The Intangible Economy

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July 29, 2005

Tweeners

David Wessel writes in yesterday's Wall Street Journal about tweeners - those individuals who are neither clear winners or clear losers in globalization.

They're consumers, as all Americans are, so they enjoy the better quality, lower prices and great choice that imports offer. On the job, they aren't squeezed hard by overseas competitors but neither do they see much direct benefit from trade. Yet they worry -- with some justification -- that the combination of globalization, technology and immigration makes their jobs and wages vulnerable. And they fear their children will have even more reason to worry.

He argues that tweeners can't simply be compensated for their loses:

A smarter approach would be to make those tweeners more economically fit, to find ways to equip Americans to prosper in an economy in which there are more global competitors and more tasks that computers can do and to insure them against the greater volatility of today's economy in which today's winner job can be a loser job tomorrow.

I very much like the concept of tweeners as a way of better understanding the complexities of globalization. I am also a long standing proponent of the idea of creating winners (see my 1999 report, Making the Global Economy Work for Every Worker).

But Wessel implicitly accepts the argument that unrestricted global competition is good, even thought he states:

It's time to stop thinking about globalization as good or bad. It's both.

I say this because he repeats the following somewhat economic Darwinian idea:

In the quest for better metaphors, Mr. Richardson [J. David Richardson, an economist at Syracuse University's Maxwell School who is writing a book on this subject for the Institute for International Economics] sees global markets "as a kind of fitness center" for firms, industries, workers and communities. "Those that are fittest grow prosperous and stably. But others, less fit, grow more sluggishly and fitfully. And still others, who consciously try to avoid global competition, face grave health risks."

According to Wessel,

Mr. Richardson is still working on that chapter. It'll surely emphasize the urgent need to do better, much better, at education and training and to expand successful experiments that give workers and companies the incentives to do what's needed -- not to pay off losers but to make more winners.

Like Wessel, I am also eagerly looking forward to the book Richardson's last chapter where he tells us how to make the tweeners more "economically fit". We will see if Mr. Richardson can come up with any new ideas - or simply recycle the same ones that we all (me included) continue to recite.

My question is how fit they can be to compete for jobs in a world were there are "more global competitors and more tasks that computers can do". In order to understand how to be economically fit, we need to know, "fit for what." Right now, I don't know of anyone who can tell me what the "what" is.

What jobs can US workers compete for when there is a group of very smart, very skilled and very educated workers in other nations who will work at a quarter of your price? How does one get economically fit for that? It is like telling a 50 year man that he needs to start working out so that he can take on Michael Jordon in some one-on-one hoops. Simply put, it ain't going to happen.

We need a much better set of solutions than the ones we have been talking about for years.

Posted by Ken Jarboe at 11:43 AM | Comments (0) | TrackBack

Getting information right in the information age

One of the premises of the information age is that the information actually tells you what it is supposed to tell you. For example, the unemployment rate tells policymakers how the economy is doing and, for those who worry about inflation, how tight the labor market is. Yet, as a story in The Economist points out, the current low US unemployment number doesn't necessarily answer the question about the tightness of the labor market.

A new paper by Katharine Bradbury of the Federal Reserve Bank of Boston should keep the question open for a while longer. The unemployment rate, she suggests, may be a poor measure of slack in the labour market. By her yardstick, there may be as many as 5.1m Americans who do not appear in the unemployment rolls, but who might rejoin the job queue if work were more forthcoming. If so, the "true" unemployment rate could be over 8%, not 5%; the true number of jobless 12.6m, not 7.5m.

The reason for the discrepancy is the discouraged worker. People are only counted as unemployed if they are actively looking for a job. If they aren't, they are considered as outside the labor force.

What to do with people who are not actively looking for a job presents a major question for future statistics. In the industrial economy, it was rather simply - you were either working (employed), looking for work (unemployed) or not in the labor force (students, retirees, housewives, disabled). In the I-Cubed Economy, we expect that people will drift in and out of the labor force, for various reasons. Some may be voluntary retirees who could easily be lured back into the labor force it the right situation. Some many be those who are taking time off to recharge or reskill. Some may be the discouraged workers who have just given up. We need to make sure our data can account better for all this churn.

In the meantime, don't take the unemployment number as a sign of a healthy economy. As the song from Porky and Bess says, "it ain't necessarily so."

Posted by Ken Jarboe at 9:44 AM | Comments (0) | TrackBack

July 28, 2005

Downloading music in the UK

This report of the latest research on music downloading -- this time in the UK as reported by BBC NEWS, "Downloading 'myths' challenged":

People who illegally share music files online are also big spenders on legal music downloads, research suggests.

Digital music research firm The Leading Question found that they spent four and a half times more on paid-for music downloads than average fans.

Rather than taking legal action against downloaders, the music industry needs to entice them to use legal alternatives, the report said.

. . .

"The research clearly shows that music fans who break piracy laws are highly valuable customers," said Paul Brindley, director of The Leading Question.

Repeat after me "the music industry needs a new business model."

Posted by Ken Jarboe at 3:42 PM | Comments (0) | TrackBack

July 27, 2005

That sinking feeling

From the Wall Street Journal's The Evening Wrap, this story on the geopolitical ramifications of global warming:

Hans Island is a barren piece of Arctic rock less than a mile square, but it's the subject of an ever-hotter dispute between the usually placid nations of Canada and Denmark. Both have laid claim to the island at various times, but recently Canada planted its flag and sent its defense minister on a visit there, sparking a protest from Denmark. A government official in Greenland, a Danish protectorate, called Canada's action an "occupation." There were news reports that the Danes would send a ship to assert their territorial rights. While the dispute might seem silly, there's a lot at stake, including the rights to natural resources beneath the island and the ability to use the region for navigation if and when global warming raises sea levels, sinking Hans and other Arctic islands and opening shipping lanes.

Posted by Ken Jarboe at 11:04 PM | Comments (0) | TrackBack

The Creativity Economy

Business Week sounds the warning: Get Creative!:

Listen closely. There's a new conversation under way across America that may well change your future. If you work for Procter & Gamble Co. (PG ) or General Electric Co. (GE ), you already know what's going on. If you don't, you might want to stop what you're doing and consider this:

The Knowledge Economy as we know it is being eclipsed by something new -- call it the Creativity Economy. Even as policymakers and pundits wring their hands over the outsourcing of engineering, software writing, accounting, and myriad other high-tech, high-end service jobs -- not to mention the move of manufacturing to Asia -- U.S. companies are evolving to the next level of economic activity.

What was once central to corporations -- price, quality, and much of the left-brain, digitized analytical work associated with knowledge -- is fast being shipped off to lower-paid, highly trained Chinese and Indians, as well as Hungarians, Czechs, and Russians. Increasingly, the new core competence is creativity -- the right-brain stuff that smart companies are now harnessing to generate top-line growth. The game is changing. It isn't just about math and science anymore. It's about creativity, imagination, and, above all, innovation.

What is unfolding is the commoditization of knowledge. We have seen global forces undermine autos, electronics, and other manufacturing, but the Knowledge Economy was expected to last forever and play to America's strengths: great universities, terrific labs, smart immigrants, an entrepreneurial business culture.

Oops. It turns out there are a growing number of really smart engineers and scientists "out there," too. They've learned to make assembly lines run efficiently, whether they turn out cars or code, refrigerators or legal briefs. So U.S. companies are moving on to creating consumer experiences, not just products; reconceiving entire brand categories, not merely adding a few more colors; and, above all, innovating in new and surprising arenas.

The U.S. has a lead in this unfolding Creativity Economy -- for the moment. The new forms of innovation driving it forward are based on an intimate understanding of consumer culture -- the ability to determine what people want even before they can articulate it. Working in what is still the largest consumer market in the world gives U.S. companies a huge edge. So does being able to think outside the box -- something Americans still do better than most. But Toyota Motor Corp. (TM ) has a feel for U.S. consumers, and Samsung Group can be pretty creative, too. Competition will surely be intense.

