May 2005 Archives

A recent study of income and education in the UK shows a disturbing, but understandable, trend (as reported in the Financial Times): "Degree no longer passport to well-paid job"

A university degree is no longer a passport to a well-paid job, and the effect on lifetime earnings has fallen, research into the graduate labour market has found.

Graduates can now expect to earn an average £140,000 more over their lifetimes compared with those who choose not to go to university; down from the previous estimate of £400,000.

Still a premium, but a declining one. Why the decline?

The huge rise in the number of students in the 1990s has eroded the wage premium, with the supply of graduates expanding faster than demand for their skills.

But the decline apparently is not across the board:

Signs are that the decline in relative graduate earnings is most pronounced in more popular subjects such as the arts and humanities. The [University of] Swansea researchers estimate that the rate of return on an arts degree for a man is now negative.

According to a companion FT report "Career no longer a matter of course":

research also showed that the highest ability graduates seemed to be doing as well as the previous generation of high achievers. The declining wage premium was occurring because those lower down did not get as much financial benefit from higher education.

I suspect that the same dynamic is occurring the US. Much of our higher education policy is geared toward getting a degree -- any degree -- without differentiating the skill set acquired with that degree. In all fairness, looking at the demand side is very difficult. And the personal value of the college experience is high.

But if we are to make good economic policy for future prosperity, we need to move beyond the simplistic formulation that a college education will automatically lead to higher incomes. This leads to a situation where our policy for increasing incomes is to increase the number of those getting degrees. Even a rudimentary understanding of supply and demand should make it clear that if everyone has a college degree, then the labor market value of that degree is less than if only a few have a degree. We need to focus more on the skill set required for those graduates to flourish in the information-innovation-intangible economy -- and focus less on the piece of paper.

Robert Samuelson's column today in the Washington Post (Sputnik Scare, Updated) pooh-poohs the latest alarms over the decline in US economic competitiveness. Unfortunately, he is just dead wrong (see my earlier postings Innovation summit announced and Falling behind in S&T). He cites the fact that the competitiveness challenge of the 1980's didn't result in an economic decline.

Let's see. In 2004, Americans' per capita incomes averaged $38,324, reports the Conference Board. The figures for Germany and Japan were $26,937 and $29,193.

Well, the reason why both the Sputnik alarm ended with an American on the moon and the Japanese challenge ended with a higher US income is that we stepped up to the challenges -- not dismissed them.

Is the case overstated? Maybe. Samuelson gives some reasonable argument for that point of view. However, after all his years as a reporter he should have enough of an understanding of both the political process and human nature to know that unless someone screams "fire" the house will burn down before anything happens.

At least Samuelson is consistant. In the 1980's he regularly wrote about how the competitiveness challenge was overstated. Had we followed his "don't worry" advice back then, I hate to think about where we would be today.

Having said that, there are two points I agree with Samuelson on -- one point he makes explicitly and one that is implied in his comments, even though I don't think he meant to say it.

The first point I agree with is his comment:

On being overtaken, history teaches another lesson. America's economic strengths lie in qualities that are hard to distill into simple statistics or trends. We've maintained beliefs and practices that compensate for our weaknesses, including ambitiousness; openness to change (even unpleasant change); competition; hard work; and a willingness to take and reward risks. If we lose this magic combination, it won't be China's fault.

We have a Pogo Problem ("we have met the enemy and they are us"). It is not China's fault that we have let our R&D budgets decline and our national technology policy wither away to almost oblivion. It is not China's fault that we are closing the door to people and ideas from other nations. It is not China's fault that we are pursuing a foreign policy that seems calculated to diminish the value of the US brand. It is not China's fault that we let corporate malfeasance and the fleecing of investors flourish and are now trying to roll-back the reforms. It is not China's fault that we continue to make excuses for a broken health care system that is driving companies (and the country) to bankruptcy while failing to provide adequate care to all. It is not China's fault that we continue to rack up huge budget deficits so that those with the highest incomes can pay lower taxes.

No, these are not China's fault. As Shakespeare has Caesar saying "the fault, dear Brutus, is not in our stars, but in ourselves."

The other point that Samuelson makes in his argument -- unwittingly, I believe -- is that a Sputnik-like reaction is not the right answer. Unlike with Sputnik, the answer is not to simply throw engineers at the problem. Our response need to be more general and needs to understand the new nature of economic prosperity and growth. Samuelson outlines some of the elements need in our response: openness, competition, entrepreneurship. Why, for example, are we pressing for more funds to train scientists and engineers - but not for entrepreneurship and design courses? Why are we calling for more money for elementary and secondary school math and science courses but not for information literacy and creativity?

As I have said over and over, we are treating this as a technology problem, when it is an innovation problem. Like a failed General, we need to stop fighting the last war. Unfortunately, Samelson's column simply contributes to our viewing of today's problems through the len of the last war.

A couple of weeks ago, Pat Choate published a blistering attack on product piracy in China - The Pirate Kingdom - New York Times, based on his new book, Hot Property: The Stealing of Ideas in an Age of Globalization:

China is the global epicenter of pirating and counterfeiting. By its government's own estimate, China's domestic trade in bogus goods accounts for $19 billion to $24 billion annually. That is undoubtedly a significant understatement, and it doesn't even include the stolen technologies and phony brands China exports to the rest of the world. Since welcoming China into the World Trade Organization in 2001, the United States has had a historic opportunity to stop the Chinese piracy trade. So far, the Bush administration has failed to seize it.

Turns out that China, while a current problem, may be a simple problem compared to what is coming in the future with Russia. As the Wall Street Journal (In Russia, Politicians Protect Movie and Music Pirates) pointed out:

Russia has emerged as the front line in Hollywood's global war against piracy. China may still be the world's top producer of illegal computer software, CDs and DVDs, but authorities there are getting serious about cracking down. In Russia, the Kremlin has been promising to deal with the problem for years, but industry officials say under President Vladimir Putin it's gotten worse, not better.

A key reason is that Russia's pirates, who cost U.S. businesses an estimated $1.7 billion in losses last year, have cultivated increasingly cozy links to the government that's supposed to police them. Counterfeiters are lining up political patrons and locating factories inside secret military facilities where law-enforcement agencies can't touch them.

Last week, the House Judiciary Committee held two days of hearings on the protection of Intellectual Property Rights in China and Russia.

But the problem isn't just with "lawless" China and Russia. According to the International Herald Tribune, law-abiding Sweden is a major movie pirate (In Sweden, paradise for the movie pirates):

In a nondescript computer hall on the outskirts of Gothenburg, Sweden, stands the movie industry's latest, and worst, nightmare.

Not only is this particular stack of servers, known as the Pirate Bay, the home of the world's busiest BitTorrent tracker - the most popular file-sharing protocol for movies and other large files - but it is also the most telltale sign of how otherwise law-abiding citizens in only a couple of years can turn into some of the biggest infringers, at least, on a per capita basis, of copyright laws in the world.

If Sweden is leading the world in movie pirating, the issue is a lot different from product counterfeiting that is at the heart of the concern over Russia and China.

Once again, the movie and music business need to look at new business models to stem the perception that digital entertainment should be free. I am highly skeptical that tighter and tighter restrictions are the answer. As I noted in an earlier posting, we may be coming to the point where "intellectual property rights" are stifling innovation rather than promoting it (see an earlier posting from a paper by Adam Jaffe of Brandeis University and Josh Lerner of Harvard University, "Innovation and its Discontents":

In the last two decades, however, the role of patents in the U.S. innovation system has changed from fuel for the engine to sand in the gears).

As Glenn Pudelka writes in his review of Choate's book in the Christian Science Monitor ('Gentlemen do not steal the ideas of others.' Oh yeah?)

