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October 27, 2006
GDP slows down
The dramatic news this morning from the BEA on Gross Domestic Product showed economic growth slowing to 1.6%
The deceleration in real GDP growth in the third quarter primarily reflected an acceleration in imports, a downturn in private inventory investment, a larger decrease in residential fixed investment, and decelerations in PCE for services and in state and local government spending that were partly offset by upturns in PCE for durable goods, in equipment and software, and in federal government spending.
One of the negative factors in growth was exports of services. While services export in current dollars increased (as is reflected in my monthly analysis of the trade in intangibles), exports in constant (inflation adjusted) dollars actually decreased by 1.4% in the third quarter. Ominously, this was not due to a surge in inflation - as the price index increase for services exports was actually smaller in the third quarter than in the second.
This worrisome trend will need to be watched carefully.
Posted by Ken Jarboe at 8:45 AM | Comments (0) | TrackBack
October 26, 2006
Worldchanging
Business Week asks the question: Can Design Change the World?
The three-year-old Web site Worldchanging.com has quickly established itself as a source for original, sophisticated reporting on green technology and humanitarian tools and organizational models, among other altruistic topics. The editors' focus is on how people can cross-fertilize innovative ideas and collaborate on solutions to a variety of international environmental crises ranging from the quest for alternatives to Big Oil to the dearth of clean water in developing nations.
Worldchanging's executive editor, Alex Steffen, has now edited a book version of the site, Worldchanging: A User's Guide for the 21st Century, which will be published in November. Part encyclopedia of socially conscious companies and movements, part picture-book (it includes gorgeous color photographs by leading photographers such as Edward Burtynsky), and part how-to instructions on becoming a greener consumer or business, the nearly 600-page volume is an invaluable resource you can use without booting up your computer (and so use electricity) to access Worldchanging.com.
The goal of the project, according to Steffen is nothing less than global innovation and problem solving:
Our site and book are trying to disseminate knowledge from various arenas to spur imaginations and prod them to action.
Sounds like the Whole Earth Catalog for the I-Cubed Economy!
Posted by Ken Jarboe at 8:12 PM | Comments (0) | TrackBack
October 25, 2006
Using an "old" product
Here is a wonderful example of innovation as a "new" use for an "old" product. The Boss Puts The iPod to Work - WSJ.com:
When Gaddis Rathel needed to learn Spanish for his job, his boss gave him an unusual tool to help: a black video Apple iPod, preloaded with language lessons.
Last month, Mr. Rathel's employer -- ACG Texas LP, a Plano, Texas, franchisee of the pancake-house chain IHOP Corp. -- started testing Apple Computer Inc.'s digital media player on a few employees to save money on Spanish-language classes. Now, rather than sit in a class on company time or read a textbook, Mr. Rathel uses the iPod for audio training in his spare time. "I've used it in several scenarios around the house and in the car," says Mr. Rathel, 45 years old, who, as a manager of field training, spends a lot of time on the road. He also uses it while waiting to pick up his daughter from soccer practice.
People used to hide their iPods from their bosses, if they used them in the office at all. Now the bosses are passing them out to their employees. Companies from health-care suppliers to fast-food chains are handing out free iPods so that employees can download audio and video files of CEO announcements, training courses and sales seminars.
So, how does this get measured in our innovative statistics? (Answer - it doesn't. It all gets wrapped up in the i-Pod sales numbers.)
Posted by Ken Jarboe at 12:10 PM | Comments (0) | TrackBack
Losing US financial comparative advantage
Brad Setser sees the US losing its financial comparative advantage - RGE - One more sign we live in a new gilded age – Europe is once again the world’s financial center …:
In the new Gilded Age, America is once again drawing in capital from the old world.
Those funds are going to build houses, not railroads – but, well, that is the new way of the world. Those funds come, in aggregate, from Asia, Russia and the Middle East – not Western Europe. But Europe – strangely enough – is still the world’s financial intermediary.
That isn’t the way most economists here in the US see it. The US, they say, has a “comparative advantage” at finance, and specifically at generating financial assets the world wants to hold. I disagree. At least in part. The US certainly has a comparative advantage at selling debt to the world’s central banks. But Europe has had no trouble generating assets private investors want to hold. And Europe increasingly seems to have a comparative advantage at financial intermediation.