While many companies get it, Washington doesn't. Unfortunately, our public policy has taken a step backwards - and our leaders are fighting a rear guard action to simply restore the gains that were made in the 1980s. Take, for example, the recent Wall Street Journal op-ed by Vinton Cerf (the man who really did invent the Internet) and Harris Miller, "America Gasps For Breath In the R&D Marathon":

America will soon find its grip on the levers of international commerce slipping as we turn our backs on a proud tradition of technology innovation. The stewards of our national destiny are busily tightening the tap on the federal R&D budget, the most important source of funding for programs that seek to answer fundamental questions of science and technology.

. . .

In a very real sense, today's R&D agenda determines where America will find itself in the future. The benefits of vigorous, federally funded academic R&D programs reaped by American society at large have been enormous. Our domestic and global economies thrive on the results of such work. Private sector programs alone cannot produce comparable results, in part owing to an ethical obligation to deliver bottom-line business results for their stockholders. The U.S. government needs a long-term strategy for continued economic growth. A strong and thriving academic R&D program is critical to that strategy. To choose otherwise is a recipe leading to irrelevance and decline.

No wonder we can't move public policy to the Creativity Economy (as Business Week calls it) or the I-Cubed Economy (as we call it). We are too busy still trying to convince certain Washington policymakers that technology matters!

Posted by Ken Jarboe at 2:57 PM | Comments (0) | TrackBack

Unions in the I-Cubed Economy

In the wake of the union breakup, the Wall Street Journal asks the key question: Can the new economy be organized? This is at the heart of the split between the new Change to Win Coalition and the AFL-CIO. In a story today, "Reinventing the Union", the Journal talks about ways that the break away unions, headed by Andy Stern of the Service Employees International Union (SEIU), are seeking to become more relevant:

In an interview, Mr. Stern said he realizes the difficulties of organizing workers from disparate industries and says one of his goals is to create different kinds of unions. "First of all, we have to be sophisticated: The 1930s adversarial type unionism isn't going to apply to nurses and reporters and child-care workers," he said. "We need to create a lot of different models of unions."

For example, white-collar contract employees who move from job to job are concerned with how to get and keep benefits. Nurses are worried about staffing and quality of care. Building security guards are more interested in wages.

Another idea is having the unions provide relevant services to members, such as "401(k)-type retirement plans that wouldn't be tied to a particular employer and job-education programs, both of which could help employees as they move from job to job in an increasingly flexible economy."

No doubt about it, the unions will be facing an uphill fight. According to a Business Week survey about the union split, the majority voted for "Who needs unions? In the global economy, they're dinosaurs."

My view is that unions are not dinosaurs, yet. They can play an important role in the information economy. Six years ago, the New Democrat's (DLC) magazine Blueprint ran a special issue on the new unions. In their lead editorial, "Why America Needs a New Labor", talked about a new role for unions:

Some union visionaries foresee the next generation of unions organizing across company lines -- an Information Age version of the hiring hall -- and serving as the foundation upon which members build economic security. Under this intriguing scenario, one can begin to see the union of the future taking shape. It not only bargains with employers over wage and workplace issues and serves as a guarantor of high-quality workmanship, it also functions as an employment agency, benefit provider, and life-long learning coordinator.

Ultimately, the only way organized labor can reverse its decline is to carve out a new and valued role for itself in the private-sector economy.

Maybe that is what is happening now.

Posted by Ken Jarboe at 9:53 AM | Comments (0) | TrackBack

July 26, 2005

CRS report on pending patent bill

For those of you how are interested in following up on the pending patent legislation (as discussed in last month's Athena\CELI briefing on patents and innovation), here is a good resource. Patently-O: Patent Law Blog has posted a new Congressional Research Service (part of the Library of Congress) report. The report covers the major elements of the proposed patent reform bill, reviews major changes, and analyzes how the specific change would affect particular groups and industries (individual inventors; universities; technology companies; biotech; etc.). The summary of the report follows:

Congressional interest in patent policy and possible patent reform has expanded as the importance of intellectual property to innovation has increased. Patent ownership is perceived as an incentive to the technological advancement that leads to economic growth. However, growing interest in patents has been accompanied by persistent concerns about the fairness and effectiveness of the current system. Several recent studies, including those by the National Academy of Sciences and the Federal Trade Commission, have recommended patent reform to address perceived deficiencies in the operation of the patent regime. Other experts maintain that major alterations in existing law are unnecessary and that the patent process can, and is, adapting to technological progress.

The Patent Act of 2005, H.R. 2795, introduced in June 2005, would work significant legal reforms to the patent system. Among the more notable of these changes are a shift to a first-inventor-to-file priority system; substantive and procedural modifications to the patent law doctrines of willful infringement and inequitable conduct; and adoption of post-issuance opposition proceedings, prior user rights, and pre-issuance publication of all pending applications. Several of these proposals have been the subject of discussion within the patent community for many years, but others are more novel propositions.

Pending legislation attempts to address several issues of concern including the quality of issued patents, the expense and complexity of patent litigation, harmonization of U.S. patent law with the laws of our leading trading partners, potential abuses committed by patent speculators, and the special needs of individual inventors, universities, and small firms with respect to the patent system. In addition, although the existing patent statute in large measure applies the same basic rules to different sorts of inventions, regardless of the technological field of that invention, the patent system is widely believed to impact different industries in varying ways.

The provisions of H.R. 2795 would arguably work the most sweeping reforms to the U.S. patent system since the nineteenth century. However, many of these proposals, such as pre-issuance publication, prior user rights, and oppositions, have already been implemented in U.S. law to a more limited extent. These and other reforms, such as the first-inventor-to-file priority system and elimination of the best mode requirement, also reflect the decades-old patent practices of Europe, Japan, and our other leading trading partners.

Other knowledgeable observers are nonetheless concerned that certain of these proposals would weaken the patent right, thereby diminishing needed incentives for innovation. Some also believe that changes of this magnitude, occurring at the same time, do not present the most prudent course for the patent system. Patent reform therefore confronts Congress with difficult legal, practical, and policy issues, but also with apparent possibilities for altering and possibly improving the legal regime that has long been recognized as an engine of innovation within the U.S. economy.

Posted by Ken Jarboe at 1:34 PM | Comments (0) | TrackBack

Ideas for re-inventing high school

In a number of my previous postings, I have argued for a re-invention of our educational system - especially the high schools. There are a lot of ideas about how to accomplish that task. A few are listed in recent article in the Christian Science Monitor "High school could be ... better. But how?":

Challenging curricula. In an attempt to undo tracking, many districts and states are implementing college-preparatory curricula for all their students. The Los Angeles Unified School District recently decided to make college-prep standard, and similar moves are afoot in Oklahoma, Indiana, Mississippi, and Delaware. But critics wonder if imposing a one-size-fits-all approach is the best solution.

Small schools. The idea of splintering large high schools into smaller learning communities has been evolving since the 1970s. However, it remained a fringe effort until it was championed by the Bill and Melinda Gates Foundation; its grants have been awarded to more than 1,500 schools in 42 states.

Early college. Some schools, like Bard High School Early College in New York, enable students to graduate with both a high school diploma and an associate of arts degree. In 2002, 57 percent of colleges and universities enrolled high school students, according to the National Center for Education Statistics. College-level courses, like Advanced Placement and International Baccalaureate, are also becoming more popular; 1.1 million students took AP exams last year.

Eliminating grade levels. Rather than having students earn credits to advance to the next grade level, under this system there would be no 9th, 10th, 11th, or 12th grades. Mastery of a subject would determine whether a student moved on to the next level. And students would retake only classes they failed, rather than repeat a grade. Boston Public Schools have explored this system.

The last of these really intrigues me. It is essentially a variation of the college system that focuses more on courses than grades. Grades may have been a good system for the mass-production industrial age. But a course-focus strikes me as much more appropriate for the information-age I-Cubed Economy.

