for five years instead of two and tended to shop for value rather than prestige in their purchases. One of my most interesting experiences in moving here was in finding out how differently salespeople behaved. I was amazed to find a furniture salesperson accept my preference for the cheapest, on-sale sofa bed in his store after looking at everything available, saying, "You're making the right choice. It's clear from the look on your face that you don't think the others are anything special." This was not a unique experience. When shopping for a GPS, a salesperson showed me several more expensive models and when I chose the cheaper one, he told me, "Based on how you say you're going to use it, you're making the right choice." Here, if the salesperson makes a sale at all, they're happy, not just if they sell the most expensive item with the highest commission.
Clearly, the Canadian economy has been traditionally been functional. Despite the reduced consumerism, business went on and people made money from their enterprises. If the United States economy does reduce its level of consumerism--and that hardly seems inevitable--then it will probably resemble the level in the Canada. Based on the Canadian model, there seems little reason to think that will mean the end of capitalism, or even the end of economy as it has been known. A few weaker or more frivolously-oriented businesses that might have survived before might not, but it will hardly be a paradigm shift. The hand-wringing can end; how about directing that energy to campaign finance or health care reform instead?
Have these people never traveled outside the United States? The degree of consumerism in the vast majority of the rest of the developed world never rivaled the spending rates in the United States--just look at the savings rate in countries like Germany and Great Britain as compared with the United States. Yet, somehow the economies in these countries were sustainable, and last I checked they were all based on capitalism, even they might have had a few more socialist elements.
One need look no farther than Canada for an example. The vast majority of Canadians never spent like their southern neighbors. The average Canadian kept (and probably still keeps) their car for five years instead of two and tended to shop for value rather than prestige in their purchases. One of my most interesting experiences in moving here was in finding out how differently salespeople behaved. I was amazed to find a furniture salesperson accept my preference for the cheapest, on-sale sofa bed in his store after looking at everything available, saying, "You're making the right choice. It's clear from the look on your face that you don't think the others are anything special." This was not a unique experience. When shopping for a GPS, a salesperson showed me several more expensive models and when I chose the cheaper one, he told me, "Based on how you say you're going to use it, you're making the right choice." Here, if the salesperson makes a sale at all, they're happy, not just if they sell the most expensive item with the highest commission.
Clearly, the Canadian economy has been traditionally been functional. Despite the reduced consumerism, business went on and people made money from their enterprises. If the United States economy does reduce its level of consumerism--and that hardly seems inevitable--then it will probably resemble the level in the Canada. Based on the Canadian model, there seems little reason to think that will mean the end of capitalism, or even the end of economy as it has been known. A few weaker or more frivolously-oriented businesses that might have survived before might not, but it will hardly be a paradigm shift. The hand-wringing can end; how about directing that energy to campaign finance or health care reform instead?
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