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November 30, 2005
Intangibles and economic development: win, lose and tie
When it comes to thinking about the role of intangible assets in economic development, this morning's Washington Post contains the full range of outcomes.
First, the win is a small town in Virginia where:
Over the past two years, the languid farming town of Culpeper, 70 miles southwest of Washington, has been transformed into an exceptional place to walk and shop for great groceries. The boards have come off the windows on East Davis Street. In the center of the historic district, built between 1880 and 1920, decay and neglect have been replaced by fine restaurants as well as food shops selling hot tamales, fresh geese and good wine.
Culpeper, rich in Civil War history and with a population of 15,000, has never looked better. The weathered brick buildings decorated with heavy cornices and detailing are filled with newly renovated shops selling imported and local foods alongside surviving bakers and hardware purveyors.
Key to Culpeper's success goes beyond building on its history and location (as a number of small towns around Washington have done, such as nearby Fredericksburg). Culpeper's revival is anchored in its local assets: Calhoun's Ham House - a well-known supplier of country hams, including to the White House. Anchored off of the Ham House and using historic preservation tax credits (and other programs), the city was able to turn the downtown area into a food cluster.
This is no easy feat. My old hometown also has two regionally-known food purveyors. But they have not been able to create a food cluster. Part of the reason is location. Culpeper is located between Washington DC and Charlottesville VA - an easy drive from both and from Richmond VA. My hometown is located 200 miles from any major metropolitan area and not on a major travel route. But part is also image. Culpeper has created more than a food processing cluster (which is what AceNet has done in Appalachian Ohio). They have created a destination that blends the food shops with other local amenities, including interacting with other designations in the area, such as the award winning Inn at Little Washington. A smart use of all your local intangible assets.
The loss is New Orleans' exodus of musicians, such as the Neville Brothers, to Austin. But Austin isn't the only destination:
Storm-tossed New Orleans musicians have resettled in music capitals such as Nashville (where Aaron Neville has established his home), Memphis, New York and Los Angeles. But since the hurricane, musicians also have relocated throughout Louisiana and to Atlanta; Houston; Dallas; Birmingham; Orlando; Santa Fe; Montgomery, Ala.; Portland, Ore.; and even Hoboken, N.J. Some have trickled back into the flooded city. Others are in and out, playing in reopened clubs and hoping they, too, can start their lives anew in New Orleans next year.
Cyril Neville and his wife, singer-writer Gaynielle Neville, just bought a house in southwest Austin and have helped resettle 10 members of the extended Neville family and 26 of Gaynielle's relatives here. Neville said he has no desire to return to a New Orleans that will never be the same.
That does not bode well for the economic rebuilding of the city.
The tie is Prince George's Country (directly east of Washington) where a court overturned a law to ban small used-car lots on Route 1. The law was enacted to force the existing auto dealers to move as part of a plan to turn the area into an Arts District. Route 1 had been a major auto deal cluster since World War II. But, now the proliferation of small used car lots is seen as a determent not an asset. The Arts District is struggling, but making progress. However, it has never been clear to me that forcing the used-car lots to close would help spur the growth of the Arts District. More likely it would result in a number of parcels sitting empty. Creative destruction is fueled by the creative - not the destructive. If the Arts District concept takes off, the used-car lots will eventually vacate. Maybe the ruling will force community leaders to concentrate on other tactics.
Oh, and part of the tie in PG County is the strengthening of their historic preservation laws. Done right, historic preservation can be a strong attracter for economic development. It creates a powerful intangible asset - just think of Culpepper.
Posted by Ken Jarboe at 9:55 AM | Comments (0) | TrackBack
November 29, 2005
Patent litigation
Patents are once again headed to the Supreme Court for review. This time it is eBay's "Buy it Now" option, which a patent-holding company - MercExchange LLC - claims infringes on their patent. The U.S. Court of Appeals for the Federal Circuit issued an injunction last March and, according to the Wall Street Journal, "EBay says the court's reasoning could result in the more frequent issue of injunctions in patent disputes by lower courts."
According to the Washington Post, the issue is just that of the injunction.
EBay was found to have violated MercExchange's patent and was ordered to pay $25 million in damages. The Supreme Court is not taking up that issue, only whether there should be an injunction to prevent eBay from continuing to use the technology.
EBay's appeal asks to overturn a U.S. appellate court's ruling that it should be customary to issue a permanent injunction when a company is found to have violated a patent. In an earlier ruling, a district court decided not to issue an injunction against eBay, despite finding it in violation of a MercExchange patent. EBay argues that judges should have leeway to consider hardship on a company before prohibiting the future use of technology through injunctions.
As is usually the case for Supreme Court review, the issue involves differing interpretations of the law. The New York Times explains:
But Judge Jerome B. Friedman of Federal District Court [where the case began], noting that MercExchange "exists solely to license its patents or sue to enforce its patents, and not to develop or commercialize them," refused to issue an injunction that would have barred eBay from continuing to use the patented methods in its Web operations.
. . .
The United States Court of Appeals for the Federal Circuit, a specialized court here that hears all appeals in patent cases, overturned the district court's decision this year and ruled that MercExchange was entitled to the injunction it sought.
The appeals court said that injunctions were the "general rule" in patent infringement cases, and should be withheld only in such "rare instances" as "the need to use an invention to protect public health."
. . .
The Supreme Court, in its order granting the case, said it would reconsider a precedent from 1908, which suggested that injunctions were always an appropriate remedy for patent infringement.
All of this is going on as patent reform legislation stalls in the Congress. As I understand it, the bill is hung up in a disagreement between the biotech/pharma industry (which wants the law changed one way) and the software industry (which wants it changed another way). There is also a fight over whether or not injunctive relief should be weakened. Given that the role of injunctions is the issue before the Court, maybe the actions of the activist justices of the Supreme Court might spur lawmakers (and lobbyists) to find a compromise.
Posted by Ken Jarboe at 12:18 PM | Comments (0) | TrackBack
November 28, 2005
Retail Federation writes off US manufacturing
The National Retail Federation is writing off US manufactures. This is the gist of a recent press release. In this specific case, they are complaining about a provision in the tax reform proposal that would remove the tax incentive for offshore manufacturing by switching to a destination-based tax system (rather than an origin-based system). According to the Federation's press release, this would amount to an "import tax" on American consumers. This is because:
Relatively few consumer goods are manufactured at competitive prices or in commercial quantities in the United States, so retailers can't easily shift to domestic products to avoid the tax.
In other words, American manufacturing can't compete. And changing the tax code won't help bring manufacturing back.
This may be a hard statement of fact of today's situation. But, it is unclear whether it is a viable strategy for the future.
I wonder who the retailer's representatives think will eventually be buying those products in their stores. Maybe they have succumbed to the post-industrial myth that manufacturing doesn't matter. They also seem stuck in the industrial mentality that consumer goods must come from cheap mass production factories employing low cost labor. That may be true today for the low end goods - but not necessarily for all consumer goods, especially at the higher value end.
Let me repeat what I have said numerous times before. Manufacturing plays an important role in the I-Cubed Economy. But it is not the same manufacturing in the height of the industrial era. If the Retail Federation represents anyone besides Wal-Mart, they need to understand that the evolution of manufacturing will affect their business. They need to start working with other sectors to help create a balanced economy - and restore some sanity to our international current-account deficit. Otherwise, all those cheap imported goods won't be cheap (due to the drop in the dollar) or will be left on the shelf with no one able to buy them.
Posted by Ken Jarboe at 12:15 PM | Comments (0) | TrackBack
November 23, 2005
Innovation in hosiery
This from the Wall Street Journal: "Weird Science Stockings"
From a laboratory in North Carolina to a research center in Wilmington, Del., teams of scientists are hunkered down trying to solve one of fashion's greatest mysteries: how to get women to wear pantyhose again.