Posted by Ken Jarboe at 12:05 PM | Comments (0) | TrackBack

Jobs moving - to Canada

As Paul Krugman reported yesterday in this New York Times column "Toyota, Moving Northward":

There has been fierce competition among states hoping to attract a new Toyota assembly plant. Several Southern states reportedly offered financial incentives worth hundreds of millions of dollars.

But last month Toyota decided to put the new plant, which will produce RAV4 mini-S.U.V.'s, in Ontario. Explaining why it passed up financial incentives to choose a U.S. location, the company cited the quality of Ontario's work force.

What made Toyota so sensitive to labor quality issues? Maybe we should discount remarks from the president of the Toronto-based Automotive Parts Manufacturers' Association, who claimed that the educational level in the Southern United States was so low that trainers for Japanese plants in Alabama had to use "pictorials" to teach some illiterate workers how to use high-tech equipment.

But there are other reports, some coming from state officials, that confirm his basic point: Japanese auto companies opening plants in the Southern U.S. have been unfavorably surprised by the work force's poor level of training.

There's some bitter irony here for Alabama's governor. Just two years ago voters overwhelmingly rejected his plea for an increase in the state's rock-bottom taxes on the affluent, so that he could afford to improve the state's low-quality education system. Opponents of the tax hike convinced voters that it would cost the state jobs.

But education is only one reason Toyota chose Ontario. Canada's other big selling point is its national health insurance system, which saves auto manufacturers large sums in benefit payments compared with their costs in the United States.

...

Funny, isn't it? Pundits tell us that the welfare state is doomed by globalization, that programs like national health insurance have become unsustainable. But Canada's universal health insurance system is handling international competition just fine. It's our own system, which penalizes companies that treat their workers well, that's in trouble.

Amen to that! We make much of the cliche "our employees are our greatest asset" - but we have a system that doesn't allow us to practice what we preach. From outmoded regulations and accounting standards to outmoded management models, the system is lurching, not rolling, into the information age.

Posted by Ken Jarboe at 10:09 AM | Comments (0) | TrackBack

July 25, 2005

Multiculturalism, innovation and the fear factor

In the wake of the continued terrorism attacks and quagmire [oops - not supposed to use that word] in Iraqi, I am picking up an increasing backlash against multiculturalism due to the fear factor. The most recent example showed up in a subtle way in Joel Kotkin's comment on the London attacks in Sunday's Washington Post "City Of the Future".

Last Tuesday, we had an interesting event with Richard Florida, who argues that multiculturalism and the openness of American society is our greatest economic advantage and one of the drivers of our innovation and creative economy. Besides including a gratuitous slap at Florida's idea of the creative class, Kotkin's piece takes direct aim at multiculturalism:

Now, cities may have to face a different menace. Sadly, many metropolitan leaders seem less than prepared to meet today's current terrorist threat head-on, in part due to the trendy multiculturalism that now characterizes so many Western cities. Consider London's multiculturalist Mayor Ken Livingstone, who last year actually welcomed a radical jihadist, Egyptian cleric Sheik Yusuf Qaradawi, to his city.

Multiculturalism and overly permissive immigration policies have also played a role here in North America. Unfettered in their own enclave, Muslim extremists in Brooklyn helped organize the first attack on the World Trade Center in the early 1990s. Lax Canadian refugee policies have allowed radical Islamists to find homes in places like Montreal and Toronto, where some might have planned attacks on this country, like the alleged 2000 plot to blow up Los Angeles International Airport.

In continental Europe, multiculturalism has been elevated to a kind of social dogma, exacerbating the separation between Muslim immigrants and the host society. For decades, immigrants have not been encouraged or expected to accept German, Dutch or British norms, nor have those societies made efforts to integrate the newcomers. Not surprisingly, jihadist agitation has flourished in Hamburg, Amsterdam, Madrid, Berlin and Paris as well as London.

If cities are to survive in Europe or elsewhere, they will need to face this latest threat to urban survival with something more than liberal platitudes, displays of pluck and willful determination. They will have to face up to the need for sometimes harsh measures, such as tighter immigration laws, preventive detention and widespread surveillance of suspected terrorists, to protect the urban future.

In other words, multiculturalism and openness (and the implied permissiveness of "others") is one of the roots of our lack of security.

This is disturbing, especially coming from someone who years ago argued in The Third Century "that our entrepreneurial 'open system' and the human diversity of America as a unique 'world nation' ensures the long-term strength of our economy" and in 2000 in The New Geography, "midopolitan [older suburban areas] communities increasingly must draw their strength, as the great cities before them did, from the energies, skills, and cultural offerings of their increasingly diverse populations."

I agree with Kotkin's statement in the Post piece:

Militant anti-Western Islamist agitation -- actively supportive of al Qaeda, for example -- also must be rooted out; it can be no more tolerated in Western cities today than overt support for Nazism should have been during World War II.

But, at what point does this crackdown on overt support (which I agree we must do) spill over into a general roundup of "dangerous types"? I'm not suggesting that the backlash is approaching anything like what resulted in the Japanese internment camps of World War II. I am suggesting that we must be careful not to go over the cliff.

This is the other side of the danger that the terrorist poise - undermining our strength by installing a climate of fear and distrust. After all, isn't that what "terror"-ism is all about. It is not about the number of people killed but the effect on the morale and psychology of the targets. Kotkin some what recognizes this when he says:

The kinds of policies needed to secure their safety may pose a serious dilemma for great cities that have been built upon the values of openness, freedom of movement, privacy, tolerance and due process. Yet to survive, these same cities may now need to shift their primary focus to protecting their people, their commerce and their future against those who seek to undermine and even, ultimately, destroy them.

Unfortunately, this sounds too much like the old story of "we had to destroy the village in order to save it." Kotkin is arguing that we must shift away from all the things that have made great cities great in order to protect them. This is a lose-lose situation. Surely we can do better.

I would also take issue with Kotkin's argument that the gospel of "multiculturalism" promotes isolation and separation.

One of the reasons why immigrants in many European countries have not accepted local Europeans norms is that they have been constantly reminded that they are not Europeans, that they are "immigrants." For all the protestations of tolerance, there is still a gap between the locals (Europeans) and immigrants (non-Europeans). As Kotkin's colleague at the New America Foundation, Peter Bergen points out, "many British Muslims are young and poorly integrated into society and therefore vulnerable to extremism." Tolerance is not the same as welcoming and mixing. Done right, multiculturalism results in a shared community - not isolated enclaves.

On this subject, my hope stems from another story in Sunday's Post (in fact, a front page story - "Finding the World in Loudoun County") about how regular pick-up soccer game is uniting a diverse community in Northern Virginia:

The matches had been going on for a few years now. Self-conscious jokes about couscous, or gringos, or the Somali army had been told, beers shared, hellos exchanged in the aisles of the Food Lion. Mustafa had become Moose. The novelty of differences had largely worn off, in other words, leaving something more ordinary, perhaps, and yet no less significant to the people who live there.

Here seems to be an example of true multiculturalism at work. Someone should write another piece. Rather than "City of Fear" that is the true title of Kotkin's piece, I would like to see more on the "City of Hope." That would be the true "City of the Future."

---

By the way, Kotkin - who is a respected commentator on urban affairs (see his new book, The City: A Global History) seems to have set himself up as the anti-Richard Florida. For an interesting background on the argument - see Christopher DeWolf's excellent essay Creative Class War: The Debate over Richard Florida's Ideas.
I must confess that I share some of Kotkin's critique of Florida's ideas -- but had the same critique of Kotkin's similar arguments when he made them in his 2000 book The New Geography.

Posted by Ken Jarboe at 10:22 AM | Comments (1) | TrackBack

July 22, 2005

Intellectual Capital for Communities

The World Bank hosted an interesting conference in June on Intellectual Capital for Communities in the Knowledge Economy: Nations, Regions and Cities:

Intangibles (intellectual capital) resources are now largely recognized as the most important sources of organizations' competitive advantage. At the corporate level, intangible investments (R&D, innovation, knowledge creation and fertilization, marketing and advertising expenditures) are now unanimously considered as the most important determinants of performance. At the macroeconomic level, new growth theories have already demonstrated the importance of knowledge in the performance of nations.