Ultimately, he [Choate] warns, piracy will discourage inventors and ideamakers from innovating. Yet he offers no support for such conclusions.

Product counterfeiting is an important problem. But in crafting a solution we need to keep in mind that "intellectual property rights" are a social construction. Patents are not a "natural right" but are a state-granted monopoly right. More on this later.

Carol Hymowtz's Wall Street Journal column on leadership (In the Lead) today highlights an important problem facing companies and workers in the information age:

Executives talk a blue streak about the importance of developing talent. But many quickly form rigid opinions of staffers, and then resist changing those views despite evidence that employees have matured, become more seasoned or possess talents that weren't apparent when they were first hired. Conversely, some bosses continue to insist that an employee is a star even though he or she was just never that talented.

Companies that can not develop talent are wasting resources. It is an easy but deceptive practice. As Hymowtz notes:

Pigeonholing persists in part because it is efficient, at least in the short term. Top executives depend on certain tasks getting done, day in and day out. The easiest way to accomplish that is to assign employees to jobs and functions in which they have experience.

But rigid typecasting also discourages initiative and innovation, not only among lower-level employees but also among middle managers.

Talent and skills are the key resourse in the intangible economy. Skills and talent are not a set attribute but a dynamic phenomona. That dymanics is called "learning." There is a lot of talk in management-studies circles about the learning organization. Well, learning starts at the top. And if the boss can't learn (especially about developing talent), how do they expect the rest of the organization to learn?

The Corporation for Enterprise Development (CFED) has released its latest scorecard report on how well states are doing to help build financial security. The Assets and Opportunity Scorecard

measures how easy or hard it is for families across the United States to achieve the American Dream.

The Dream is about opportunity. It is about the simple idea that no matter who you are, if you work hard and play by the rules, you can help your family get ahead... that you can do this in ways that add to your community, to your society, to your economy... that you have opportunity and security, and that your children do as well.

The foundation for that opportunity rests on two pillars: first, a family's ability to build assets that can be used to invest for the future, send children to college, and weather unexpected financial storms; and second, safety nets and safeguards that provide financial security in the event of a job loss, medical emergency, or other life events that could otherwise put a family in a tailspin.

The Assets and Opportunity Scorecard measures key parts of that foundation, compares them state-by-state, and looks at state policies that can help or hinder citizens' abilities to get ahead. The story it tells is compelling: many American families are living with practically no safety net, some groups and states are doing much better than others, and every state has room for improvement in helping its citizens achieve the Dream.

Importantly, CFED recognizes that intangible assets are key to building tangible wealth. They specifically describe education and business development as two of three building blocks (the third being homeownership):

Education is the first step toward achieving security, acquiring assets, and building wealth. Working Americans who are well-educated and well-trained provide future returns for society by creating a workforce that is productive, agile, and responsive to economic changes. The Scorecard shows promising trends in education.

* The percentage of children living at the poverty level who are served by a Head Start program increased in 46 states between 2001 and 2003.

* College attainment rates increased in 43 states since the late 1990s. The attainment gap by income has closed slightly, yet the wealthiest 20% of Americans complete college at a rate more than six times that of the poorest 20%.

. . .

Small business creation has been the route into the middle class for many Americans. There has been increasing entrepreneurial activity in recent years, and some states have found effective ways to foster entrepreneurship.

Yet, all is not sweetness and light. As David Frances comments in the Christian Science Monitor ("The American Dream gains a harder edge"):

The American dream, at least on the economic side, is fading. Most people see the United States as a special place where there is plenty of opportunity for someone to work hard, play by the rules, and get ahead - maybe even become wealthy.

Today, though, nearly 1 in 5 American households has zero net worth or actually owes more than it owns. And the odds of a son or daughter rising above their parents in such a financial predicament have shrunk.

"Income mobility has declined in the last 20 years," says Bhashkar Mazumder, an economist at the Federal Reserve Bank of Chicago.

What that means is that the US is becoming less of a meritocracy, where skill and intelligence determine success, and becoming more of a class-bound society, where economic background, including the better education money can provide, matters more. There are still many rags-to-riches stories. But there's stagnation in the underclass.

. . .

A broader look at the overall financial security of American families isn't encouraging either. It measures ownership (homes, financial assets, and so on) and protections against financial setbacks, such as health insurance to cover large medical bills that cause almost half of individual bankruptcies.

"There are lots of people who have found it difficult to meet their basic needs," says Lillian Woo, an economist in Durham, N.C., with CFED, a national nonprofit research group that conducted the study. "The ratio of indebtedness seems to be growing."

That's not because these Americans have engaged in shopping sprees, though that sometimes happens. It is often because of medical bills or high housing costs. Many households are "hovering on the brink of financial disaster," Ms. Woo maintains. "The cushion is very thin."

For example: 1 in 4 households does not own enough to support itself - even at the poverty line - for three months.

There are bipartisan efforts being made to help increase the financial security of folk at the bottom income levels through innovative asset building concepts such as KIDS Accounts.

We need to increase our investments in the types of intangibles that generate wealth as well.

This from today's Washington Post "A Likely Script for The 'Nuclear Option'":

a senior Republican Senate aide confirmed that [Senate Majority Leader] Frist does not plan to consult [Senate parliamentarian, Alan S.] Frumin at the time the nuclear option is deployed. "He has nothing to do with this," the aide said. "He's a staffer, and we don't have to ask his opinion."

So, the Senate Parliamentarian (who was appointed by the Republican leadership and served previously as Parliamentarian in the 1990s) has nothing to do with the process of a ruling on the floor of the Senate changing the rules. Here is the description of the duties of the parliamentarian (from the U.S. Senate website)

The parliamentarian advises the presiding officer, senators and their staffs, committee staffs, representatives and their staffs, administration officials, the media, and members of the general public on all matters requiring an interpretation of the Standing Rules of the Senate, the precedents of the Senate, unanimous consent agreements, and provisions of public law affecting the proceedings of the Senate. In the name of the presiding officer, the parliamentarian refers to the appropriate Senate committees all legislation, messages, communications, reports from the executive branch, and petitions and memorials from state legislatures and private citizens.

Apparently, the senior Republican Senate aide quoted above must not think that changing the Senate rules has to do with "matters requiring an interpretation of the Standing Rules of the Senate, the precedents of the Senate". Either that or they simply don't want any advice on the interpretation of the rules from the one person who is the Senate's expert on the subject. I guess when power is involved, information is not required.

One of the issues left out of our so-called "trade negotiations" is migration. I say so-called because these deals long ago stopped being just about trade and have become mechanisms of economic harmonization and integration. That is a logical step -- but we should face up to that face and quite characterizing them as only about trade. Migration is a key point. One of the reasons why the US economy is so powerful and adaptive is because of our huge and geographically integrated labor market. Workers move to where the jobs are; companies move to where the workers are. Imaging the situation if someone from New England had to get a work visa to move to California? (I know, some may argue that this would be a good thing.)

But on an international level, we deal with the movement of goods and services. We deal with the movement of capital. We even deal with the movement of codified knowledge (Intellectual Property Rights). We deliberately leave out the movement of tacit knowledge and skills.

The result has been a less than optimal outcome for poor countries, as a recent Wall Street Journal story "Trade Liberalization Earns Mixed Marks As Fighter of Poverty" points out:

A different policy would help: opening the borders of wealthy nations to more temporary workers. More work visas would equal more wealth for the world's poor. If rich countries allowed in enough temporary workers to increase their overall work force by 3%, that would raise global income by $150 billion annually, with the bulk of the gain going to low-income workers, according to calculations by World Bank economist L. Alan Winters. "Even a relatively small change in labor mobility is worth at least as much as any reduction in quotas and tariffs," he says.

. . .