In their latest bid to revive the sagging hosiery business, makers are turning to science and trotting out nylons and tights that seem more likely to show up at science fairs than on the runways of Paris or Milan. Capezio says its "microcapsules" filled with aloe -- scented with a hint of lavender -- burst as you move, to combat dry skin and chafing. Calvin Klein is using a high-tech fiber with tiny channels dug into the yarn that the company says drains away sweat from your legs. Meanwhile, No Nonsense is borrowing technology from surgical socks; its new "Smart Support" hose are engineered with a tighter weave at the bottom to keep veins constricted and the blood flowing.
While it sounds cutesy, this is part of a serious program of research to maintain a domestic textile and apparel industry through innovation. Other areas of research included next-generation fire-fighting protection and chemical/biological protection garments, surgical textiles including surgical masks, filtration materials and state-of-the-art manufacturing machinery. For all you hear about textiles and apparel as a "low-tech" industry, they are trying hard to innovate their way to economic competitiveness.
Now, if they could just make men's socks that would stay up without cutting of the circulation in my legs . . .
Posted by Ken Jarboe at 11:45 AM | Comments (0) | TrackBack
November 22, 2005
GM and product design - and the state of manufacturing
GM is in trouble. Yesterday's announcement of layoffs, plant closings and cut back merely confirmed that fact. While everyone now understands the seriousness of the situation, the discussion continues as to why. Some are stunned at the layoffs. Just like Delphi, which got in trouble despite the fact that it won innovation awards, GM plants are being closed despite their best efforts. As the head of the local UAW at one of the to-be-closed plants said: "We're one of the best, most efficient press plants in the country. We won many J.D. Power awards. It don't make sense."
He is right, from an industrial age perspective. But the efficiency is no longer the deciding factor.
There are many culprits in this story, all probably playing a part. The over reliance on the SUV, especially at a time of rising gasoline prices is the newest villain of the piece. Already on stage are the perennial problems of the so-called legacy costs: health care and pensions. But, one of the major problems - the 800 pound gorilla sitting in the corner that now one really wants to talk about - is the products themselves. As The Economist reports:
Indeed, after the company's annual meeting, [GM CEO Rick] Wagoner conceded: "If we had a chance to rerun the last five years, we probably would have done a little more thinking about making sure that each product was distinctive and had a chance to be successful."
"Distinctive and had a chance to be successful" -- what a novel concept.
The late Peter Drucker has been quoted saying that his study of GM (The Concept of the Corporation, "had an immediate impact on American business, on public service institutions, on government agencies--and none on General Motors."
Apparently, that is still true today. GM appears to have forgotten Drucker's famous dictum that the purpose of a business is to create customers.
And unless the company as a whole creates customers, the efficiency efforts of the front-line production workers will be for naught.
We need to go beyond the earlier definitions of "high-performance work organizations" to involve the creative skills of the front line workers not only in improving the production process but also in improving the product itself. Our earlier concerns focused on bringing the front-line workforce into the process improvement activities through self-managed work teams, job rotation, quality circles and total quality management. [For more on high-performance work organizations, see Paul Osterman, Securing Prosperity: The American Labor Market: How It Has Changed and What to Do about It.]
In the I-Cubed Economy, with its relentless focus on innovation, the workforce needs to be engaged in all parts of a seamless design and innovation process.
As Richard Florida has said, our next task is ensuring that all workers are creative workers. That includes my old high-school buddies who are finishing up their 30 years on the GM assembly lines -- and more importantly, their kids who are facing layoffs.
The industrial age paradigm is rapidly disappearing. We need to prepare for the new.
Posted by Ken Jarboe at 9:30 AM | Comments (0) | TrackBack
November 21, 2005
Peter Drucker
After Peter Drucker died earlier this month, a number of articles explored his legacy and his influence on modern business. Most have concentrated on his writings on corporate management, especially his seminal book, The Concept of the Corporation. Few of these, however, really captured the social thinker - the author of The End of Economic Man and The Future of Industrial Man -- his first two books. Most importantly, many of these articles either skipped over or downplayed what is, for me, the most important of Drucker's ideas - the rise of the knowledge worker. The review by the Economist "Peter Drucker: Trusting the teacher in the grey-flannel suit" got it right:
The two most interesting arguments in "The Concept of the Corporation" actually had little to do with the decentralisation fad. They were to dominate his work.
The first had to do with "empowering" workers. Mr. Drucker believed in treating workers as resources rather than just as costs. He was a harsh critic of the assembly-line system of production that then dominated the manufacturing sector--partly because assembly lines moved at the speed of the slowest and partly because they failed to engage the creativity of individual workers. He was equally scathing of managers who simply regarded companies as a way of generating short-term profits. In the late 1990s he turned into one of America's leading critics of soaring executive pay, warning that "in the next economic downturn, there will be an outbreak of bitterness and contempt for the super-corporate chieftains who pay themselves millions."
The second argument had to do with the rise of knowledge workers. Mr. Drucker argued that the world is moving from an "economy of goods" to an economy of "knowledge"--and from a society dominated by an industrial proletariat to one dominated by brain workers. He insisted that this had profound implications for both managers and politicians. Managers had to stop treating workers like cogs in a huge inhuman machine--the idea at the heart of Frederick Taylor's stopwatch management--and start treating them as brain workers. In turn, politicians had to realise that knowledge, and hence education, was the single most important resource for any advanced society.
Too bad that American business really hasn't absorbed these two lessons. They think they have - but workers are still treated as liabilities, not assets. And their knowledge is treated as something that can be turned off and on like a machine.
Drucker himself gave a great example of this problem in an interview published on Jan 1, 2000 (which the Wall Street Journal has reposted online :
I just spent 10 days in the hospital. This is our local hospital, and I know the administrator. Nine of those 10 days I was in good shape, but I had to lie flat and motionless because I had an IV in each arm. So all the nurses came and chatted with me. They came to me in the hope that I would get across to the administrator something that irked them. I won't tell you the details. It involved a change in policy imposed on the hospital by the HMOs that altered their professional status. They were being told what to do instead of being asked what should be done. They are used to that from physicians -- but not from administrators.
Drucker went on to discuss how he passed the message on to the hospital administrator, who changed the process.
Slowly - oh, so slowly - we are leaning the wisdom of what Peter Drucker said long ago about the true value of workers' knowledge. As the hospital story shows, people get it - but they have to have it pointed out to them by astute observers, such as Drucker. It is sad that he won't be around anymore to remind us and chide us to further progress.
Posted by Ken Jarboe at 2:05 PM | Comments (0) | TrackBack
November 18, 2005
Losing the brand and intangibles wars - in China
No -- this is not about Chinese counterfeiting American brands. It is about what brands Chinese consumers want:
New York Times - "Made in U.S., Shunned in China"
Abby Chan, a 23-year-old advertising copywriter, took a break from shopping for Levi's jeans at a mall here on Wednesday evening and relaxed at a table in a Starbucks restaurant.
Aside from coffee and denim, there were not many American brand products that interested her. She covets Chanel clothing and Louis Vuitton bags, dreams of owning a BMW or Mercedes-Benz someday, and struggles to think of an American brand that appeals to her.
"There are more choices for European brands, more styles, so they are more interesting," she said.
. . .
China's economy is galloping along just as a long series of America's weaknesses are combining to hurt American exports. With many of America's name brands made in China these days, from clothing to cars, the Chinese are beginning to wonder what a "Made in U.S.A." label really has to offer.
"The only U.S.-produced items that I can think of that exist in large quantities in China are dollar bills," said Matthew Crabbe, the managing director of Access Asia Ltd., a market research firm
But the handful of products that Americans make well, and which sell like hotcakes, do not have labels on the sleeves - Boeing's aircraft and General Electric's power plant equipment, railway locomotive parts and aircraft engines. Beyond those, American exports to China consistently grow more slowly than imports, and this year, they have slowed even more.