Adding value in the knowledge economy is inextricably linked to radical change in both societal assumptions and business models. Allocating resources to education, health and social services and our community infrastructure should not be based on cost but on the potential for value creation through knowledge.

A new political leadership agenda is evolving around intellectual capital of nations and other communities, with the focus on:
* How to visualize the knowledge capital of nations;
* How to develop intelligence flows within and between knowledge capital clusters;
* How to cultivate efficiency and renewal of the knowledge capital of regions;
* How to capitalize on knowledge capital, by new innovative social systems, in terms of the collective wealth of nations;
* How to make cities "intelligent".

Presentations from the following sessions are available on the website (see above):
   Intellectual Capital and the Knowledge Economy
   Intellectual Capital for Nations
   Intellectual Capital for Regions
   Looking at the Future, Research and Policy Agenda

Posted by Ken Jarboe at 12:43 PM | Comments (0) | TrackBack

July 21, 2005

Patently Silly

I just came across a wonderful blog that underscores why we need patent reform. Patently Silly - The Humor of Invention - presented by Daniel Wright. Here is an example:
Whipped Cocoa Bath
patent#: US 6753303
Heart Shaped Cheese Slice
patent#: US D491711
No these isn't from the bad old day when the PTO was accused of letting anything go through -- both patents were issued a year ago - June 22, 2004.

(note the blog also as a list of links to other, more serious patent law discussions)

Posted by Ken Jarboe at 5:18 PM | Comments (0) | TrackBack

Good news in education -- and not so good

Earlier this month, the National Assessment of Educational Progress released its 2004 National Report Card. The report had some good news: Nine-year-olds scored higher in reading and mathematics on average in 2004 than in any previous assessment year. Thirteen-year-olds scored higher in mathematics on average in 2004 than in any previous assessment year. Scores for seventeen-year-olds, however, were about the same in reading in 2004 as in 1971. And the White-Black score gap was smaller in 2004 than in the first assessment year for all three ages, in both subjects.

The immediate reaction to the report was tinged in some controversy of interpretation as to the reason for the improvement. As the Christian Science Monitor reported in "US Report Card: Young readers make big gains"

The results come as President Bush faces a backlash from states and schools across the nation over the testing requirements of his signature No Child Left Behind law, which was signed in law in 2002 but doesn't fully take effect until this fall. Administration officials and congressional supporters say these results show that, despite the furor, the effort is paying off for kids.

"Today's Report Card is proof that No Child Left Behind is working - it is helping to raise the achievement of young students of every race and from every type of family background," US Education Secretary Margaret Spellings said in a statement.

But the new results, from tests taken in 2004, largely reflect conditions that predate No Child Left Behind.

Event the indicators themselves are subject to controversy. The NCES website notes:

The results presented here are meant to describe some aspects of the condition and progress of education. They are best viewed as starting points for further examination, not as final statements on the quality or effectiveness of America's educational system.

While the report is generally good news, to keep things in perspective, Bob Herbert's New York Times column today
"Education's Collateral Damage" takes the long view:

consider the following from the book "Dropouts in America: Confronting the Graduation Rate Crisis," a collection of essays edited by Gary Orfield, a professor at the Harvard Graduate School of Education:

"Nationally, only about two-thirds of all students - and only half of all blacks, Latinos and Native Americans - who enter ninth grade graduate with regular diplomas four years later."

In much of the nation, especially in urban and rural areas, the picture is even more dismal. In New York City, just 18 percent of all students graduate with a Regents diploma, which is the diploma generally required for admission to a four-year college. Only 9.4 percent of African-American students get a Regents diploma.

Over all, the United States has one of the highest high school dropout rates in the industrialized world, which can't be comforting news in the ferociously competitive environment of an increasingly globalized economy.

Clearly we have a long way to go. Good test scores are a step in the right direction - but only a step.

Posted by Ken Jarboe at 2:29 PM | Comments (0) | TrackBack

International fight over IPR

For all of us who haven't been paying close attention (including me), there is a major international fight going at the World Intellectual Property Organization (WIPO). I have been monitoring the issue only in a peripheral way - but thought it had come to a point where it needed to be commented upon.

The battle is often framed as the industrialized nations (owners of IP who want to protect their "property") versus developing nations (users who want to be able to use that "property" -- "steal" that property if you follow the harsh language of some). But, as Intellectual Property Watch blog point out, the conflict is subtler than just raw economic interests (although that undoubtedly plays a big part):

The dispute between the United States and Brazil shows the underlying disagreement in philosophies regarding the usefulness of intellectual property rights in promoting innovation and development.

A Brazilian delegate said that higher standards of intellectual property protection have not delivered benefits to developing countries, and that there has been widespread concern that new norms of protection may actually be inhibiting rather than facilitating transfer of technology.

Companies may use their government-granted monopoly rights to block countries from adapting these technologies to their own needs or to prevent competition, he added. These problems are exacerbated in environments where rules go beyond those agreed to in the 1994 World Trade Organization Agreement on Trade-Related Intellectual Property Rights (TRIPS). "The intellectual property system should be made to deliver on those objectives" to promote development, he said.

"I think the U.S. totally rejects anything that changes this organization's modus operandi that helps developing countries," a Brazilian delegate charged. "I hope I am not correct."

The U.S. delegate assured Brazil that his government has expressed a "willingness to discuss" development issues and fully supports U.N. efforts. But he said the United States disagrees with the premises upon which Friends of Development proposal is based - that WIPO has not dealt with development issues, and that intellectual property rights have not been positive for innovation.

U.S. Rejects Access To Knowledge Treaty Proposal

Another area of contention between the United States and Brazil was a proposal put forward by Brazil for WIPO to negotiate an "access to knowledge" treaty. Brazil said there is a problem of the appropriation of publicly funded "basic science" and research by private companies which has the effect of removing the knowledge from the public domain.

Brazil's delegate cited "worrisome" legislation in the United States that encourages the transfer of more research from universities to private sector, which he said would lead to more monopolies and less innovation.

The access to knowledge treaty, sometimes referred to as the A2K treaty, would ensure this information remains public, feeding science and research, Brazil said. WIPO must address this problem, he said, adding, "We believe an access to knowledge treaty is the real power tool that WIPO should pursue."

The United States said it cannot support the proposal, and that it "strongly disagrees" with the principles underlying it and views it as "unnecessary." Intellectual property has been a strong driver of innovation rather than an impediment, the U.S. said.

The European Union could be the wild-card in the debate, as the United Kingdom's statement did not reject the access to knowledge treaty proposal, and said WIPO has a role in the debate.

This split mirrors the domestic US split between those who believe that strong intellectual property protection is necessary to provide the incentives for innovation and those who believe that overprotection stifles the free flow of information that is the foundation of innovation and thereby retards innovation. (See the summary of last month's Athena Alliance briefing Is the US Patent System Endangering American Innovation?).

For those interested in monitoring the situation, I would recommend signing up for the Intellectual Property Watch email list or read their blog.

Posted by Ken Jarboe at 12:39 PM | Comments (0) | TrackBack

July 20, 2005

Future of US software jobs

Over the last few days, Business Week Online has run a couple of optimistic stories of the software labor market. According to "A Hire Power Blesses Tech":

The job market for tech professionals, clobbered in the 2000 stock market crash, finally is starting to come back. A new survey compiled by Dice, an online job-listing service for engineering and tech professionals, shows a vastly improved employment picture.

According to the Scott Melland, Dice president and CEO, the hot markets are the financial sector in New York and the defense sector in Washington. He downplays the concern over outsourcing:

the total number of jobs outsourced to other countries is about 400,000. Only 100,000 of those jobs are pure tech jobs. The rest are call center-type jobs. When you consider that there are 10 million tech jobs in the United States, outsourcing is really a very small part of the overall market. Outsourcing is growing, and it makes sense for a lot of companies, but it's still very small.