Migration helps the poor in a number of ways. Even when migrant laborers take dead-end U.S. jobs, they earn far more than they did at home. The North American Free Trade Agreement helped lift average Mexican wages by about 10%, says Gordon Hanson, an economist at the University of California at San Diego. But a Mexican who finds work in the U.S. earns, on average, about 2.5 times as much as he did in Mexico.

Migrant workers wire some of their salaries to their families, increasing spending and consumption in poor nations. Overall, migrant workers remit about $100 billion a year, the International Monetary Fund estimates, a sum that dwarfs foreign aid.

Some migrants also use the skills and outlooks they learn in wealthy countries to start businesses back home. Romania's strawberry-export business owes a lot to Romanians who once labored in Spanish fields, Harvard economist Devesh Kapur says.

But migration is a difficult issue:

The gains from migration come at a cost, of course. Many of those who leave poor nations never go back, draining talent from home nations. Families are separated for long periods of time when men migrate and their wives and children don't. Some families get so used to receiving checks from abroad that it can breed a welfare mentality.

A migration surge would also further undermine wages for low-skilled native workers in the U.S. and Europe, who compete for low-end jobs. That's one reason that political opposition to increased migration is fierce.

The story goes on to propose ways to solve this problem by making sure temporary workers don't become permanent illegal residents.

These might make sense if one is focusing only on migration as the movement of low-skilled labor - a very Industrial Age viewpoint. But if one is thinking of migration of skills, creativity and tacit knowledge of those workers, then migration become a positive flow of information, not just a source of cheap labor. And out immigration policies need to find a way to harness that positive flow.

The American economy was built by immigrants. And immigrants have constantly enriched the flow of innovation and entrepreneurship in this country -- a point Richard Florida stress in his new book, "Flight of the Creative Class." As the economist Julian Simon (a conservative by the way - see Stephen Moore's tribute) argued years ago in his book (The Ultimate Resource - a critique of the limits to growth thesis), people are the ultimate resource. Then, why do we want to block off the flow of people?

[By the way, while I respected Simon's point about human ingenuity being able to solve environmental problems, I never agreed with what I saw as his over-optimistic view that "technology" (using that term broadly) would save us. I am less convinced of that thesis as I read Jarred Diamonds new book Collapse. But that is a different discussion.]

Textiles: a dying industry, right? Doomed to be taken over by the Chinese, or the Bangladeshis, as Ricardo's law of comparative advantage shifts the production to the lowest wage countries -- just as happened when it shifted out of New England to the South.

Well, think again. There are textiles ... and there are textiles. A recent Forbes article Threadbare No More (actually about Raleigh-Durham as one of the Best Places) describes how the textile industry is being reinvented:

Inside a small classroom at North Carolina State University in Raleigh, three Ph.D. students and two engineering professors wrestle with the three Cs-calculations, charts and cloth. Cloth? Yes, they're applying their considerable brainpower to building a better T shirt.

Not just any T shirt. This one has tiny silver particles containing electronic transmitters that are grounded, pasted and then screen-printed into nonwoven fabric. The shirt can "talk" to satellites or monitor your respiration and heartbeat. You won't be able to pick up this item at the Gap or the Sharper Image for a while, not until the researchers figure out how to pack in miniature batteries to power the transmitters. Still, the project, funded by the National Textile Center-a consortium of universities with federal funding for research-has already sparked the interest of the U.S. Army, Nike, Sara Lee's apparel unit and the medical community. "We are on the lunatic fringe," laughs Edward Grant, one of the profs and director of NC State's Center for Robotics & Intelligent Machines.

A small revolution is underway. Grant is one of 345 or so scientists in Raleigh-Durham, N.C. working to reinvent and revive the American textile industry.

The article goes on to describe the rise of nonwoven fabric:

These fabrics are melted and pressed, not woven or sewn, and can be much stronger than traditional cloths. They have little or no natural fiber but are manufactured from plastics-petroleum derivatives like polypropylene, polyethylene, rayon, polyester-with wood pulp or cotton mixed in to improve absorbency. Cheaper to make, such products require just a handful of workers at a single plant to produce 15,000 metric tons of nonwovens a year.

Not everyone is happy about the change:

The rapid shift to high-tech fibers worries cotton growers. Their trade group, Cotton Inc., spends $20 million a year developing fabric fibers, colors and finishes and another $46 million to ensure that garmentmakers keep using cotton.

The Forbes article essential writes cotton off. I won't be so sure. That same spirit of innovation may well bring new life to cotton - just as the cotton gin did 210 hundred years ago.

Just when everyone is talking about the death of print media comes the Newsweek incident that proves the power of print. For those of you not paying attention:

In its May 9 edition, the weekly newsmagazine cited an unnamed U.S. government official as saying an investigation of abuse allegations at the detention center found evidence that guards committed infractions in trying to get terror suspects to talk, including flushing a Koran down the toilet, Newsweek said.

Newsweek said Pentagon spokesman Larry DiRita told the magazine its report was wrong and the investigation turned up no credible evidence of Koran desecration. Newsweek reported that the government official cited in the original story "could no longer be sure" such findings were included in the results of the investigation by the U.S. Southern Command.
(from Bloomberg.com: Top Worldwide)

The story sparked riots in Islamic countries (even in countries where Newsweek is officially banned). And such is the power of the press that many in those countries now refuse to believe the retraction.

Muslims in Afghanistan and Pakistan were skeptical Monday about an apparent retraction by Newsweek magazine of a report that U.S. interrogators desecrated the Koran and said U.S. pressure was behind the climb-down.

The report in Newsweek's May 9 issue sparked protests across the Muslim world from Afghanistan, where 16 were killed and more than 100 injured, to Pakistan, India, Indonesia and Gaza.

Newsweek said Sunday the report might not be true.

"We will not be deceived by this," Islamic cleric Mullah Sadullah Abu Aman told Reuters in the northern Afghan province of Badakhshan, referring to the magazine's retraction.
(from Top News Article | Reuters.com)

My sense of the continued power of traditional media is underscored by a new study (see "Blogs haven't displaced media"):

Charting the discussion of issues during the 2004 presidential campaign, the study by the Pew Internet & American Life Project and consultants BuzzMetrics found political blogs -- online opinion and information sites -- played a similar, but not greater role, as did the mainstream media and the candidates' campaigns in creating "buzz."

The study dispels the notion that blogs are replacing traditional media as the public's primary source of information, said Michael Cornfield, a senior research consultant at Pew.

Clearly, the print media is alive and relevant -- judging by the stink it can still kick up.

Everyone is rightfully focusing on the core message of Alan Greenspan's commencement address yesterday at Wharton about the need to act ethically (and on his positive view of Sarbanes-Oxley).

But hidden in that speech is an insightful tidbit on the need to share information in today's economy:

A decade ago, senior officers of a corporation could tightly control, if they chose, access to key information systems. Those senior officers could have far greater knowledge of the workings of their business than others and, as a consequence, were less subject to challenge when making day-by-day tactical and strategic decisions.

Arguably, with information systems now accessible to broader ranges of managers and other employees, the monopoly power that proprietary information affords has been significantly reduced. Moreover, the availability of vital information now often extends beyond the borders of the company to suppliers and customers as well. A generation ago, for example, a purchasing manager rarely divulged to a supplier the state of the company's inventory position. It was presumed that such information in the hands of suppliers would undermine the bargaining position of the purchasing manager. Today such information is broadly and routinely shared to facilitate just-in-time supply systems.

In other words, sharing is good.

And just so we don't forget Mr. Greenspan's core message:

material success is possible in this world, and far more satisfying, when it comes without exploiting others. The true measure of a career is to be able to be content, even proud, that you succeeded through your own endeavors without leaving a trail of casualties in your wake.