. . .
At the consumer level, tastes in China are also changing to the detriment of American companies. As China becomes increasingly cosmopolitan, an early admiration for all things American is fading. The generation of students who raised a copy of the Statue of Liberty during the Tiananmen Square protests in 1989 has gone on to acquire tastes as international as any in the world.
American car brands like Ford, marketed in the United States with a lot of waving flags, are promoted here as quality vehicles that show their owner's taste and sophistication.
"Putting explicit American symbols in advertising will be alienating, not because of anti-Americanism but because of Chinese nationalism," said Tom Doctoroff, the chief executive for greater China at the JWT Advertising Agency.
Shopping at a store selling Coca-Cola merchandise in the same Tee Mall where Ms. Chan shopped, Estella Chong, an English teacher who has never lived outside China, said that attitudes had changed. "Maybe some people thought American brands were better than Chinese brands or had better after-sales service," she said. "Now they don't think so."
. . .
The biggest strength of the United States in many markets has been its innovation. At a conference in Beijing on Tuesday, Gov. Arnold Schwarzenegger of California held up a new solar cell that had been designed in Silicon Valley, though it was actually manufactured in China.
But China's rampant copying of everything from movies to auto part designs makes it hard for American companies to profit even by licensing their ideas. The Chinese government is determined to move into higher- technology industries, moreover, and is hiring top scientists to be researchers.
China wants new products to be "not just 'made in China' but 'designed in China,' " said Gov. Huang Huahua of Guangdong Province at a news conference here on Thursday evening.
Message to all those folks who keep telling us that if we just have more IP enforcement in China we will be fine: you are a decade too late. Yes, we need to do more to protect legitimate IP (as opposes to the bogus patents and the thousand-year copyrights). But we aren't going to prosper in this new globalized I-Cubed Economy on yesterday's ideas.
As the economy has evolved, we have exchanged one treadmill for another. The industrial era was a relentless pursuit for lower cost and greater productivity - mostly through economies of scale and the substitution of capital for labor. The I-Cubed economy is about relentless innovation -- fueled by information and intangibles. Shorter product lifecycles, faster change, more design intensive are the norms. Time to market is trumping thousand-year IP protection.
The Chinese understand this (see my earlier posting on Chinese design), as do American companies. Missing in action is the US government - which can't even seem to understand that R&D funding is important, let alone the other areas of intangibles and innovation.
Posted by Ken Jarboe at 10:17 AM | Comments (0) | TrackBack
Intelligent design - the last word
It is a rare day when I find myself in agreement with Charles Krauthammer. But his column today, "Phony Theory, False Conflict" echoes what I have been saying about "intelligent design" -- it is bad science and questionable theology. Unlike what its proponents claim, there is nothing in evolution that necessarily denies (or supports) the existence of God -- any more than the theory of gravity or the theory of quantum mechanics. As Krauthammer says,
The school board thinks it is indicting evolution by branding it an "unguided process" with no "discernible direction or goal." This is as ridiculous as indicting Newtonian mechanics for positing an "unguided process" by which Earth is pulled around the sun every year without discernible purpose. What is chemistry if not an "unguided process" of molecular interactions without "purpose"? Or are we to teach children that God is behind every hydrogen atom in electrolysis?
He may be, of course. But that discussion is the province of religion, not science. The relentless attempt to confuse the two by teaching warmed-over creationism as science can only bring ridicule to religion, gratuitously discrediting a great human endeavor and our deepest source of wisdom precisely about those questions -- arguably, the most important questions in life -- that lie beyond the material.
How ridiculous to make evolution the enemy of God. What could be more elegant, more simple, more brilliant, more economical, more creative, indeed more divine than a planet with millions of life forms, distinct and yet interactive, all ultimately derived from accumulated variations in a single double-stranded molecule, pliable and fecund enough to give us mollusks and mice, Newton and Einstein? Even if it did give us the Kansas State Board of Education, too.
Can we now stop this silly waste of time & energy and get on to the real issue of educating our children for the I-Cubed (Information, Innovation, Intangible) Economy?
Posted by Ken Jarboe at 8:54 AM | Comments (1) | TrackBack
November 17, 2005
Financial innovation
Not all innovations are technological. An example of a financial innovation comes from David Wessel in today's Wall Street Journal "Insurance Helps Balance Risk in Retirement"
A band of think-tank economists, who believe many more people should buy annuities and long-term care insurance, argue that consumers and insurers would find such products more attractive if they were bundled together.
"Such a product could offer economic security for retirees by providing a steady steam of income combined with protection in the event of catastrophic costs associated with disability," Mark Warshawsky, a pension scholar who is now assistant Treasury secretary for economic policy, has said. A couple nearing retirement might, for instance, put a chunk of their savings into an annuity that offers a set monthly sum, adjusted for inflation, and an extra payment if husband or wife needs long-term care.
. . .
One big advantage: Such a product wouldn't force a couple to buy stand-alone long-term care insurance at retirement, when most are reluctant. But it would make coverage available later when buying it would be prohibitively expensive or impossible. It also might overcome consumers' widespread reluctance to buy conventional long-term care insurance. "They say: I don't like that because I've got to continue to pay premiums and I have to lose to win, and that doesn't make sense," says John Connelly, a marketing executive at Genworth Financial Inc., an insurer recently spun off from General Electric Co.
For insurers, combined products offer another advantage: "We pool populations with two different risks: individuals who are likely to be long-lived and individuals who are in relatively poor health," Mr. Warshawsky has said. As a result, he and colleagues figure the price of a combined product could be 3% to 5% lower than buying them separately.
Even more important, insurers would sell a combo to people to whom they won't sell long-term care insurance. Insurers fear folks who buy nursing home coverage are those with reason to believe they are going to need nursing-home care. So they price the policies accordingly or refuse coverage to people with minor health problems.
Insurers do offer life-insurance and long-term-care combos; most allow you to collect your death benefit before death if you end up in a nursing home. But few combine annuities and long-term care. The tax code is one big obstacle; it generally treats annuity payments as taxable and benefits from long-term care policies as non-taxable. A little-noticed provision in a pension bill likely to pass the House soon would remove this obstacle.
Now, combine that with a reverse-mortgage that allows all those seniors to use that equity in their home to buy these combos, and we might go a long way to easing some of the economic anxiety facing us aging baby-boomers.
Posted by Ken Jarboe at 5:45 PM | Comments (0) | TrackBack
November 16, 2005
Training engineers - continually
An interesting juxtaposition of articles today on the training of engineers. In the New York Times is an OpEd piece by Stuart Anderson of the National Foundation for American Policy - "America's Future Is Stuck Overseas" - which summarizes the need for foreign students, especially in science and engineering. He makes an interesting point on the role of foreign students:
without international students, certain science and engineering programs could not be offered at many American universities, because the foreign students populate classes and serve as teaching assistants. They also go on to supply faculty for those programs.
[Note: As a graduate from an engineering school (in my case from the University of Michigan), I can verify that this is not a new phenomena. The same thing was said when I was in school 30 years ago.]
Juxtapose to that argument this story from the front page of today's Wall Street Journal - Behind 'Shortage' of Engineers: Employers Grow More Choosy:
Many companies say they're facing an increasingly severe shortage of engineers. It's so bad, some executives say, that Congress must act to boost funding for engineering education.
Yet unemployed engineers say there's actually a big surplus. "No one I know who has looked at the data with an open mind has been able to find any sign of a current shortage," says demographer Michael Teitelbaum of the Alfred P. Sloan Foundation.
. . .
In fact, the number of students graduating with a bachelor of science degree in computer science rose 85% from 1998 to 2004, according to figures compiled from universities by the Computing Research Association. The number of bachelor degrees in engineering rose to 72,893 in 2004 from 61,553 in 1999, according to the American Society for Engineering Education.