One of the reasons for all this optimism is the belief that the US is still the spot for high-end programming jobs. As BW relates in "Home Is Where The Work Is":

The latest data from the Bureau of Labor Statistics contain a pleasant surprise: The ranks of "computer and mathematical occupations," which include many programmers, actually rose in the second quarter by a robust 7.5%, to 3.2 million, compared with the previous year. While software companies themselves boosted jobs by a modest 3.3%, employment at establishments providing custom programming services increased by 5.6%. By contrast, tech manufacturing jobs were up just a tad and telecoms are still cutting staff.

Why the shift? A couple of reasons. High-end programmers' skills are in demand as corporations and tech companies adopt a slew of new technologies from wireless computing to Web services -- pieces of software that fit together like Lego blocks. That makes it easier to add new features and to integrate one program with another. A second factor: While Indian service firms and their Western rivals are hiring lots of programmers overseas, they're also recruiting people with design skills and business knowledge close to their clients in the U.S. and Europe. "You always need programmers on site or nearby," says analyst Gregory Smith of Merrill Lynch & Co.

Not so fast, says Ron Hira, co-author with Anil Hira of Outsourcing America: What's Behind Our National Crisis and How We Can Reclaim American Jobs. Ron is a realist on the outsourcing issue: he believes that outsourcing will continue but that we can create strategies to adapt (see yesterday's posting Confronting Offshoring) I asked Ron for his comments about the future of US software jobs. First of all, on the increase in software jobs:

The quarterly data by occupation is noisy. It is based on the Current Population Survey rather than the Establishment Survey. Having said that, I do think the labor market has gotten better from last year, which was horrible. I am hearing that people are getting positions, but I wouldn't call the hiring robust in any sense. And let's put the numbers in some perspective. Military spending and computer security spending have kicked in increasing demand. The IT tech/product cycle may be picking up, which has little or nothing to do with offshoring.

On the assertion that Indian companies are hiring locally in the US:

All of the Indian IT majors (Wipro, Infosys, Tata, and Satyam) as well as US based Cognizant, which has the same business model, hire foreign nationals on H-1Bs and L-1s for their on-site delivery to clients in the US and Europe. Just look at the financials. Infosys has ~5,050 people in the US on-site - all on H-1Bs and L-1s. They have a few hundred US citizens and permanent residents. Tata has about 7,200 in the US on H-1Bs. Accenture is increasingly using this business model also.

This is a critical part of their business model and they have enlisted the Indian government to negotiate through the WTO GATS as well as bilaterally to lift the H-1B cap and to eliminate other US worker protections like the prevailing wage requirement.

Ron did point out one irony in the BW article - which points to the success of one of the 3000 new programs hired by Accenture in the last nine months:

And Accenture just announced that they are going to hire 30,000 (that's not a typo) people in India, China and the Philippines. And look at how much hiring all of the Indian IT majors have done recently. Also Accenture is increasingly hiring H-1B workers too. They hire "Chief Computer Programmers" at $25,113 per year on H-1Bs.

[Note: another source puts the number of Accenture's planned overseas hires at 50,000.]

Finally, Ron on the future of software jobs:

Of course the top people in their professions will do fine - they generally do. The problem is not with the top 5% or 10%, the problem is what happens to the 90% of the rest of us.

I do think that the market has gotten better based on my discussion with many IT workers and engineers. But we aren't seeing any robust job growth. Plus, we're just at the beginning of the offshoring trend. Companies are moving from pilot stage to full deployment. They will figure out how to send more high-level positions offshore.

Ron also pointed out that just yesterday, Morgan Stanley downgraded its investment rating of Cap Gemini, partly because of its relative lack of offshoring.



According to an article in The Economic Times of India, "It's desi giants Vs IBM, Accenture now", Indian companies and Multi-National Companies (MNCs) are both expanding their offshoring capabilities:

Even as Indian companies race to global markets to expand their offshore model, MNCs are racing to low-cost destinations to realign their cost structures. According to outsourcing consultant, TPI, out of the deals tracked in 2004, 40% of IT services had an offshore component. TPI has seen a 10-fold jump in value outsourced to Indian offshore vendors over the last two years.

As that article points out:

the IT outsourcing environment is changing, and the changes may favour the offshore players. For example, the dollar-billion plus IT outsourcing mega deals, where the likes of IBM, Accenture, and EDS played exclusively, are on the decline. Indian companies didn't have the expertise and balance sheet sizes to compete for these deals, which required expertise in working with running businesses. Now the customers are splitting the deals into smaller parts, and selectively doling them to the vendors. And Indian companies are benefiting, since they are strong candidates for the offshoring part of any deal, which happens to be the juiciest.

The Indian companies may be behind in the most sophisticated software areas, but that doesn't mean the work is being done in the US. The big US MNCs are shipping the work to many places:

Some are positioning India as one of the destinations, and not the only destination. For example, EDS is investing in other low-cost geographies like Brazil and Argentina. IBM delegates a lot of work to its Brazil Global Delivery Centre and Accenture sends a lot of its work to Manila.

All of this means continued international competition in the software labor market. The BW story did contain one note of warning:

The pressure is still on to avoid getting stuck in routine programming jobs that can easily be moved offshore, and many likely will be in coming years. "This is going to be a less and less attractive occupation for people with entry-level skills," says David Garlan, director of software engineering programs at Pittsburgh's Carnegie Mellon University.

But, as Ron asks:

How do undergraduate students gain more than entry-level skills?

If there are no jobs with entry-level skills, how does one enter the labor market? Sounds like we are setting up the old Catch-22 that has always hurt the lower end of the labor force: to get a job, you need significant work experience; but you can't get work experience unless you can get a job.

And Bill Gates laments decreasing interest in programming and wonders why young people are going into to the field? As Ron pointed out in response:

Among the statistics he cited: The U.S. unemployment rate for computer occupations was 4.3 percent in 2004, noticeably worse than the 2.8 percent unemployment for all professional occupations in the same year, according to an analysis of federal employment data by the U.S. division of the Institute of Electrical and Electronics Engineers.

In that context, Gates' assertion seems "pretty implausible," Hira said, adding that part of the problem may be Microsoft's specialized requirements for candidates: "I think they reject a lot of people that may, frankly, be well qualified for the positions."

Clyde Prestowitz may have the ultimate story about the fear that permeates the software community. In his new book, Three Billion New Capitalists, Prestowitz relates a 2003 conversation with his son, a high-level software developer about investing in a Tahoe snow removal company:

"But what on earth are you doing," I exclaimed, "going into something as mundane as snow plowing?"

"Dad," he said, "they can't move the snow to India."

I wonder what Bill Gates' and Business Week's response is to that.

Posted by Ken Jarboe at 8:19 AM | Comments (0) | TrackBack

July 19, 2005

Confronting offshoring

Professor Ron Hira has been tracking the outsourcing phenomena for the IEEE for a number of years. He and Anil Hira have written a new book, Outsourcing America, where he examines not only the previous wave of offshoring, but what is to come. From Chapter 1: Outsourcing of High-Wage Jobs

Some have argued that the positions moving offshore are not the type of work Americans would like to do. For instance, in software development, they claim that the testing and maintenance tasks that have been moving offshore are mundane and uninteresting. An out of work U.S. software programmer may differ with this opinion, but those who argue that only low level work is moving overseas are missing two key trends.

First, engineering design, and even research and development, is moving offshore. This is not low level, but rather some of the most interesting, important, and cutting edge technology work. Many companies have announced new facilities in China, Singapore, Russia, and India that house high level functions like research, design, and development. In describing the rationale for raising its R & D investment in China to 100 million, a chief technology officer of France's telecom giant Alcatel said, "Our goal is to develop China as an R & D center not just for China, but for the rest of the world." Texas Instruments has had an R & D facility in Bangalore, India, for more than ten years, and General Electric Medical Systems also performs R & D at its Bangalore facility.