Speaking of the music business, Les Paul, the inventor of the electric guitar was recently inducted into the National Inventors Hall of Fame. Today's Washington Post Science section ('The Log' Puts Paul in Ranks of Top Inventors) tells the story. Paul had been playing around with the problem of amplification of a guitar for years. But when he finally found a solution, no one recognized it.

Paul grew into adolescence and beyond and became a full-fledged pro. He played acoustic. He put pickups on an acoustic. He miked the acoustic. "I tried everything," he said. It wasn't right yet.

Finally, late in the 1930s, he fretted up a length of four-by-four lumber and took it to a nightclub. This one really worked, but "there was no reaction." People didn't know what he was supposed to be doing.

"You have to have a beautiful piece of wood," Paul concluded, "something you can caress, and hold, and love." So he cut two sides off an acoustic guitar and attached them to the four-by-four "so it looked like a guitar." He called it "the log." Today it resides in the Smithsonian.

And the audience figured it out.

It took reverting to the recognized design of a guitar, even if it was completely non-functional, for audiences to understand.

But the guitar maker Gibson didn't figure it out.

Paul took the log to Gibson, in Chicago, but they turned him down. He kept going back, but Gibson kept saying no. "They laughed at me for 10 years," Paul said. "They called me 'the guy with the broomstick with the pickups on it.'"

Fender came out with the first commercial solid-body, in 1950, and five years later followed with the legendary Stratocaster. Gibson answered in 1952 with its first Les Paul model, and history was made.

Technology, design and competition: three key elements of the innovation process. What a wonderful story.

I have stated in previous posts that the music industry needs a new model to cope with the rise of disruptive technologies. James Surowiecki argues in a recent issue of The New Yorker "Hello Cleveland" that the new model is the old model: touring.

The music industry may be in crisis, what with illegal file-sharing, stagnant CD sales, and the decline of commercial rock radio, but the touring business is as sturdy as ever. In some ways, it is healthier than some of the mediums (radio, recorded music) that at one point or another were supposed to render it obsolete. Since 1998, annual concert-tour revenue has more than doubled, while CD sales have remained essentially flat. Last year, thirteen different artists grossed more than forty million dollars each at the box office. (Prince made eighty-seven million.) Consumers who seem reluctant to spend nineteen dollars for a CD apparently have few qualms about spending a hundred bucks or more to see a show.

There are still artists who make huge sums of money selling records, but they are the lucky few. A longtime recording-industry rule of thumb holds that just one in ten artists makes money from royalties. Today, it's probably less than that. So the best model, if you're in it for the money, may be the Grateful Dead. Although the Dead didn't sell many records or get much airplay, they worked the big stadiums and arenas long enough and often enough to become one of the most profitable bands out there. As in politics and sales, nothing beats meeting the people face to face.

Most musicians, from a business perspective, at least, would wish it otherwise. Selling CDs is, as economists say, scalable: you make one recording, and you can sell it to an unlimited number of people for an unlimited amount of time, at very little cost. A tour, on the other hand, is work. You have to perform nearly every night, before a limited number of people, for hours at a time. You can knock a few seconds off each song, fire a percussionist, or sell more T-shirts, but in the end efficiencies are hard to come by.

The trick is that musicians get a much higher percentage of the money from concerts and merchandise than they do from the sale of their CDs. An artist, if he's lucky, gets twelve per cent of the retail price of a CD. But he doesn't get any royalties until everything is paid for-studio time, packaging costs, videos-which means that he can sell a million records and make almost nothing. On tour, though, he often gets more than half of the box-office, so even if he grosses less he can profit more.

Traditionally, tours were a means of promoting a record. Today, the record promotes the tour. The decline in record sales has shrunk the size of the pie for labels and artists to fight over, so they've had to find new ways to make money, and artists have come to see how lucrative touring can be, given what people will pay to see them live.

Touring may be hard work -- and a return, in many ways, to the old craft economy. But in the age of easily reproduced music, it may be the best model around.

Too bad Surowiecki didn't talk about the other way that musicians are making money: from selling rights to their songs for everything from commercials to corporate presentations to cell phone ringtones. Again, the Grateful Dead may be the leading indicator. Just look at what Jerry Garcia did for men's neckties!

I don't normally use this space to comment on purely political activities, but as a former Senate staffer I am very concerned with where the Senate might be going with the fight to weaken the filibuster. Like it or not, the right of any Senator to unlimited debate (commonly called a filibuster) is what makes the Senate the ultimate protector of the rights of the minority. It should be kept in mind that this right is not absolute. Under Senate rules, debate can be closed off with a supermajority of 60 votes (down from the original rule of two/thirds).

During my time on Senate staff, I was on the Democratic majority and saw how the Republican minority used the filibuster (not just a filibuster but the threat of a filibuster and other filibuster-based techniques) to modify or even kill legislation that did not have a bipartisan majority. I didn't like it. But I came to understand that the filibuster is an important part of our checks and balances system which makes our Constitution so powerful.

The argument in this instance is not with legislation, but with judicial nominations. Senate GOP leaders are quick to point out that the so-called "nuclear option" of changing Senate rules through a ruling by the Vice President sitting as the President of the Senate (which takes only a majority vote to ratify) will not apply to the legislation. We are told that the President should be given deference in his appointments. I think this is backwards. If anything, judicial appointments should be subject to the two-thirds rule, similar to treaties. The founding fathers realized that treaties could not be undone with out severe consequences (normally war) and they therefore set up the two-thirds requirement. Judicial appointments are also difficult to undo. Judges are appointed for life and can only be removed through the difficult process of impeachment. Thus, the Congress should be extra careful with Court appointments.

What bothers me most, however, it the misuse of information and history during the discussion. An example of this is Charles Krauthammer's "Nuclear? No, Restoration," in Friday's Washington Post:

This technique is defended by Democrats as traditional and rooted in history. What a fraud. The only example that comes close is Lyndon Johnson's nomination in 1968 of (sitting) Supreme Court Justice Abe Fortas to be chief justice. But this case is muddied by the fact that (a) Fortas was subject to allegations involving conflicts of interest and financial impropriety, (b) he did not appear to have the votes anyway, and (c) the case involved elevation on the court, not appointment to the court.

One of the great traditions, customs and unwritten rules of the Senate is that you do not filibuster judicial nominees.

Contrast this to Senator George Mitchell's "The Not-So-Secret History of Filibusters" in the New York Times of May 10, 2005.

Since 1789, the Senate has rejected nearly 20 percent of all nominees to the Supreme Court, many without an up-or-down vote.

In 1968 Republican senators used a filibuster to block voting on President Lyndon B. Johnson's nominee for chief justice of the Supreme Court. During the debate, a Republican senator, Robert Griffin, said: "It is important to realize that it has not been unusual for the Senate to indicate its lack of approval for a nomination by just making sure that it never came to a vote on the merits. As I said, 21 nominations to the court have failed to win Senate approval. But only nine of that number were rejected on a direct, up-and-down vote."

Between 1968 and 2001, both parties used filibusters to oppose judicial nominees. In 2000, the last year of Bill Clinton's presidency, Republican senators filibustered two of his nominees to be circuit judges. They also prevented Senate votes on more than 60 of Mr. Clinton's judicial nominees by other means.

So much for the assertion that filibustering to prevent votes on judicial nominees is a new tactic invented by Senate Democrats.

I leave you to be the judge of who to believe. My money is on Senators Mitchell and Griffin.

I take back what I said earlier about how the system worked last Weds (see Thursday posting "The power of information: the security issue"). The system didn't work on a number of levels. The most disconcerting is that the protocols for possible shooting down a civilian aircraft do not include notifying the Commander-in-Chief.

From today's Washington Post ('Protocols' Left Bush Out of the Loop):

That is the message put out by the White House the past two days. "The protocols that we put in place after September 11 were being followed," White House spokesman Scott McClellan said Thursday. "They did not require presidential authority for this situation."