The Journal article tries to get to the heart of this conundrum: the skills mismatch.
Amid rapidly changing technology, the engineers employers want aren't necessarily the engineers who are available. And companies often create the very shortages they decry by insisting on applicants who meet every item on a detailed list of qualifications.
. . .
Hiring managers often prefer to wait for the candidate who has the exact combination of attributes they seek, rather than immediately hiring someone who comes close and then giving that person time to get familiar with a new machine or software program.
And with technology changing rapidly, yesterday's skills are not necessarily in demand today.
Pradeep Khosla, dean of engineering at Carnegie Mellon University in Pittsburgh, says that for older engineers, "there is a problem of technology moving at a very fast rate. When engineers are without jobs, it is usually because they have not kept up." Mr. Sylvester, the recruiter, puts it more bluntly: "A guy who's been working on a 15-year-old application is a dinosaur."
"Getting engineers who have the type of talent you need, quickly -- a great background, very well-educated, mobile -- has become more important over the last few years," says Jane Leipold, vice president for human resources at Tyco Electronics, Harrisburg, Pa., a unit of Tyco International Ltd. "The demands are different. The advances in technology mean you need very specific talents."
One employer demand that flummoxes many engineers is the need for "soft" skills -- working in groups, communicating and writing. In August, Cornell University hired a speaker to instruct its engineering students in "etiquette and interpersonal skills." (Hints: Don't crumble crackers into your soup or blot your underarms with the dinner napkin.)
"During the dot-com boom demand for electrical and computer engineers was so great it was enough if you could just write code," says Prof. Khosla. "Things have changed a lot."
[Ironically, it is claimed that the lack of "yesterday's skills" is what gave a large boost to offshoring as companies had a hard time finding people in the US who could work on the older Y2K vulnerable systems - and went overseas, specifically to India, to get those skills.]
So - what is to be done?
Both stories contain seeds of a sensible technology policy. Mr. Anderson and others are absolutely right that we need to continue to attract foreign students. The inflow of talent has greatly enriched our economy and to restrict that flow (as we seem to be doing in the name of national security) is the proverbial cutting off our nose to spit our face. As Richard Florida noted at an Athena Alliance event this summer, we are becoming, or appearing to be, more restrictive—both by neglect and by policy. As a result of this and other factors, the US may be losing the competitiveness race to the emerging giants of India and China.
And we need, as a recent National Academy of Sciences report Rising Above the Gathering Storm points out, to dramatically increase our support for R&D and science/engineering education. As I have said before, it is absolutely absurd that we have to defend the bi-partisan technology programs that we put in place in the 1980's. In this regard, the work of the Alliance for Science & Technology Research in America (ASTRA) is to be commended.
But we just can't go around yelling "fire". Nor can we rely on the old solutions (see my piece on the new competitiveness challenge). As the Journal story points out (and again I'm old enough to attest to this) we have been here before:
Many executives who contend there's an engineer shortage today predict it will get worse over the next decade as baby boomers begin to retire. This summer a report from a business consortium called for doubling the number of science and engineering graduates by 2015 to fill a projected gap. But crystal balls about labor markets tend to be cloudy. In the mid-1980s, the National Science Foundation predicted "looming shortfalls" of some 675,000 scientists and engineers in the following two decades. They never materialized.
We need a new approach - and here is where the Journal story hints at a real possibility. We need to pay more attention to keeping our existing engineering and scientific workforce up to speed! It is not just about training new engineers (that is one way to get the latest skills). It is about making sure that the current workforce never becomes "dinosaurs".
One idea is a human capital investment tax credit, as suggested by Catherine Mann. This would be available both for new hires (helping offset the cost of acquiring the niche specialized training that employers say they need to spend so much time searching for) and, most importantly, for current workers (to give them the new skills need to continue on the job).
We also need to change our accounting system so that we measure and track those investments in human capital. As the saying goes: what gets measured, gets managed.
Another idea is finding ways to strengthen ongoing "continuing education" programs at universities, colleges and community colleges. We could also increase support for workers who are continuing their education - either part-time or while they are still employed.
We also need to find ways to strengthen the informal mechanisms of knowledge creation and transfer: mentoring, the transfer of tacit knowledge in social settings (social capital), etc. We must not restrict our attention to just the original “formal” classroom education. In the I-Cubed economy, learning can't stop when a person leaves the building.
Let's put our attention on the total skill development of the S&T workforce - and everyone else, for that matter. That is how we will strengthen our competitive advantage and avoid the skills-person mismatch that seems to plague our S&T labor market.
Posted by Ken Jarboe at 11:18 AM | Comments (0) | TrackBack
US borrowing continues - growing the sharecropper society
This from the Financial Times - "Foreign buying of US assets rises to record":
Foreign investors poured a record $101.9bn into US assets in September, according to Treasury data which eased market concerns that any fading demand for dollar assets could undermine the US currency's value.
. . .
The bulk of the $101.9bn flowed into US bond markets, including Treasuries, but economists said a surge in inflows into equities was encouraging since it indicated a possible broadening of investor interest which should support future inflows and leave the dollar less dependant on demand for bonds.
The good news: foreign investors continue to lend the US money to cover our deficits (trade and budget) - meaning the economy won't immediately crash.
The bad news: foreign investors continue to lend the US money to cover our deficits (trade and budget) - meaning that we owe more and more (principle and interest) to foreign investors and continue our trek to what Warren Buffet calls the "sharecropper society".
Posted by Ken Jarboe at 10:35 AM | Comments (0) | TrackBack
November 15, 2005
Taxing (and valuing) intangibles
Why does this story remind me of the Beatles song "Taxman"? From yesterday's Washington Post - "N.H. Puts a Price on Panoramas":
The view from Brad Wilder's hillside house is a 270-degree panorama of New England high country: the rugged peak of Mount Ascutney, the reddening leaves and white-painted houses of the Connecticut River valley and -- on some lucky fall days -- migratory geese cruising by at eye level.
His vista is stunning. But you can't say it's priceless.
Wilder's view has actually been valued right down to the dollar: According to the town of Plainfield, it is worth $237,265. In 2003, town officials deemed it a bonus feature of his home, like a third bathroom or marble countertops, and ordered him to pay about $4,700 in property taxes for it.
Which left Wilder with a lot of questions.
Chief among them: How do you value a view?
Yes, valuation of intangibles is one of the accounting problems of the I-Cubed Economy (see our study Reporting Intangibles).
But valuation of property views is not such a big deal. It has been going on for a long time. For example, the Federal government gives tax breaks to people to protect the view. And various private foundations or local governments have various financial programs to protect the views. They are called a scenic easement or a conservation easement, where the owner is restricted from developing the land. There are even conservation easements for the facades of historic houses. All of these require valuation.
The irony of this story is that someone else may be getting a tax benefit for providing Mr. Wilder his (taxable) view. If he owned the land he was looking at, he might have gotten a tax break or some other financial reward for leaving it as it is.
There is a second irony in this story. The higher property values are forcing some to sell and leave. This is, of course, the same New Hampshire that boosts of no income tax and makes politicians take the no-tax pledge:
The change has been blamed in part on New Hampshire's lack of a sales tax or personal income tax, which means that property taxes bear much of the revenue burden. In recent years, the state has been pushing towns to keep their property assessments up to date so that none of this crucial revenue is missed.
One way or another, the taxman is going to get you.
Or as Justice Oliver Wendell Holmes, Jr. said, "Taxes are the prices we pay for civilized society."