Second, companies in countries such as India and China are not satisfied with doing low level work. In fact, the major Indian IT firms Infosys, TCS, Wipro, and Satyam are competing with and beating U.S. IT firms EDS, Accenture, CSC, and IBM for large jobs. Indian generic drug maker Ranbaxy has partnered with British based pharmaceutical company GlaxoSmithKline to lower the costs of and speed up drug research and to conduct clinical trials. With laboratories that meet U.S. Food and Drug Administration standards, India is poised to capture many of the emerging biotechnology jobs.

. . .

It is clear that even though India is the current destination of choice, many more countries are beginning to target these jobs and industries and a vast seemingly endless supply of low cost and high skilled workers will become available for Western companies. While some economists, such as Jagdish Bhagwati, argue that the overseas talent pool is severely limited, they seem to ignore how fast developing countries will adapt to the new opportunities presented by outsourcing. Also, as companies become as comfortable doing business in Ukraine as they are in India, certain things are likely to happen:

* More companies will outsource more tasks.

* High skilled wages will remain low.

* Companies will force different country governments to compete with one another for those jobs by offering tax incentives, free training, and other incentives.

In this sense, it seems unlikely that offshoring will be reversed.

The authors are realistic about what can be done. They call for more focus on adapting to the trend rather than futile attempts to block it. One key suggestion echoes something that Athena Alliance has long advocated: finding geographically "sticky" solutions. By "sticky" we mean those economic activities that have strong local roots and are not easily moved (see various papers on Athena website). These could be because of a specific jurisdictional advantage that is not easily created elsewhere . It could be because of local amenities and localized intangible assets. It could be due to localized tacit knowledge that is not easily codified and transferred. It could also be due to specific customer needs. In the case of software, Defense applications and Homeland Security are two immediate areas of potentially "sticky" markets for software based on specific customer needs.

Creation of sticky jobs is one important way of adapting to the new I-Cubed Economy. We need to give a lot more thought to this concept.

Posted by Ken Jarboe at 10:56 AM | Comments (0) | TrackBack

July 14, 2005

Tracking your human capital assets

One of the major complaints I raise about corporate reporting system (see earlier posting on Reporting Intangibles) is that companies don't even track, let alone report, on their human capital. That might be changing (at least on the tracking side), according to a story in today's Wall Street Journal "IBM Tool Dispatches Employees Efficiently":

Inside its giant services arm, International Business Machines has begun an ambitious project to catalog employees and sort them into a finely woven glossary of technical skills. The project's most visible facet is Professional Marketplace, a pilot program launched this year, through which about 6,000 IBM consultants have access to the database of IBM employees, about 22,000 so far, who are available to work on the jobs they have landed.

. . .

Using Marketplace, IBM consultants working for customers can search through 100 job classifications and 10,000 skills, figuring out who inside IBM is available, where they are located and roughly how much it costs the company to use them.
. . .

Mr. Moffat [Bob Moffat, a senior vice president in charge of IBM's supply chain] also says Marketplace is helping consultants find niche skills and get to work on contracts faster, factors that could help boost revenue, not just cut costs. Marketplace sorts through 100 job classifications from Account Technical Representative to Web Specialist. (Consultants needing a spark of genius for a project can query for a "Visionary Thought Leader.") The 10,000 skills run the gamut from vague descriptions such as "mentoring" to specific experience with the minutiae of health-care privacy regulations. Base rates for employees run from $10 to $400 an hour, and the software adjusts that figure based on such factors as how far away from home the employee will be working and how long he or she is needed.

Done right, this could also be a major breakthrough for management strategic planning as well as operations. Senior management could look at the database and determine what skills are lacking in the organization and what skills are in the most demand by the market place. This information could be used for marketing, to position the company strategically, and to guide acquisitions and recruitment.

Look for other companies to create similar systems. But IBM clearly sees this system as a source of competitive advantage:

One thing IBM probably won't do is sell the Marketplace software. "Certainly not to people in our industry," Mr. Moffat says.

I think that this may change, however. If IBM can work out the intellectual property issues to keep the specifics out of the hands of their competitors, this could be a large market for IBM Business Services. Every company need to be able to track its human capital -- not just consulting firms. Once they have refined the system internally, I would not be surprised to see IBM sell not the packaged software but the consulting service to create a customized system in other industries.

If the use of such human capital tracking systems becomes wide-spread, it could greatly enhance to the competitiveness of both companies and the US economy. It would be a major step toward the I-Cubed Economy.

Posted by Ken Jarboe at 10:37 AM | Comments (1) | TrackBack

Shifting local assets

The following item caught my eye recently -
WSJ.com - FedEx to Move Asia Hub To China From Philippines:

To exploit China's fast-growing market, U.S. express carrier FedEx Corp. said Wednesday it will move its Asian-Pacific hub to Guangzhou by the end of 2008 and close its current regional logistics center at Subic Bay in the Philippines.

The reason why it is interesting has to do with the shift in assets underlying the change. We have long been a proponent of economic development based on local intangible assets and what MaryAnn Feldman calls "jurisdictional advantage" (see her papers and presentation to an Athena Alliance policy forum last year).

FedEx moved to the Philippines in the first place because of a specific jurisdictional advantage -- the recently vacated huge space at the former US military at Subic Bay. It was not because the Philippines was a major air-freight destination -- just like Memphis is not a major air-freight destination. It was a hub.

Part of the reason given for the shift is that Subic Bay's runway was too short to accommodate Airbus's A380-800 airplane. The other reason was the need to be centered in the growing Chinese market. With the opening of the Chinese hub, the company said there was no need to have two such operations in Asia.

The story of the FedEx shift illustrates how jurisdictional can disappear. The Philippines hub had an advantage of being in the middle of the Pacific region market -- and large unused space. The center of that market has shifted to China - taking the advantage with it.

While there are numerous reasons why such a shift would not occur within the US, I hope Memphis is watching.

Posted by Ken Jarboe at 8:39 AM | Comments (0) | TrackBack

July 13, 2005

Manufacturing and design

Faced with China's challenge to domestic manufacturers, the responses of the United States and United Kingdom contrast starkly. The U.K. is seeking a position of leadership in post-industrial manufacturing. Rather than abandoning the sector or surrounding it with protectionist barriers, Chancellor of the Exchequer Gordon Brown has laid out a strategy for using government to help transform it. In a guest editorial published last Friday in Manufacturing & Technology News "UK Leads; US Lags," I explore Mr. Brown's idea of reviving manufacturing through emphasis on design - and what the US could do as well. The editorial can be found at the Athena Alliance website. You can also download a PDF version.

Posted by Ken Jarboe at 11:02 AM | Comments (0) | TrackBack

May trade in intangibles

The trade deficit declined slightly in May as exports increased and imports declined, the BEA reported this morning. However, the balance of trade in intangibles worsened slightly, with the surplus declining by $30 million to $7.2 billion. Imports of intangibles increased faster than exports; exports by .74% and imports by 1.5%.

And the deficit in Advanced Technology Products grew in May to $3.9 billion as imports increased and exports decline. 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.

Much of the improvement in the overall deficit was attributed to a decline in oil prices. However, as the New York Times points out:

the trade improvement was likely to be temporary because prices of crude oil have soared to record levels above $60 per barrel since May.

According to the Wall Street Journal:

Despite the deficit's drop in May, many analysts aren't hopeful about the trade gap because U.S. growth exceeds that of many of its trading partners.

Also, significant deficits are seen in the near-future by economists who point out the dollar has been rising against some foreign currencies this year after three years of greenback depreciation that hasn't improved the imbalance. A weaker greenback means exports are cheaper in certain overseas markets while some imported goods cost more in the U.S.

May also saw an increase in clothing and textile imports from China - a politically volatile item. And, even with the improvement in May, the deficit is running at a higher annual level than last year.

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.