. . .

The protocols, which detail how to handle possible terrorist situations, such as when to shoot down an incoming plane, are secret. But this much is clear: The president does not necessarily have to be notified and does not have to give the green light to take out a plane.

So who really is in charge?

Yes, we know that it was a small, light aircraft that might not have been much of threat in the end. But everyone took it seriously enough to order people to go running out of the White House and Capitol. What if it had been a fast moving 747? Or even a larger private plane?

The system didn't work; it got lucky.

A new paper on the (missed?) opportunity: Untapped Potential : US Science and Technology Cooperation with the Islamic World [pdf]

The following is the summary review from the Internet Scout Project:

There has been much discussion about how the United States can improve its relationship and general standing throughout the Islamic world, and despite the best intentions of many policy-makers, policy initiatives, and politicians, it would seem that there are few options that may work. This intriguing 112-page paper from the Brookings Institution (authored by Michael A. Levi and Michael B. d'Arcy) suggests that the respect held for American science and technology may serve as a valuable channel for cooperation. The authors suggest that any coherent strategy should focus on a number of aspects, including a focus on applying technology, taking advantage of Islamic world diasporas (such as the numerous scholars from the Islamic world who are in the United States), and maintaining modest expectations overall. [KMG]

The paper presents a strategic approach to scientific cooperation. It seems rather US-centric, however. I wish it would have spent more time of the opportunities to learn from the Islamic world as it does on the side of what we can offer them.

A recent incident with the DC Public School raises a major question of whether our educational system is prepared for the information age. The story is related by columnist Marc Fisher of the Washington Post in No Way To Choose A Principal

The District school system will announce soon that it has hired a new principal for Deal Junior High School in upper Northwest, the city's only junior high that attracts a racially and economically mixed group of students. The new principal holds a master's degree in education, is an assistant principal in a respected suburban system and taught in Washington for a few years. By all accounts, she is a good pick.

This story is about a guy who didn't get the job. Somewhere in the mystery of why the D.C. schools rejected an application from Charles Abelmann lies a clue to the abiding failure of the District system.

Abelmann, a senior education specialist at the World Bank, first came to the D.C. schools in 1998, when he was lent to the system as special assistant to the superintendent. In 2001, he took an extended leave from the bank to serve as principal of Janney Elementary in upper Northwest. There, he introduced a new math curriculum, boosted test scores and won Blue Ribbon School status, making Janney one of only three D.C. schools so honored by the U.S. government. Janney parents loved his work, and after he returned to the bank last summer, they begged him to apply for the job at Deal.

Abelmann agreed to go for it. He aced the test the District requires for all applicants for principal jobs. He had outstanding evaluations at Janney. And he holds both a master's and a doctorate in education administration and planning from Harvard.

. . .

But Abelmann's Harvard degrees aren't good enough for the District. His graduate degrees are in education administration and the D.C. schools personnel office says principals must hold a certificate in education leadership.

So last month, after Abelmann had made the first cut and been interviewed by administrators, he received an e-mail from schools personnel officer Nicole Wilds saying that "you will not be able to interview for any principal positions because you do not meet the employment requirements."

Apparently, Mr. Abelmann has taught in the program that grants the "correct" certification for the DC bureaucracy. But, since he didn't graduate from that program, his is not considered qualified.

At that same time, Fisher goes on to note in his column that:

the certificate the District requires for principals is granted by university programs that range in quality from "inadequate to appalling," according to a new study by Arthur Levine, president of Teachers College at Columbia University. Levine concluded that programs in educational leadership are plagued by some of the lowest admissions standards in all of academia, irrelevant courses and faculty who lack the experience or skills to do the job.

In other words, the piece of paper that the most qualified candidate doesn't have isn't worth even the ink used to print it.

Fisher suspects other motives for the rejection:

At Janney, Abelmann rocked the boat on behalf of his school, and the system does not appreciate that.

Even without the political games, the decision by the DC school system is problematic. It is symptomatic of the old industrial age mentality where the existence of the piece of paper is more important than the information supposedly embedded in it. This story is repeated over and over again through out our economy as we struggle to come to grips with the new realities.

In this case unfortunately, these types of bureaucratic rules -- "no, you used black ink when it said to use blue ink, therefore your request is denied" -- are dooming an entire generation of our neediest children to the margins of the information economy.

No wonder that charter schools are popping up like spring flowers all over DC.

The following clip was included in the Wall Street Journal's on-line"The Morning Brief"

France Tries to Bolster Innovation

The French government is taking seriously at least one problematic part of being "Old Europe." In a few weeks, the Parliament will vote on the creation of a new Agency for Industrial Innovation as part of a wider law aimed at boosting confidence and economic development, Le Monde reports. The agency's role will be, as its title implies, to make French businesses and the country's economy more innovative. But it faces strong skepticism. "Idiosyncrasies, some intrinsically French, others common to Europeans -- especially the 'oldest' like France and Germany -- seem to block the development of innovative firms," Le Monde laments. It cites a study by the Richelieu Committee, a group formed to help small and midsized businesses, that compares the U.S. and Europe: While six of the 25 biggest American companies were created after 1960 -- Microsoft, Cisco, Dell, Home Depot, Intel and Wal-Mart -- only one, German business-software giant SAP -- figures among the top 25 European firms.

The LeMonde story Pourquoi la France est incapable de creer un Microsoft goes on to cite a number of problems, including the lack of adequate financing of small innovative companies, the difficulty is sell to large French firms and to the French government, and an educational system that promotes conformity with the traditional model where imagination and creativity is not developed.

This last point is of especially relevance to the US. We have a financial system that promotes entrepreneurship and a system of mechanisms to help small and medium enterprises (SMEs) (the Le Monde story specifically cites the Small Business Act). Our educational system is the weak link.

Fortunately, our educational system is not as tradition bound as the French. But it is not clear to me that we do a good job in fostering creativity. The movement toward standardized testing -- while important for accountability -- may just have the opposite affect on creativity. If the pedagogy is geared toward "teaching-to-the test," then activities that foster creativity go out the window. We must keep in mind that education in this information age should be about learning to learn, not just about knowing a specific fact. And I'm not sure whether our standardized tests capture this love of learning.

Good news and frustrating news on the innovation policy front.

The good news is that Congressional and business leaders are sounding the alarm about the decline in American innovation. At a press conference today, a stellar group announced plans for an "innovation summit" this fall. The summit idea was put into the recently passed supplemental appropriations bill by Congressman Frank Wolf, the Chairman of the House Science-State-Justice-Commerce Appropriations Subcommittee -- the man who controls the purse strings. The legislative language directs the Secretary of Commerce to convene a national conference on science, technology, trade and manufacturing.

Joining Rep. Wolf at the press conference (and endorsing the summit) were Rep. Sherwood Boehlert, the Chairman of the House Science Committee; Rep. Vern Ehlers, the Chairman of the Subcommittee on Environment, Technology, and Standards; Rep. Donald Manzullo, Chairman of the House Small Business Committee; Governor John Engler, President of the National Association of Manufacturers; John Palafoutus, President of AeA; John Castellani, Business Roundtable; and Deborah Wince-Smith, President of the Council on Competitiveness.

These groups (NAM, Business Roundtable, AeA, and Council on Competitiveness) will work to organize the summit, which will be focused on action steps.

That such a group is sounding the alarm and is crafting an action agenda is good news.

The frustrating news is that this group is focusing almost exclusively on innovation as S&T. As Congressman Wolf put it, on the "innovation budget, federal basic research and development." Others talked about the need for training more scientists and engineers. Almost nothing in the discussion about all of the other elements of the innovation system -- including non-technological, non-research-based, non-laboratory-based innovation.