Posted by Ken Jarboe at 2:13 PM | Comments (0) | TrackBack
The next Chinese challenge
We all know about China as a manufacturing power. What most people don't realize is that China is moving rapidly up-market to capture not just cheap manufacturing, but high-end design. (Remember the Japanese rise when "Made in Japan" went from meaning cheap to meaning high-tech and quality?) As Business Week reports - "China Design":
There's a lot of that going on in China these days. As Chinese companies seek to build global brands and foreigners aim to boost sales in the mainland, they're transforming the country's design business. Chinese manufacturers realize they need better products if they want to break out of China and beef up their margins on sales abroad. And foreign companies such as Sony are starting to see that as Chinese consumers get more discriminating, they're no longer content with the tired, designed-somewhere-else models that many overseas-based marketers once sold in China.
This is powering a boom in design on the mainland. The best Chinese companies are building their design staffs or hiring outsiders to help them make more products of their own. Design is one of the most popular majors at Chinese universities today, and hundreds of design consulting firms have sprung up in Shanghai, Beijing, and Guangzhou. "Large companies [in China] are saying: 'We can't catch up fast enough,"' says Craig M. Vogel, a professor of design at the University of Cincinnati who has worked as a consultant to several companies in China. Even young designers from abroad are flocking to Beijing and Shanghai to try their luck in the world's most dynamic consumer market.
Chinese designers are still behind the curve. But they are moving fast:
Since Hunan University opened China's first school of design in Changsha 23 years ago, the discipline has taken off. Beijing's Tsinghua University is opening a new 60,000-square-meter design building, and in Guangzhou the Academy of Fine Arts just moved to a new eight-story facility with enough space for 3,000 industrial design students -- five times its current capacity. Today, China has some 400 schools offering design classes that together graduate some 10,000 industrial designers annually, up from just 1,500 or so five years ago. "Design schools are popping up like bamboo shoots," marvels Yan Yang, chairman of Tsinghua's industrial design department.
Design is even seeping ever deeper into Chinese society. Beijing has introduced into the national curriculum a new course called Technology and Design in which students learn about the history of design and what constitutes good design. "Traditionally, Chinese people are very good at design," says He Renke, dean of Hunan University's design school, who helped develop the curriculum. "Now we need a renaissance."
The numbers don't yet add up to a comparative advantage in good design - but China is clearly headed in the right direction. While US schools argue about "Intelligent Design," Chinese schools are studying "Technology and Design".
Which of these paths do you think will produce the economic superpower of the I-Cubed Economy?
Posted by Ken Jarboe at 8:47 AM | Comments (0) | TrackBack
November 14, 2005
UK gets it - again
This from today's FT - "Budding entrepreneurs to be sent to US":
Students with entrepreneurial flair will be sent to the US to learn how to make the most of their business ideas under plans for a scholarship to be unveiled by Gordon Brown later this year.
After introducing a requirement in September that children receive five days a year of education that promotes entrepreneurialism, the chancellor writes in today's Financial Times that the government wants to add summer schools for budding businesspeople and the US scholarship programme.
Once again, like with the link between manufacturing and design, Gordon Brown and the UK get it. Brown's FT article - "Britain's future lies in entrepreneurial talent" clearly links entrepreneurship with education:
If we are to have enterprise in our boardrooms, it must start in our classrooms. A Britain of enterprise needs schools that, like business and society, motivate young people and challenge them to achieve greater heights. In 1997, less than 15 per cent of schools offered enterprise education. Now half of all schools do. By 2006, every school in Britain will offer such education.
This education must be available not just for boys but also for girls. If the UK could achieve the same levels of female entrepreneurship as has the US, Britain would gain three-quarters of a million more businesses.
And enterprise education must extend beyond the normal school term - to provide inspiration and support to those with talent and enthusiasm throughout the year. So later this week, when I visit Manchester to meet young people and entrepreneurs, I will set out plans for new enterprise summer schools to be set up throughout the country next year.
And where are the US scholarships for "budding businesspeople"? The answer lies in what the foundation and higher-education system is doing to promote entrepreneurship. According to the 2003 Global Entrepreneurship Monitor, "the United States continues to be a leader in entrepreneurship education and training at the undergraduate and graduate levels." That may be why Gordon Brown wants to send UK students here to study.
At the college level, entrepreneurship is a growing area. According to the Kaufman Foundation's 2004 Survey of Endowed Positions in Entrepreneurship and Related Fields in the United States, "(t)he number of chairs and professorships in entrepreneurship and related fields grew 71 percent, from 237 in 1999 to 406 in 2003." And there are a great number of individual scholarships (many university-specific) for students wishing to study entrepreneurship. There are also a number of specialty-specific Federal scholarship programs (such as math, science, public heath, etc.) in addition to the general student aid programs.
What we don't have is a specific Federal entrepreneurship education program or strategy.
I repeat what I just said in today's earlier posting: maybe we need an National Innovation Foundation charged with educational assistance and promotion of all forms of innovations, including entrepreneurship and S&T.
Posted by Ken Jarboe at 11:53 AM | Comments (1) | TrackBack
NSF research on innovation
I have often complained that our "innovation" policy is focused on S&T and not on innovation. But, there is one ray of hope. The National Science Foundation has released its grant announcement for research on Innovation and Organizational Change (IOC):
The Innovation and Organizational Change (IOC) program supports scientific research directed at advancing understanding of how individuals, groups and/or institutional arrangements contribute to functioning, effectiveness and innovation in organizations.
The array of research topics is vast (an illustration of how much work there is to be done):
Research will be supported in several areas and disciplines relevant to the core mission of the program. Potential research problems may include, but are not limited to:
1. effects of individuals, groups, social networks and interpersonal relationships on organizational and institutional outcomes;
2. persistent challenges to and enablers of organizational effectiveness, such as team dynamics, organizational structures, organizational cultures, crossfunctional coordination, and organizational governance;
3. factors that enable or impede innovation creation and diffusion, organizational learning and improvement, and knowledge transfer within and among organizations;
4. key considerations in entrepreneurship, formation of new organizations, organizational change or transformation, organizational crisis and decline, and cooperation among organizations;
5. research pertinent to organizational effectiveness under emerging conditions, such as globalization, cultural and social evolution, public policy changes, and technological innovation;
6. relationships between social, economic and technological forces and organizational forms;
7. evolution and diversity of populations of organization types and institutional arrangements across industries or in response to social, political or market forces;
8. evolution and diversity of labor forces, including how demographics affect and are affected by organizations;
9. creation of methods and infrastructures that enhance research opportunities for a large community of organizational researchers, including new organizational databases, organizational data mining tools and analysis techniques, schemes for enabling data accessibility while preserving privacy, and/or technologies to enable improved data access and integration; and
10. processes and structures for improving research, development, and engineering tasks necessary to carry out effective knowledge creation in national laboratories, multi-disciplinary university centers, and industrial research departments or communities.
But (and there always seems to be a but . . .), total funding for this programs is only $1.5 million. Given the research agenda, this is the proverbial drop in the bucket. And "half of which is expected to be dedicated to proposals pertaining to organization and management of scientific endeavors involving shared technological resources." It is the National Science Foundation, after all. So dedicating a portion to the management of scientific endeavors is perfectly understandable. Unfortunately, the leaves only $750K for research on other innovation issues.
Maybe we need a National Innovation Foundation - of which the NSF could be part?
Posted by Ken Jarboe at 10:26 AM | Comments (0) | TrackBack
November 11, 2005
Pat Roberson's version of science
Just a short follow up to yesterday's posting on the Dover PA school board election:
CNN.com - Robertson warns Pennsylvania voters of God's wrath - Nov 10, 2005
Conservative Christian broadcaster Pat Robertson told citizens of a Pennsylvania town that they had rejected God by voting their school board out of office for supporting "intelligent design" and warned them Thursday not to be surprised if disaster struck.
Of course, this is the same "Christian" who advocated the assassination of a foreign leader.
Enough said.