Posted by Ken Jarboe at 8:50 AM | Comments (1) | TrackBack

Using certification marks for fighting discrimination

An intriguing idea from two Yale law professors - Ian Ayres and Jennifer Gerarda Brown

A little-known piece of intellectual property, the certification mark, provides a viable mechanism for employers to commit to the exact substantive duties of the proposed "Employment Non-discrimination Act," which if passed would prohibit disparate treatment on the basis of sexual orientation. By signing the licensing agreement, an employer gains the right (but not the obligation) to use the mark and in return promises to abide by the word-for-word strictures of ENDA. Other certification marks (such as the Good Housekeeping Seal, the UL (Underwriters Laboratory), and the Orthodox Union (Kosher) marks) require the owner of the mark police licensees, but our proposed "Fair Employment" mark allows employees and applicants to enforce the ENDA duties directly as express third-party beneficiaries of the license. The "Fair Employment" mark thus replicates the core enforcement mechanism of ENDA by creating private causes of action in the same class of individuals.

The paper is from a chapter in their book Straightforward: How to Mobilize Heterosexual Support for Gay Rights

Certification marks have long been used as an important market signal to consumers. International trade fights have erupted over the "mis-use" of certification marking - especially geographical markings, such as Parma ham, Champagne, Idaho potatoes. As the World Intellectual Property Organization (WIPO) describes Certification Marks:

A number of countries also provide for the protection of certification marks. Certification marks are usually given for compliance with defined standards, but are not confined to any membership. They may be used by anyone who can certify that the products involved meet certain established standards. Famous certification marks include WOOLMARK which certifies that the goods on which it is used are made of 100% wool.

In many countries, the main difference between collective marks and certification marks is that the former may only be used by a specific group of enterprises, e.g., members of an association, while certification marks may be used by anybody who complies with the standards defined by the owner of the certification mark. An important requirement for certification marks is that the entity which applies for registration is considered "competent to certify" the products concerned.

Certification marks may be used together with the individual trademark of the producer of a given good. The label used as a certification mark will be evidence that the company's products meet the specific standards required for the use of the certification mark.

One of the more successful use of certification marks has been in the environmental movement where the "green" label highly prized -- so much so that there is a major fight in the forest products area between the industry-based Sustainable Forestry Initiative® and the independent Forest Stewardship Council.

Yet, as a story last year in the Wall Street Journal Is Your Grocery List Politically Correct? points out:

while the plethora of socially oriented labels gives companies a chance to look like concerned corporate citizens, all the competing logos and certifications can be baffling to consumers. Unlike the terms "organic" or "low fat," which are regulated by the USDA and FDA, respectively, there is no central authority setting definitions for the new claims. Consumers Union, a consumer advocacy group, says it tracks at least 113 different designations, intended to indicate everything from friendliness to birds, to respect for indigenous populations.

To be effective, a certification mark needs to be an unambiguous symbol of a clear idea. There also needs to be a verification mechanism, so that consumers can be sure that the certification is real. The Ayres-Brown idea of a certification mark for compliance with that proposed Employment Non-discrimination Act meets the clarity test. Given that the mark would be used under license and therefore the license could be revoked under contract law, it comes close to meeting the enforcement test. The question is whether the licensing organization has the means for a strong monitoring activity. If so, this could be an important way of promoting non-discrimination.

Posted by Ken Jarboe at 8:12 AM | Comments (0) | TrackBack

July 12, 2005

Costco versus WalMart (versus Target)

Brad DeLong's blog is running an interesting commentary on the difference between Costco and Wal-Mart The High-Wage Model - based on a recent Financial Times article. As both Brad and the article point out, Costco manages to pay workers better thereby reducing employee turnover and reducing costs. While still in the low-wage retail industry, Costco is an example of what we used to talk about as the "high road" strategy of employment - where worker really are recognized as the firms' most valuable asset.

It would be enlightening to taking the analysis a step further and compare Wal-Mart's retailing strategy to the other big discounter - Target. Costco is clearly a warehouse operation -- items change depending (it appears) as to what deal they got this month. Target has been attempting to move further up the value-add scale through higher-fashion items. Wal-Mart's secret weapon has been its logistics system (as well as buying cheap from China). A case study of the three would make fascinating (ok not fascinating, but
interesting) reading.

Posted by Ken Jarboe at 10:01 AM | Comments (0) | TrackBack

Trouble in the imagination world

Yesterday, the stock price of Steven Spielberg's DreamWorks Animation SKG dropped on the news of poor DVD sales. The company also delayed its $500 million stock offering. Company executives stated that they didn't yet understand the reason for the lower than expected sales. But, as the New York Times "Animator Warns on Profit" notes, this may be part of a worrisome trend:

When DreamWorks revised earnings in May because of low DVD sales, analysts said they believed that the problem might be specific to DreamWorks. Then nearly two weeks ago Pixar Animation Studios also cut forecasts because of disappointing DVD sales of "The Incredibles."

. . .

For investors, the drop in DVD sales is worrisome. "Every studio has a very intricate model for forecasting DVD sales pegged to opening-weekend theatrical performance," said Richard Greenfield, who follows media for Fulcrum Global Partners. "But now those historic relationships, both in the U.S. and overseas, do not appear to be working, making any forecasting extremely difficult."

"The company has reduced estimates twice in eight weeks because of this lack of visibility," he said.

For Mr. Singer of SG Cowen, the problem in the foreign markets is particularly troubling.

"We have all been expecting a maturation of the domestic business given the broad penetration of DVD hardware in U.S. homes," he said. "However, we thought the foreign markets were a few years behind domestic, so we anticipated growth for a number of more years given the lower hardware penetration overseas."

If the problem is with overseas sales, it might be easy to explain this away as the residual of video piracy. But, the problem is not just foreign markets. The Wall Street Journal summed it up "In DreamWorks Earnings Woes, A Bigger Problem":

The highly profitable DVD market seems to be maturing more quickly than expected.

. . .

Big movie titles now often sell more than half of their overall total in the first week of release, and when they stop selling briskly, retailers are moving quickly to return unsold copies.

Movie attendance is down and DVDs are hitting the market sooner (which makes at least this consumer think - don't worry I'll just catch it on DVD). And, most importantly, retailers are changing their strategy to return unsold inventory - rather than deeply discount it. As the Journals' The Evening Wrap put it:

Though DVDs are round like frisbees, they've been more like boomerangs for DreamWorks Animation, which today said dealer returns of "Shrek 2" and other DVDs had killed its second quarter.

Given that the golden goose of DVD sales maybe changing into an ordinary roaster chicken, look for bigger changes in the movie industry. DVD sales were the magic dust that covered over poor box office performance (with some mediocre offerings not even making it to the theaters for long but going quickly, if not directly, to DVDs). As the Journal quotes one analyst:

"We believe it is clear from listening to DreamWorks management over the past couple of months, that the overall home-video environment has changed rapidly," said Richard Greenfield, analyst at Fulcrum Global Partners, in a research note.

"Changed rapidly" is, I think, an understatement.

Posted by Ken Jarboe at 8:09 AM | Comments (0) | TrackBack

July 11, 2005

June employment

June employment figures were released Friday and the BLS reported the unemployment rate dropped to 5.0% and non-farm payroll employment increased by 146,000. The Wall Street Journal summed it up:

U.S. employers created jobs at a tepid pace for a second straight month in June but the unemployment rate sank to its lowest level in nearly four years, suggesting the labor market is improving gradually.

In a more detailed analysis in the Journal today, Despite Growth in U.S. Payrolls, Some Sectors Are Still Losing Jobs, they looked at the longer trend:

The U.S. job recovery reached its two-year anniversary in June with another modest increase in employment. But beneath the surface, the labor market continues to experience sharp shifts and a mix of winners and losers.

. . .

The growth isn't evenly distributed across all industries. "The economy is continuing its long-term trend of shifting more toward a service-oriented economy than a goods-orientated economy," said Nigel Gault, an economist at Global Insight, a Lexington, Mass., economic-consulting firm. "I don't see that this is a trend that is going to change."

This analysis is only partly right. The number of purely service occupations continues to grow. And the number of managerial, professional, office and installation/repair occupations (what we might consider the upper, middle and blue-collar "information" economy positions) increased by over 828,000 from June 2004 to June 2005. These occupations also enjoy a lower than average unemployment rate, compaired to service occupation which have an above average unemployment rate. But the percentage of such information workers in the total workforce declined slightly to 51.5%.