John Castellani of the Business Roundtable did bring up innovation in the services, financial and telecommunications industries. But even the bulk of his remarks were focused on R&D and S&T education.

This summit can be a great opportunity to craft a national innovation policy. I share this group's concern over our technological decline (see my earlier posting Falling behind in S&T). But if it focuses solely on innovation as home-grown S&T, then the summit will have wasted that opportunity. It needs to address the broader vision of innovation as creativity in a global marketplace. If it can create an innovation policy for the 21st Century, rather than recycle the technology policy of the 20th Century, this summit will go down in history as a turning point (similar to the Young Commission on Competitiveness) in our nation's quest for economic prosperity.

The incident in Washington yesterday has me thinking about the use of information and security.

As everyone probably knows by now, there was scare that evacuated the White House and the Capitol. A private plane entered the restricted airspace. I live and work 9 blocks from the Capitol. I was returning with my carry out lunch when I ran into a group of children being evacuated from the Senate daycare facility -- including cribs being rolled along the sidewalk of East Capitol Street. I didn't know anything about what was happening, even though I am (as a local elected official) supposed to be part of the emergency alert system.

While this is apparently a false alarm, there are many questions left in my mind. First is how this happened. There have been numerous violations of restricted airspace. As I understand it, this is the first time a plane has gotten this close. My step-daughter is a DC school teacher. She was with her class on a field trip to the Mall and could see the warning flares fired at the plane. According to the story in the Washington Post, Confused Fliers Trigger Capital Scare:

Authorities said the plane's occupants were so clueless that when officials finally made radio contact and ordered the plane to divert, the fliers refused, asserting their right to proceed on their way.

. . .

As the Cessna closed in, flying at 2,500 feet, alert levels started to jump across the city. At 12:03 p.m., the White House went to code red, with the aircraft within three miles.

The customs aircraft, meanwhile, had been urgently trying to get the Cessna's attention. The crews of one or both aircraft held up a sign in their cockpits bearing the radio frequency the Cessna should tune to, officials said. Those on the small plane apparently saw the sign, made radio contact, but refused at first to turn back, officials said.

"No," the federal pilots ordered, "this is federal law enforcement. You will land that aircraft." Finally, at 12:06 p.m., flying over Northwest Washington, the Air Force fighters arrived, fired warning flares, and the Cessna fliers realized that they were in trouble.

The second question concerns that lack of a coordinated response. This is the second time since 9/11 that the Capitol was evacuated (it is the first time I've seen cribs from the day care center being rolled down East Capitol). According to USATODAY.com - White House, Capitol evacuated after airspace violated:

Washington's Reagan National Airport has been closed to general aviation since the Sept. 11 attacks. In the three-plus years since then, hundreds of small planes have flown within the restricted airspace around the capital. However, it's rare for fighter jets to be scrambled.

In the most dramatic incident since the Sept. 11 attacks, thousands of people fled the Capitol, packed with members of Congress and other dignitaries, when a plane flew into the restricted air space just before the funeral procession for President Ronald Reagan last June. A communications breakdown led federal officials to believe the plane might be targeting the Capitol, but it turned out to be carrying Kentucky Gov. Ernie Fletcher, who had been cleared to fly into the area.

But the White House has sent the President and/or Vice President to a secure location at least three times. Apparently, threats to the Capitol are evaluated by the Capitol Police and threats to the White House by the Secret Service - independent of each other.

And then there was the problem that local DC officials were not notified. From the Washington Examiner

By evening, criticism had arisen over whether the government had been adequately prepared to face the danger. Mayor Anthony A. Williams was ending his weekly press briefing on the first floor of the Wilson Building when the evacuation was called. City leaders were not informed of the emergency until after evacuations were under way, said Vince Morris, Williams' spokesman.

In a statement released late Wednesday, the mayor said he was concerned with "the apparent delay in alerting key decision-makers in the city...

"Critical and potentially life-or-death information about threats facing District residents needs to be shared immediately - not five, 10 or 15 minutes after the fact," Williams said.

I think I would be more sanguine about these questions if it wasn't for what I read yesterday and my own experiences with our security preparations.

The disconcerting news yesterday was a story in USATODAY "Ridge reveals clashes on alerts":

The Bush administration periodically put the USA on high alert for terrorist attacks even though then-Homeland Security chief Tom Ridge argued there was only flimsy evidence to justify raising the threat level, Ridge now says.

Some have long argued that the threat level was not very well connected to the actual level of threat.

My own experience concerns the movement of toxic chemical within blocks of the Capitol where CSX and the Department of Homeland Security's response to our concerns was "we're not going to tell you whether we are re-routing these trains or not, just trust us" (see my earlier posting Information Wars, which also talks about restricted airspace that they won't tell pilots about). Another part of Homeland Security's plan was to take the warning signs off the tank cars - in the belief that terrorist would then not know if the tank car was a good target or not. This attempt to restrict information was shot down by police and fire officials nationwide, who pointed out that they need to know what is in those tank cars in order to respond to rail accidents.

Information is a key element in the war against terrorism. But if the systems for shared it with the people you need to know (including the public) don't work, then that information becomes useless.

Yesterday, the machinery did work -- with all its creaks and groans. But it didn't work as well as it should. Priority needs to be given to fix the flaws.

The overall trade deficit improved significantly in March as imports declined and exports surged to record levels, the BEA reported this morning. That surge included exports of intangibles, which climbed almost 1.3%. As a result the balance of trade in intangibles increased to $6.7 billion, up from $6.58 billion monthly in February. Imports of intangibles, however, did not decline, but continued to climb.

For the first quarter of 2005, exports of intangibles are up by 1.9% and imports are up by 2.5%.

The overall trend was, according to the New York Times, "Trade Deficit Fell Unexpectedly in March" due to:

Less spending on autos and consumer goods like textiles and household electronics from Asia accounted for much of the decrease, even as high prices for crude oil drove the value of petroleum imports up 23 percent. However, the actual imports of petroleum products fell 6 percent. The trade deficit with China, which reached an eight month low in February, dropped farther in March, to $12.9 billion from $13.9 billion. Meanwhile, American exports rose 1.5 percent in March to a record $102.2 billion, largely on sales of aircraft and a rise in demand for services.

However, as the Wall Street Journal points out U.S. Trade Gap Fell 9.2% To $54.99 Billion in March

Even with the big improvement in March, the deficit through the first three months of this year is still running at an annual rate of $696 billion, 12.8% higher than the $617.08 billion record set for all of 2004.

We also continue to run a deficit in Advanced Technology Products. The last monthly surplus in this category was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.

Note: we define trade in intangibles as the sum of "royalties and license fees" and "other private services". The BEA/Census Bureau definitions of those categories are as follows:

Royalties and License Fees - Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term "royalties" generally refers to payments for the utilization of copyrights or trademarks, and the term "license fees" generally refers to payments for the use of patents or industrial processes.

Other Private Services - Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term "affiliated" refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise's voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.

Talk about selling an intangible:

WSJ.com - Burn, Prairie, Burn: Tourists in Kansas Come to Torch Grass

"Flames in the Flint Hills," now an annual event, started at Mr. Jantzen's ranch three years ago. Here, spring is range-burning season when ranchers torch their prairies to revitalize the grass for livestock and kill off invasive plants. It's a dirty, smoky and sometimes dangerous task usually done by a rancher and one or two hired laborers.

Yet the 61-year-old Mr. Jantzen has managed to turn the burn into a cash cow by getting others to pay for doing his work -- something tantamount to Tom Sawyer snookering pals into whitewashing his aunt's fence. Instead of dead rats, apples and marbles, Mr. Jantzen gets paid $100 by every burner.

He makes an all-day party of it, offering snacks, a cash bar and dinner with a live bluegrass band. Well after nightfall into last month's burn, flames licked the prairie's ridgelines as guests from as far away as Finland stood sipping beer and swaying to music.