Posted by Ken Jarboe at 12:04 PM | Comments (0) | TrackBack
November 10, 2005
Teaching science - update
Some sense in Pennsylvania (in contrast to Kansas) - "A Decisive Election in a Town Roiled Over Intelligent Design":
On Tuesday, the residents of Dover ousted all eight school board members running for re-election who had put their town in a global spotlight and their school district on trial for being the first in the nation to introduce intelligent design as an alternative to evolution in science class. In swept the full Dover Cares slate of eight candidates, which had coalesced to oppose the change in the science curriculum.
And please note that this is not an anti-religion issue. As the Rev. Warren Eshbach, "a spokesman who campaigned for the slate of new School Board members, said the new board supports discussing intelligent design in a social studies elective or theology class."
I agree - teach it in your theology classes, but don't teach it as science.
Posted by Ken Jarboe at 1:35 PM | Comments (0) | TrackBack
Anti-gravity patent
From Patent granted for antigravity device | News.blog | CNET News.com:
The United States Patent and Trademark Office has given the nod to a patent design for an antigravity device, or a space vehicle, according to a report this week in Nature magazine.
That the office approved the patent application breaks its own resolution to reject inventions that defy the laws of physics, according to the report. Still, the patent, which was granted on Nov. 1 to Boris Volfson of Huntington, Indiana, describes a vehicle propelled by a superconducting shield. The shield can change the curvature of space-time outside the craft in a way that counteracts gravity.
Watchdogs called the science bogus, however. "This is not the first such patent to be granted, but it shows that patent examiners are being duped by false science," Robert Park of the American Physical Society in Washington DC said in the report.
Something has got to be done now to reform the PTO!
Posted by Ken Jarboe at 1:29 PM | Comments (0) | TrackBack
September trade in intangibles
According to this morning's BEA trade data, the surplus in our balance of trade in intangibles actually increased for the second straight month. The surplus rose by $144 million to over $6.8 billion in September. [Note that the revisions for the August data showed our intangibles surplus grew by less than originally reported - $195 million rather than $270 million.] Up until August, every month in 2005 had recorded a worsening trade balance in intangibles. The September surplus is still below the peak surplus of almost $7.5 billion in December 2004.
Even so, the improved balance in intangibles is utterly swamped by the growing monthly deficit overall, which surged by $6.8 billion to $66 billion.
The deficit in Advanced Technology Products increased dramatically in September to $5.6 billion, as exports actually declined while imports continued to increase. The last monthly surplus in Advanced Technology Products 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.
Posted by Ken Jarboe at 12:40 PM | Comments (0) | TrackBack
November 9, 2005
Models of the future of the internet
The BIG internet story today was Microsoft's new strategy for the Internet - moving to web based services and away from stand-alone software - in what Bill Gates is calling "the next sea change." The core of the strategy was outlined in an email from Ray Ozzie, Chief Technology Officer for Microsoft. I found one excerpt especially interesting - from WSJ's Excerpts From Gates Email, Ozzie Memo on Internet Push:
Most challenging and promising to our business, though, is that a new business model has emerged in the form of advertising-supported services and software. The model has the potential to fundamentally impact how we and other developers build, deliver and monetize innovations. (emphasis added)
Why I found this interesting is that there was also a Wall Street Journal story on how TV is moving away from the free, (advertising-supported) broadcast model to a specific pay-per-view model - "Networks Go Boldly -- And Fearfully -- Into TV's Future"
When CBS and NBC broke a longtime taboo by making hit prime-time shows available through video-on-demand services this week, it wasn't to get rich on the 99-cent download model. Anyone with a digital video recording device such as TiVo can already access shows when they want, and millions more Americans are likely to have such technology in the near future.
Instead, the newly announced deals have to do with corporate strategy -- and fear. Broadcasters are scrambling to gain a foothold as their traditional business landscape starts to crumble. Technology, from video-enabled cell phones to DVRs to the Internet, is increasingly putting content at consumers' fingertips. At the same time, it is pushing the networks away from their decades-old model of broadcasting shows for free and selling ads to make money.
The result: the networks want to train consumers to think of TV shows as products that aren't free -- and make the idea of on-demand ventures more palatable. The TV business is also trying to avoid the music industry's mistakes in this realm. In the early days of music download services, labels were clueless about the changes sweeping their field, so they put too many restrictions on how songs could be used, and had unrealistic expectations about how much consumers would pay
I have long said that at some point we won't have 57 channels (and nothing on) [to quote the Bruce Springsteen song] or a couple of hundred channels (which the true TV fanatic can get today). We will have one channel and the "networks/producers" will let us know when the latest episode of our favorite show is ready to be downloaded.
That future is rapidly approaching. And it will likely change the advertiser-viewer relationship. Ads won't disappear -- but people's tolerance for them while they are paying for the content may decline. Nothing burns me more than watching a cable TV show -- knowing that I am paying for it and having to put up with what seems to be twice as many ads as on "free TV." Of course, premium channels, like HBO, don't have that problem.
As TV moves to the pay-per-view (presumably less advertising) and Microsoft moves to an "advertising-supported" model, we might be headed to a perfect natural experiment to see what consumer's tolerance for ads really is. But I predict that mixed models are more likely to emerge. The example of Eudora -- where you can get the program/service in at least three forms: free but basic, free with full feature but ad supported, paid with full features. Other experiments are being played out daily in newspaper websites, where the debate over subscription versus advertising-supported rages on.
As far as Microsoft's discovery of web based services, I see this as just the next round of the centralized processing / decentralized processing phenomena. Maybe in ten or fifteen years we will see a repeat of the famous "Soviet Union/Big Brother" ads by Apple - in this case touting the liberation of the computer user from the centralized Microsoft computer system with a revolutionary new idea: stand-along software on your own machine!
The more thing change . . .
Posted by Ken Jarboe at 5:12 PM | Comments (1) | TrackBack
Teaching science?
WSJ.com - Kansas Approves Evolution Critique For Classrooms:
Turning back stiff opposition from scientist and teacher groups, the Kansas state board of education adopted science standards that question evolution and open the classroom to what some proponents describe as nontraditional explanations for scientific phenomena.
Antievolution initiatives in Kansas and some other states have been pushed by advocates of "intelligent design," many of whom are conservative Christians. The moves come at a time when U.S. high-school students lag behind their counterparts in other developed countries in math and science. Critics of the board's decision, adopted by a 6-4 vote, believe the new standards will put Kansas' students at greater disadvantage.
Enough said, for now.
Posted by Ken Jarboe at 12:02 PM | Comments (0) | TrackBack
November 8, 2005
Worry over research funding
Here is the latest statement of concern about research funding - Research money crunch in the U.S.:
An outspoken group of information and communications technology innovators is worried that the United States is falling behind the rest of the world in technological innovation because fewer dollars are being allocated to long-term research.
At a symposium here [New York] last week put on by the Marconi Society, technology researchers and scientists gathered to honor two of colleagues: Gordon Moore, co-founder of Intel, and Claude Berrou, co-inventor of turbo codes, which are used in 3G mobile telephone standards.
At the two-day event, attendees voiced concern over the state of technology research in the United States.
"I think we are in trouble," said Leonard Kleinrock, professor of computer science at the University of California at Los Angeles and creator of the basic principle of packet switching. "Years ago, people took a long-range view to research. There was high-risk research with the potential for big payoffs. That's no longer the case."
The participants at the Marconi Society symposium were clear about another part of the problem - the focus on short-term activities by companies:
Private industry isn't expected to pick up the slack where the government falls short, experts say. For the past several decades, the high-tech industry has become increasingly dependent on government-funded research partnerships with academic institutions to spur innovations. Companies such as Cisco Systems partner with researchers in academia, rather than operating their own large-scale research labs focused on long-range issues. Only a handful, like IBM, Sun Microsystems and Microsoft, maintain large and growing research arms.