The June bottom line: June was a bad month for professionals, sales workers, and installation/maintenance/repair, with employment dropping in these occupations. However, professions continue to have one of the lowest unemployment rates (with managers) while transportation, construction, farm workers and service workers have the highest.

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 (2.4%); same as May but down from 2.5% in June 2004. Employment up (275,000) from last month and up (35,000) from same month last year (June 2004); total number of people in this occupation (working or looking for a job) up by 302,000 from last month and up 21,000 from same month last year (June 2004).

Professional and related occupations:
below average unemployment rate (2.7%); up from May but down from 3.2% in June 2004. Employment down significantly (713,000) from last month and up significantly (654,000) from same month last year (June 2004); total number of people in this occupation (working or looking for a job) down significantly by 634,000 from last month but up 534,000 from same month last year (June 2004).

Service occupations:
above average unemployment rate (6.3%); down from May but down from 6.8% in June 2004. Employment up significantly (984,000) from last month and up (666,000) from same month last year (June 2004); total number of people in this occupation (working or looking for a job) up significantly by 993,000 from last month and up 587,000 from same month last year (June 2004).

Sales and related occupations:
average unemployment rate (5.2%); up slightly from May and down from 5.8% in June 2004. Employment down (216,000) from last month but up (414,000) from same month last year (June 2004); total number of people in this occupation (working or looking for a job) down by 205,000 from last month and up 318,000 from same month last year (June 2004).

Office and administrative support occupations:
slightly below average unemployment rate (4.7%); down slightly from May and down from 5.2% in June 2004. Employment up (330,000) from last month and up by 76,000 from same month last year (June 2004); total number of people in this occupation (working or looking for a job) up by 326,000 from last month but down 27,000 from same month last year (June 2004).

Farming, fishing, and forestry occupations:
above average unemployment rate (6.3 %); up slightly from May and down significantly from 8.3% in June 2004. Employment up (166,000) from last month but up slightly by (6,000) from same month last year (June 2004); total number of people in this occupation (working or looking for a job) up 176,000 from last month but down by 19,000 from same month last year (June 2004).

Construction and extraction occupations:
above average unemployment rate (6.3%); same as May and down from 7.7% in June 2004. Employment up (222,000) from last month and up significantly by (495,000) from same month last year (June 2004); total number of people in this occupation (working or looking for a job) up by 237,000 from last month and up by 384,000 from same month last year (June 2004).

Installation, maintenance, and repair occupations:
below average unemployment rate (3.7 %); up from May but down from 3.6% in June 2004. Employment down by 186,000 from last month but up by 63,000 from same month last year (June 2004); total number of people in this occupation (working or looking for a job) down by 174,000 from last month but up 70,000 from same month last year (June 2004).

Production occupations:
above average unemployment rate (6%); up from May and down from 7.5% in June 2004. Employment down by 80,000 from last month but up (151,000) from same month last year (June 2004); total number of people in this occupation (working or looking for a job) down by 53,000 from last month and down by 4,000 from same month last year (June 2004).

Transportation and material moving occupations:
above average unemployment rate (6.6%); up significantly from May and down from 7.1% in June 2004. Employment up by 84,000 from last month and up (36,000) from same month last year (June 2004); total number of people in this occupation (working or looking for a job) up by 210,000 from last month and down by 17,000 from same month last year (June 2004).

Posted by Ken Jarboe at 12:26 PM | Comments (0) | TrackBack

Biotech patents

Predictable, the biotech industry split on its reaction to the recent Supreme Court ruling on patents (yes, there was a ruling on IPR other than Grokster - see my posting last month Supreme Court patent decision). Bernadette Tansey of the San Francisco Chronicle captured the split nicely in her piece Biotech panel debates patents:

A traditional industry argument supports stringent patent protections as a driving force behind medical innovation. Investors will only provide the millions needed to develop new therapies to a company that has secured key intellectual property rights, the reasoning goes. On the other hand, the fear is that a research area riddled with patent rights might attract few others to explore its promise.

. . .

Under the ruling, researchers can freely use patented material -- including novel biotech compounds -- if their studies are reasonably linked to a product they can take to the Food and Drug Administration for approval, said Merck attorney Joshua Rosenkranz at the biotech conference session. "The Supreme Court gives an enormous amount of comfort to scientists sitting in a lab saying, 'Can I perform the next experiment?' " he said.

Alan Hammond, chief intellectual property counsel for Invitrogen, said the decision could hinder progress. "The whole patent system was developed to promote innovation," he said. "Every time you weaken the patent system you hurt innovation."

I think if you read my earlier posting, you might view Mr. Hammond's comments as somewhat overstated (but, then again he was the counsel for the losing side, so it would be natural to play up the dire consequences of the decision). The ruling was more about the whether the lower courts had overstepped their boundary in re-interpreting the law. (I wonder whether conservative, strong pro-intellectual property types are concerned about the critiques judicial activism on the part of the US Court of Appeals for the Federal Circuit in patent cases.)

Still, the split in the biotech industry is becoming evident (as it is in the software industry) between those who want ever stronger intellectual property rights and those who want greater use of the information. Both sides claim that their view is the only way to strengthen innovation.

And depending on your model of the research and innovation process, each side is partially right. Unfortunately, we have not yet come to a clear understanding of exactly how innovation works in the I-Cube Economy. Until we do that, it will be hard to evaluate the competing claims.

Posted by Ken Jarboe at 8:07 AM | Comments (0) | TrackBack

July 8, 2005

The dark side of the networked society

One of the hallmarks of the I-Cubed Economy is the empowerment of individuals and the connection of individuals in networks. This characteristic has lead to increased innovation, productivity and economic prosperity.

The dark side of this system, however, was evidenced in the London bombings. Networks and individual empowerment are just as much characteristics of terrorism as the rest of live - as explained in a story in today's Washington Post Attacks Bear Earmarks Of Evolving Al Qaeda:

The British bombings "seem to be very much consistent with a Sunni jihadist movement that is overall as strong as ever but more decentralized, in which attacks are being instigated and carried out in more places than just the core leadership hiding in their caves in South Asia," said a former senior U.S. intelligence official.

Al Qaeda's evolution from headquarters-planned conspiracies toward diffuse ideological incitement and tactical support is consistent with bin Laden's long-stated goal for the organization he founded on an Afghan ridge in the summer of 1988. For years, bin Laden has emphasized his desire to be remembered as a vanguard, an inspiring leader whose spark would light a spreading fire among all the world's Muslims, causing them to revolt en masse against Christians, Jews and their allies in the Middle East.

"According to Osama bin Laden's thinking, there are no dormant cells," Abu Jandal, one of bin Laden's former bodyguards in Afghanistan, said in a recently published interview in the Arabic-language newspaper Al-Quds Al-Arabi. "Every element of al Qaeda is self-activated. Whoever finds a chance to attack just goes ahead. The decision is theirs. This is regardless of whether they pledged allegiance to Sheik Osama bin Laden or not."

Sending tanks into cities in the Middle East and creating a huge new bureaucracy are not the way to fight such networks. We need different tactics.

Posted by Ken Jarboe at 8:35 AM | Comments (0) | TrackBack

July 5, 2005

Music industry Plan B

Great minds think alike (actually it is relatively obvious and lots of people have been talking about it). From Mike Langberg at the San Jose Mercury News comes Piracy unpreventable. Plan B: Just make music free. Sounds a lot like what I have been advocating (most recently, see Music industry adjusts to file sharing). Here is what Langberg calls Plan B:

Musicians give away recorded music to build their reputation. They make money from concert tickets, licensed merchandise, selling rights to their songs for TV commercials and movies, and anything else that can't be undermined by free online distribution.

. . .

Generating enough extra demand to sell out just one additional big concert during a tour could easily cover the several hundred thousand dollars required to create and give away a