Now that is innovative marketing!

The tourism industry is warning that the US brand is in danger of erosion, according to a recent story in the Financial Times, US tourism 'losing billions because of image':

The US is losing billions of dollars as international tourists are deterred from visiting the US because of a tarnished image overseas and more bureaucratic visa policies, travel industry leaders have warned.

"It's an economic imperative to address these problems," said Roger Dow, chief executive of the Travel Industry Association of America, tourism's main trade body, which concluded its annual convention this weekend in New York.

Mr. Dow stressed that tourism contributed to a positive perception of the US, which spread across to business. "If we don't address these issues in tourism, the long-term impact for American brands Coca-Cola, General Motors, McDonald's could be very damaging," he said.

The problem is the heightened security for visitors to the US:

The plea echoed that of other industry trade organisations which say bureaucratic visa procedures and stringent security after the September 11 terrorist attacks have deterred business travellers and foreign students. "The idea has gotten out that we've pulled in the welcome mat," said Rick Webster, the association's director of government affairs.

This is the first time I have seen anyone make the link between tourism to the US and the purchase of US brandnames abroad. It makes sense, but I thought the more powerful link was between American TV and movies and the consumption of US products. Kids who have never been to the US still crave Coca-Cola and McDonald's.

I would be more concerned about the direct impact of the loss of foreign revenues from tourism than from the indirect impact on US brands. The revenue loss is cause for worry in and of itself.

Likewise, as Richard Florida points out in his new book, "Flight of the Creative Class," to the extend that we are perceived as pulling in the welcome mat, the flow of talent and ideas to this country is greatly diminished. That is not healthy for our national innovation system and our future economic prosperity.

(More on the Florida book later.)

April's employment numbers came out this morning. BLS reported the unemployment rate stayed at 5.2%, but non-farm payroll employment increased by 274,000.

Here is the breakdown by occupation (note - these are not seasonally adjusted, so both monthly change and the change from the same month last year are given as the monthly change may be seasonally related):

Management, business, and financial operations occupations:
continues to have a below average unemployment rate (2.2%); down from March and down from April 2004. Employment up (48,000) from last month and up (188,00) from same month last year (April 2004); total number of people in this occupation (working or looking for a job) up by 8,000 from last month and up 85,000 from same month last year (April 2004).

Professional and related occupations:
below average unemployment rate (2.2%); same as in March but down significantly from April 2004. Employment up significantly (328,000) from last month and up significantly (277,00) from same month last year (April 2004); total number of people in this occupation (working or looking for a job) up significantly by 328,000 from last month and up 181,000 from same month last year (April 2004).

Service occupations:
above average unemployment rate (6.3%); down from March but same as in April 2004. Employment up (32,000) from last month and up (127,00) from same month last year (April 2004); total number of people in this occupation (working or looking for a job) down by 130,000 from last month but up 133,000 from same month last year (April 2004).

Sales and related occupations:
average unemployment rate (5%); up slightly from March and up slightly from April 2004. Employment up significantly (341,000) from last month and up an incredible 914,000 from same month last year (April 2004); total number of people in this occupation (working or looking for a job) up significantly by 403,000 from last month and up 999,000 from same month last year (April 2004).

Office and administrative support occupations:
average unemployment rate (4.6%); down from March and down from April 2004. Employment up (117,000) from last month but down by 94,000 from same month last year (April 2004); total number of people in this occupation (working or looking for a job) up by 5,000 from last month but down 214,000 from same month last year (April 2004).

Farming, fishing, and forestry occupations:
above average unemployment rate (8.8 %); down significantly from March and down significantly from April 2004. Employment up (54,000) from last month but down by 42,000) from same month last year (April 2004); total number of people in this occupation (working or looking for a job) up by 5,000 from last month but down by 66,000 from same month last year (April 2004).

Construction and extraction occupations:
above average unemployment rate (7.1%); down significantly from March and down from April 2004. Employment up (237,000) from last month and up significantly by 757,000) from same month last year (April 2004); total number of people in this occupation (working or looking for a job) down by 56,000 from last month and but up significantly by 595,000 from same month last year (April 2004).

Installation, maintenance, and repair occupations:
slightly below average unemployment rate (4.3 %); same as in March but up slightly from April 2004. Employment down by 57,000 from last month but up by 238,000) from same month last year (April 2004); total number of people in this occupation (working or looking for a job) down by 62,000 from last month and up 258,000 from same month last year (April 2004).

Production occupations:
above average unemployment rate (6.2 %); down significantly from March and down from April 2004. Employment up (81,000) from last month and up (58,000) from same month last year (April 2004); total number of people in this occupation (working or looking for a job) down by 37,000 from last month and down by 22,000 from same month last year (April 2004).

Transportation and material moving occupations:
above average unemployment rate (6.2 %); down from March and down from April 2004. Employment down by 3,000 from last month and up (91,000) from same month last year (April 2004); total number of people in this occupation (working or looking for a job) down by 37,000 from last month and down by 27,000 from same month last year (April 2004).

Bottom line: Managers and professions continue to have the lowest unemployment rates and construction and farm workers the highest. Healthy growth generally across the board, with very large growth (from same month last year) in sales and construction jobs (pink and blue collar). However, there was non-insignificant drop in office worker positions.

Managerial, professional, office and installation/repair occupations (what we might consider the upper, middle and blue-collar "information" economy positions) increased over 600,000 from April 2004 to April 2005. But declined slightly as a percentage of the total work force.

A number of earlier posting have talked about problems with the patent system. Over the past couple of weeks, the rusty gears of the Congressional process have begun to turn with Committee hearings in both the House and the Senate on patent reform.

But, as Jonathan Krim points out in today's Washington Post, Evaluating A Patent System Gone Awry:

Problem is, reform is in the eye of the patent holder.

Krim goes on to explain:

Not on the table, however, are more controversial notions aimed at deeper change to the patent system. These were snuffed out long ago, in a process effectively hijacked by large companies and powerful patent-lawyer groups.

In an extensive report in 2003, for example, the Federal Trade Commission noted that many technologists and economists think there are too many patents, and especially wonder whether those for software and Internet business methods -- such as the Google bold-facing patent -- make sense.

Even Bruce R. Chizen, chief executive of Adobe Systems Inc. and chairman of the Business Software Alliance, which is leading the charge for the technology industry, acknowledges that allowing software patents in the 1980s was a bad idea. But Chizen argues that it's too late to turn back now.

A study released months later by the National Academies of Science argued that a key standard for granting patents needed to be "reinvigorated." Patents must pass muster as unique, useful and non-obvious, and many witnesses told both the NAS and the FTC that the standard for what was obvious has weakened significantly over time, leading to too many low-quality patents that often are the subject of litigation.

Many of these findings were quickly criticized by patent lawyers and companies.

When the FTC, NAS and the American Intellectual Property Law Association jointly sponsored a series of town meetings around the country to discuss next steps, none of these more controversial notions was on the agenda.

Instead, the meetings focused on areas of broad agreement between the groups.

A new procedure, for example, would allow patents to be contested and reviewed again by the patent office after they are granted but before challenges go to court.

In addition, outside parties would be allowed to bring information to the patent office that might help determine whether a patent should be awarded. "Prior art" that might show that an idea was not original is currently the responsibility of the patent applicant to provide.
And all agree that the U.S. Patent and Trademark Office needs more resources to do its job.

Patent issues tend to be nonpartisan, and some tweaking of the law seems likely from a Congress with a track record of strengthening intellectual property.

But perhaps more than any issue on Capitol Hill this year, this one is firmly in the hands of those with vested interests. Those with alternative ideas, and the general public, are on the outside, looking in.