"The competitive nature of these industries means they can no longer fund research that offers benefits for humanity," when the research has no immediate return in investment for the company, [Marconi Society chairman and former director of Bell Laboratories Robert] Lucky said.
Unfortunately, while there is a great amount of attention to the front-end problem of basic research funding, there is little attention to the rest of the system. No one is looking at the root causes of the short-termism in corporate America - other than to repeat the bromide of "it's because of competitive pressure." That may be true, but companies are not going to survive in the competitive business arena by focusing only on the short term. Competition should be spurring more - not less innovation.
Also unfortunately, the exclusive focus on the government R&D part of the system both ignores the rest of the process - and reinforces the flawed pipe-line model of innovation (a topic I've ranted on before).
It also fails to address the critics who point out that research is increasingly a globalized activity. Research is not confined within national boundaries nor are the benefits confined within those boundaries. Many countries (including the US) benefit from the collective international research activity and the US can benefit from research preformed elsewhere.
I'm glad there are more and more voices pointing out the problems with our basic research system. Now, where are the voices raised in concern over the rest of the innovation system - including our ability to import ideas from abroad?
Posted by Ken Jarboe at 1:44 PM | Comments (0) | TrackBack
Supreme Court takes on patents - again
Last June, I wrote about a Supreme Court decision that limited the scope of patents and tried to put some common sense into the push for "monopoly rights forever and on everything" that has taken over our "innovation" system.
Now come word that the Court will review another case that could place limits on what is patentable - in this case, medical tests (from the website: Managing Intellectual Property)
The Court granted certiorari in Laboratory Corporation of America Holdings v Metabolite Laboratories Inc on October 31, despite receiving a brief from the government proposing that it reject LabCorp's petition. It is rare for the Court to hear a patent case against the solicitor general's advice.
. . .
The question that the Court will answer is: "Whether a method patent setting forth an indefinite, undescribed, and non-enabling step directing a party simply to "correlat[e]" test results can validly claim a monopoly over a basic scientific relationship used in medical treatment such that any doctor necessarily infringes the patent merely by thinking about the relationship after looking at a test result."
The case involves a diagnostic test carried out by doctors. Metabolite's patent covers tests to determine homocysteine levels in the body. But Metabolite claims that the patent also covers the scientific relationship between homocysteine and vitamin B deficiencies. Therefore, says the company, the patent claims all forms of correlating test results, such as a doctor seeing low homocysteine results and determining low vitamin B levels.
"The Supreme Court may decide that this case is their vehicle for deciding the broader issue of patentable subject matter," said Jay Thomas, professor of law at Georgetown University.
Even if the Court rules on the narrow question of medical testing, it will be a step forward. Patenting of a scientific relationship strikes me as being "overly-broad" in the extreme.
On the other hand, maybe Einstein's heirs want to retroactively patent E=MC2. Then we wouldn't have to worry about nuclear proliferation - just the enforcement of the patent infringement cases.
Posted by Ken Jarboe at 10:31 AM | Comments (0) | TrackBack
November 7, 2005
Teamwork
The latest in business research: WSJ.com - Teamwork Raises Everyone's Game
Research from a variety of settings, from hospital operating rooms to Wall Street, suggests that the way people work together is important for an endeavor's success -- even in fields thought of as dominated by individual "stars." The studies may offer lessons for executives on boosting productivity and innovation.
In the case of heart surgery, teamwork literally can be a matter of life and death. Robert Huckman and Gary Pisano of Harvard Business School analyzed the work of Pennsylvania heart surgeons who practice at more than one hospital. The professors found that the death rates from similar procedures performed by the same surgeon can vary as much as fivefold at different hospitals. Most of the time, patients did better in the hospital where their surgeon performed more operations.
Mr. Huckman says the results suggest that the surgeon's interactions with anesthesiologists, nurses and technicians are crucial to the outcome of the surgery. "The argument has always been that if you want to get something done well, you go to the best surgeon," he says. "Our findings suggest that the skills of the team, and of the organization, matter."
. . .
After analyzing 14 years of National Basketball Association results, Shawn Berman, an assistant professor of management at Santa Clara University, and two associates found that teams where players had played together longer won more games -- as many as five additional wins in an 82-game NBA season. The teamwork effect held up even for bad teams; bad teams that played together a lot won more often than they should have based on other criteria.
Mr. Berman attributes the gains to what researchers call "tacit knowledge," such as anticipating where a teammate will be on a fast break. But he warns that the boost from playing together diminishes over time, and eventually can hurt a team, suggesting that occasional infusions of fresh blood are important.
Sound like what we have been saying for years:
1) learning by doing is important - that is how you build tacit knowledge
2) sharing of tacit knowledge is important - the sharing not only helps others, it builds new group tacit knowledge
3) infusion of new information and new tacit knowledge is important for innovation - that is how you keep tacit knowledge from becoming stale.
Posted by Ken Jarboe at 5:55 PM | Comments (0) | TrackBack
Losing a key US intangible
As I've stated before, there is a link between the US's international policy actions and the value of the "US" brand in international commerce. Over the weekend, we saw the most recent blow to the US's reputation, as reported (without mincing any words) on the front page of today's Wall Street Journal: Failed Summit Casts Shadow On Global Trade Talks:
A failed summit of leaders of the Western Hemisphere dealt a blow to global trade liberalization and strengthened the influence of Venezuelan President Hugo Chavez, a critic of the U.S. who favors protectionism and old-style socialism.
. . .
In handing Washington an embarrassing defeat, Venezuela was joined by the four countries of the Mercosur trading bloc, a customs union led by Brazil and Argentina and also including Paraguay and Uruguay.
While trade was the key topic, this was not simply a repudiation of the notion of free trade. This was a repudiation of American leadership. Spin it as they will, the White House can not deny that for a US President to attend a "Summit of the America's" and come back not only empty-handed but slapped in the face is a major defeat.
Let us hope that this drop in the US prestige in our own backyard is both temporary and limited to policy, not commerce.
Posted by Ken Jarboe at 12:25 PM | Comments (0) | TrackBack
Tension in Bangalore
As Westernization takes hold in parts of India, a backlash is developing. According to today's Wall Street Journal, "Once Footloose, Bangalore Clubs Are Now Dancing-Free":
The city fathers of this conservative part of India's Hindu heartland recently dusted off old morality codes that effectively outlaw dancing. The move was a reaction to the rising temperature of the club scene in India's version of Silicon Valley -- a reflection of the discomfort traditional Indians feel as their young sons and daughters drift toward Western ways and mores.
. . .
The new law is part of a broader crackdown. Since the southern city started enforcing the "Licensing and Controlling of Public Entertainment (Bangalore City) Order" in July, the police have been roaming the city and closing down bars, cabarets and establishments with live bands and dancing girls. Under the new order, discos are treated like bars promoting prostitution.
"The legislature was worried that such places are corrupting the minds of the young," says Kishore Chandra, a police commissioner in Bangalore. "A lot of undesirable actions may be going on."
Clearly, the city fathers haven't read Richard Florida!
I wonder what this will do to the offshoring trend. Will it cause more young Indians to think once again about moving to the US and Western Europe? Will it cause a reversal in the trend of young European computer hot-shots to move to India where the cost of living is low?
It remains to be seen it the forces of reactionary conservatism in India will manage to stop progress - just like they seem to be trying to do in the US. The battle rages on.
Posted by Ken Jarboe at 11:51 AM | Comments (0) | TrackBack
November 4, 2005
State of Manufacturing IV - R&D
If manufacturing companies are struggling to cope with the present (as discussed in earlier posts), how well can they be doing in preparing for the future? Not too well, judging by some recently released data from the OECD Science, Technology and Industry (STI) Scoreboard 2005. It is fashionable to decry the decline in government supported for science and technology (see for example, the National Academy of Sciences' recent report Rising Above the Gathering Storm). But companies are also to blame. According to the OECD report's country note on the US:
The United States has experienced a decline in R&D intensity from a peak of 2.73 of GDP in 2001 to 2.6 in 2003, which is mainly due to a decline in business spending on R&D since 2000. (emphasis added)
The report also indicates that while the US has a high level of researchers employed by business, the growth in the number of private sector researcher has only been average. These results are probably attributable to the decline in profitability in key technology sectors (see earlier discussion on the importance of profits).
The US country note also goes on to state that:
The United States is facing growing competition in manufacturing
The United States was among a limited number of OECD countries where services accounted for the bulk of labour productivity growth over 1995-2003. Knowledge-intensive services, such as telecommunications, finance, insurance and business services, now account for almost 25% of US value added, which is the third highest share in the OECD, with only Switzerland and Luxembourg having a larger share.
High-technology industries, such as pharmaceuticals, aircraft, ICT equipment and precision instruments, account for over 35% of US manufacturing exports. Only Ireland, Korea and Switzerland have a larger share of these industries in total exports. The United States, as well as Japan, have lost market share in the OECD area in these industries over the past decade, mainly to the benefit of Mexico, Ireland, Belgium and Korea.
The United States accounted for just over 25% of worldwide value added in manufacturing in 2002. China accounted for about 8%, making it the third-largest manufacturing economy in the world, ahead of Germany, but behind Japan and the United States.
However, the main report also notes the changing nature of manufacturing:
Concerns about deindustrialisation are back on the agenda in many OECD countries. Recent years have seen a steep decline in manufacturing employment in many OECD countries. While overall manufacturing employment has declined, not all sectors have fared equally. Most of the decline in manufacturing employment over the past three decades has occurred in only two activities, textiles products and basic metal products. In several activities, notably food products, paper products, chemicals, motor vehicles and other manufacturing, manufacturing employment in the G7 countries has remained relatively stable. This is partly because OECD countries still maintain a comparative advantage in certain sectors of manufacturing activity, in some of which demand has been quite strong, e.g. pharmaceuticals. In certain other industries, such as food products, manufacturing production is often located close to the market.
That is some comfort to US manufactures.
More later on the report's analysis of the changing nature of manufacturing, the rise of knowledge-intensive services and the interaction between services and manufacturing.
Posted by Ken Jarboe at 12:04 PM | Comments (0) | TrackBack
November 3, 2005
State of Manufacturing III - health care
Yesterday's posting discussed how even companies with excellence in manufacturing and recognized innovation like Delphi are in trouble. One of the reasons is rising health care costs. As David Wessel points out in his column today in the Wall Street Journal "Pressure Mounts to Mend the Health System":
Wal-Mart Stores, the master of controlling the cost of everything, is alarmed at the rising cost of employee-health benefits. The United Auto Workers, which negotiated the best health benefits in U.S. industry, will force its General Motors retirees to pay health premiums for the first time and surrender active workers' raises to pay for health benefits.
The fraction of Americans with government-provided health insurance has crept up during the past 15 years (27.2% in 2004 versus 23.3% in 1989) as the fraction with employer-provided insurance slipped (59.8% versus 61.1%) and the ranks of the uninsured have grown (15.7% versus 13.6%).
Private-sector wages, according to the government's best measure, have risen only 2.2% in the past year, not enough to offset rising prices, a fact that workers are noticing. The cost of benefits, including health care, has risen 4.8%, a fact that employers cite to explain why cash raises seem stingy. "Workers are giving their raises to the health-care system, and most don't fully understand that," says Helen Darling, of the National Business Group on Health.
These are the sounds of the foundation of the U.S. health system cracking under the strain of rising costs, the unceasing advance of often-costly medical technology and drugs and an aging population with an unquenchable appetite for health care.
GAO came to the same conclusion in its report earlier this year, 21st Century Challenges: Reexamining the Base of the Federal Government:
Between 1992 and 2002, overall health care spending rose from $827 billion to about $1.6 trillion; it is projected to nearly double to $3.1 trillion in the following decade. This price tag results, in part, from advances in expensive medical technology, including new drug therapies, and the increased use of high-cost services and procedures. Many policymakers, industry experts, and medical practitioners contend that the U.S. health care system--in both the public and private sectors--is in crisis. In the public sector, long-term simulations of the federal budget show a large and growing structural deficit resulting, in large part, from known demographic trends and rising health care costs. Since Medicare spending is driven by both these factors, its burden on the budget and the economy will balloon--tripling by 2035 and quintupling by 2075. One of the fastest-growing segments of health care in both the public and private sectors is prescription drugs. In 2004 the Medicare Trustees estimated that over a 75-year period the federal share of the new Medicare benefit would be $8.1 trillion in current dollar terms. In the private sector, employers and other private purchasers of health care services find that the soaring cost of health insurance premiums poses a threat to their competitive position in an increasingly global market, often contributing to company decisions to outsource American jobs overseas, to hire part-time rather than full-time workers, and to minimize cash wage increases and pension costs.
For some of us, this is deja-vou. Wessel points out:
We have been here before. Angst about health-care costs drove the attempt by former President Clinton and Hillary Clinton to restructure the system. When that proposal was disintegrating on Capitol Hill, the price of inaction was as clear as the shortcomings of the plan itself.
To paraphrase myself, from a June 24, 1994, column: Employers grew weary of picking up the tab not only for their own workers but for those without insurance or those covered by Medicaid and Medicare, which pay less than full cost. As they squeezed out inefficiencies, they cut their share of the cost of covering the uninsured. That forced up premiums for smaller employers. The number of uninsured grew and free care became harder to find. The government's costs, from the Medicaid program for the poor to emergency rooms at municipal hospitals, soared.
Yet the issue appeared to evaporate in the late 1990s. Profits were so fat that employers didn't worry as much about health-care costs, and tax revenue produced federal budget surpluses. Workers were so scarce that employers didn't try so hard to shift costs to workers. This largely defanged unpopular managed-care companies that had helped restrain cost increases.
We had an opportunity in the early 1990's and we blew it. I was on the Clinton health care task force - and my job was to try to make sure that the proposal addressed the competitive problems facing US manufacturers. It was one of the most frustrating experiences in my life. For once, we had large corporations and consumers clamoring for the same thing. But politics took over - and the opportunity was lost.
Now we are facing the same problems again. Rising health care costs are stealth threat to our transition to the I-Cubed Economy. But heath care is also one of the foundations of the intangible economy. Health care is both a major intangible service and one of those classic examples where attention to intangible can pay off. Many of the solutions to rising costs revolve around information and more customized preventative treatment (to head off more costly procedures later on).
But understanding the role of intangibles can play here is difficult. It is not clear they can lower health care costs while improving quality. For example, increased use of information technology (IT) is often touted as a solution. But, increased IT may not improve quality (see posting Better IT is not the same as better information). And IT may, like other medical technology, simply drive up costs. Likewise, a debate rages on whether stronger IPR helps (by providing incentives for more profit-seeking R&D) or hurts (by preventing use of generics which would lower prices and by keeping information from being shared). We need to think long and hard about how we do this right.
Wessel describes two possible approaches:
One is to prod Americans to be better health-care shoppers by making them spend more of their own money -- often wages that are shielded from taxes -- before health insurance kicks in. The notion is that people consume more health care than they need because it feels free, and there's something to that.
But discouraging Americans from unneeded trips to the emergency room is smart; discouraging them from teeth-cleaning, check-ups and blood-pressure monitoring isn't. And much of the increasing cost of health care isn't driven by too many people visiting the doctor, but by expensive procedures covered by insurance even in these new consumer-driven health plans. . . .
The other approach is to prod health-care providers to provide higher-quality care by paying them more for delivering it.