This is an unfortunate state of affairs. Patent law is far too important to be left to the patent attorneys. As I quoted in an earlier posting from a paper by Adam Jaffe of Brandeis University and Josh Lerner of Harvard University, "Innovation and its Discontents":

In the last two decades, however, the role of patents in the U.S. innovation system has changed from fuel for the engine to sand in the gears.

Deeper changes will be needed if we are to get the sand out of the gears of our innovation system.

We hear a lot of talk about reasons for moving production offshore -- from manufactures who say they need to be close to the customer and from high-tech folks who say they need to go where the talent is. But, what is the story behind the following piece in today's Wall Street Journal, Offshore Jobs -- As in 3 Miles Out:

SWEATSHIP: David Cook and Roger Green have an interesting alternative to sending software work halfway around the world. Send it about three miles outside of Los Angeles, right on the Pacific Ocean. The entrepreneurs plan to purchase a cruise ship which they'll staff with 600 software engineers, the Boston Globe reports. Messrs. Cook and Green say one of the biggest problems with outsourcing is simply the distance. By setting up a team of engineers just offshore, executives will be able to check up on their projects without "killer flights to India." SeaCode plans to pay its employees roughly three times what they'd earn in Bangalore, but still much less than a comparable American engineer's salary. Workers will do four-month stints on the floating software factory, where room, board and laundry will be free. For more details on the project, check out their Web site (www.sea-code.com).

Sounds like it really is all about wages, doesn't it.

Check out yesterday's column by Jim Regan in the Christian Science Monitor on graphic design "The Tao of design" - and links to two new web sites celebrating graphic design:

In February, this space reviewed a pair of sites related to the often overlooked world of Industrial Design - sites which reminded the reader that even a lowly railroad spike is the result of someone's vision being translated into reality. Of course, when we normally think of "Design," we're thinking of the graphic variety - the look of this website's layout, the logo on your computer, the colors and textures on that paper cup of take-out coffee. Which is to say, despite its ubiquity, we generally don't think much about graphic design either.

This week's offerings are guaranteed to raise that graphic design awareness level, at least temporarily. And though it might not be long after re-entering the real world before your senses are once again overwhelmed into desensitization, for a few moments at least, these sites might help you appreciate that even the look of a single letter can be a work of art.

Cool stuff! I won't spoil the fun by quoting any more from Regan's piece: just read it yourself -- especially if you don't think a letter can be aesthetically pleasing.

We don't often think of car repair as an innovative area. But according to a story in today's Wall Street Journal, "Eyes on the Road," a new innovative business model is emerging in car repair:

Car dealers and car makers know that most customers don't like to bring their vehicles in to dealer shops for service. But what if dealer service technicians could make house calls?

It turns out, they can. Ford's Volvo brand is expanding a year-old program that encourages Volvo dealers to equip service technicians to perform various kinds of repairs in a customer's driveway or workplace parking lot.

The mobile technicians can't perform all kinds of work, of course: Changing fluids, for example, is out because of concerns about handling hazardous waste. And big mechanical repairs, such as changing a transmission, require the kind of tools only found in a real shop.

But a surprising array of fixes can be handled outside of a standard repair shop, because today's cars are as much digital devices as they are mechanical ones.

This is potentially a break-through innovation that can save a lot of wasted hours waiting at the repair shop.

However, it all depends on your frame of reference. If you are the repair shop, it doesn't necessarily look all that great:

But some dealers don't see much upside in putting mechanics on the road. By definition, a technician who's driving around doing four or five house calls a day probably isn't serving as many customers, or generating as much repair revenue, as a technician who's at a fully equipped dealership work station for a full shift.

"A couple of our stores have mobile vans," says Mike Maroone, president of AutoNation, the country's biggest auto retailer. "It's not very productive." Mobile mechanics can't carry all the parts they might need to fix a customer's problem, Mr. Maroone says. Moreover, he says, "high-caliber technicians do not want to be running all over town."

I guess it comes down to whose time is more valuable - the customer's or the repairman's.

American businesses, investors, regulators and policymakers are flying blind. The United States is now in an intangible economy, but financial reporting and accounting systems can't deal with intangibles. Our business reporting system is, in many ways, not even adequate for the Industrial Age, let alone the Information Age. As a consequence, business, investment and economic policy decisions are being made "in the dark."

What the current system looks like and what to do about it is the subject of latest Athena Alliance working paper: Reporting Intangibles: A Hard Look at Improving Business Information in the US. The paper is available at our website.

Executive Summary:
The U.S. accounting and business reporting system is inadequate to cope with the growing importance of intangible assets. While a framework exists for the recognition (i.e. assigning "book value") of intangibles under U.S. Financial Accounting Standards Board (FASB) SFAS 141 and 142, this framework is incomplete in both its scope (i.e., only those assets acquired from outside the company must be recognized) and its coverage (i.e., certain intangibles, such as R&D and workforce, are specifically excluded). In addition, simply adding intangible assets to a company balance sheet is not the answer to the reporting problem. Many intangible assets are better understood using non-financial measures and other descriptions. Disclosure of non-financial data has increased. A number of steps have been taken and various suggestions for further disclosure made. But important information on intangibles must still be teased out of financial reports from various places - Management's Discussion and Analysis (MD&A), expense reporting and asset recognition. Nor is there any guarantee that information on some assets is disclosed at all, or even collected internally. Efforts are underway to create a more comprehensive framework for expanded business reporting, but no consensus framework exists as of now. If investors, managers, regulators, policymakers and the general public are to gain a true understanding of our economic situation, we must devise better means of reporting companies' circumstances ­with an emphasis on better understanding and measuring our intangible assets.

Understandably, but regrettably, the high-tech sector of the economy gets most of the attention when it comes to the study of innovation and creativity. Understandably because it provides a lot of the sizzle and excitement (from our fascination of hot, new gadgets to our fascination for hot, new billionaires). Regrettably, because there is a lot of creativity and innovation occurring in "mundane" areas of the economy.

A story in The New York Times, "Small Business: They May Be Mundane, but Low-Tech Businesses Are Booming," last week illustrates my point:

Forget Web sites and molecular imaging. The biggest fields of opportunity for aspiring entrepreneurs are the same mundane ventures that have been kicking around for decades.

Think landscaping companies, child-care providers, janitorial services and nail and hair salons. In a generally buoyant market for low-technology businesses, those are four of the biggest winners by far. Altogether, sole proprietorships in the United States, a rough measure of the size of the small-business low-technology sector, grew by nearly 4 percent in 2002, the latest year with statistics available, to 17.6 million, and their combined revenue increased by 5.5 percent, to $770 billion. The figures come from the Census Bureau's Economic Census, a snapshot of the American economy that is taken every five years.

What has this got to do with creativity and innovation? Well, people are getting into these businesses not just to make money, but to break out of the humdrum of other occupations:

Hilary Finn, who runs HomeGrown, a landscaping company in Brooklyn, helps explain the profession's popularity. Ms. Finn, 46, spent a decade as a personal trainer, but after giving birth to a second daughter in 2002, decided to switch occupations, for the flexible hours and the chance to express her artistic impulses.

"Since I was a child, I had been creating gardens," she said. "I had graduated having studied painting and sculpture, but not design, at Empire State College. But I loved spaces and moving things around and creating spaces outside."

The entrepreneurs featured in the story:

share two distinguishing characteristics of single-owner businesses: pride of ownership and desire to take control of their lives, said Erin Fuller, executive director of the National Association of Women Business Owners.

"Often, these owners do not want their business to become super large," she said. "They take pride in their craft and, by keeping small, they can control that."

"Pride in their craft!" When in the Industrial Age of mass production and workers-as-cogs-in-the-machine did you hear that phrase? But in the Information Economy, it is a key intangible. In many ways, the rise of the Information-Innovation-Intangible Economy is a return to the craft economy of previous days.