Brad bases his argument on the flows of funds:
Gross flows into both the UK and the eurozone topped gross flows into the US. The difference? The big inflows into the UK and Europe were used to finance equally big outflows, while the US used the vast majority of the funds coming in to finance its current account deficit. Put differently, Europe still saves enough to finance its own investment while the US has to import savings from the rest of the world to make up for its own lack of savings.
But there is more to the argument than financial flows. As the Economist put it recently in an article London as a financial centre:
London is a textbook example of an economic cluster, in which businesses locate close to one another because they gain from proximity. “The big warehouse of markets is in London,” says Pascal Boris, chief executive of BNP Paribas's British operation. The distinctive feature of the City cluster is the pre-eminence of foreign financial firms. In this sense, London has become to finance what Wimbledon is to tennis: a place where the best international players come to compete.
Yet modern communications and information technology allow people and businesses to operate from virtually anywhere nowadays. And there are obvious disadvantages in locating at the heart of a metropolis. Property costs are extremely high in London by international standards. Public transport is overcrowded and often unreliable.
The City's vibrancy shows that it offers compelling advantages that outweigh these drawbacks. Financial firms cluster in London because they derive external economies of scale. By thronging together, they create large, liquid markets that drive down trading costs and reduce risks by allowing large deals to be handled.
There are further benefits from locating in the cluster. Firms, large and small, can call upon all the external services needed to put together a complex financial deal, such as advice from lawyers and accountants, or the use of specialist markets. This in turn creates a fertile environment for innovation to flourish—a vital attraction for a global financial centre.
New York City understands the competitive pressure and is fighting back. Mayor Michael Bloomberg has appointed consulting firm McKinsey & Co. to examine why more international companies are choosing to raise money outside of New York. Many place the blame for the NYC financial district's problems on increased regulation, such as the Sarbanes-Oxley Act, and tougher white-collar crime enforcement (notably by New York Attorney General Eliot Spitzer).
But, innovation and utilization of intangible assets are the keys to success in the financial industry - as the Chicago Mercantile Exchange found out in the 1950's and as I have noted a number of times.
It will be interesting to see what the McKinsey study comes up with. If it is a simple rehash of the anti-regulatory line, you can put it on the shelf and forget about it. But if it really grapples with the issues of creating a self-sustaining cluster - and with the flow of funds issue that Brad Setser raises, then it will be a useful blueprint for NYC's economic development. The report is due at the end of November. Stay tuned . . .
Posted by Ken Jarboe at 8:49 AM | Comments (1) | TrackBack
October 24, 2006
Fluency
The question of fluency (versus literacy) seems to be a rising concern in the education community. The problem is this: by measuring reading speed are we teaching children to read fast but not comprehend? A story in today’s Washington Post - In Quest for Speed, Books Are Lost on Children - illustrates the problem:
The result [of recent Department of Education reports], said fluency expert Tim Rasinski of Kent State University, was a message sent to schools to concentrate on speed. "The influence of No Child Left Behind has been such that even schools that aren't Reading First schools are doing periodic [speed reading] testing of kids," he said.
In Ottumwa, Iowa, Evans Middle School did it a different way. Evans was declared a school in need of improvement in reading in 2004, and Principal Davis Eidahl said he adopted a program focused on reading fluency using a model constructed by Rasinski aimed at improving comprehension.
Some students, he said, came into the school reading fast but understanding little.
"They read so fast, with no punctuation and no expression, that we'd go back and ask comprehension questions and they weren't very successful answering them. They hadn't understood what they read," he said.
To slow them down and teach them to talk with expression and comprehension, various exercises were used, including having children read passages to each other and listen to how they sound when reading, asking students to repeat passages, and adding 45 more minutes of reading time each day, he said.
I remember the self-paced reading program I went through in (Catholic) grade school. The test was always speed combined with comprehension. But speed was relatively fixed while increasing comprehension was the goal. Later, when I took speed-reading courses, that relationship was reversed: the goal was to increase speed while maintaining an acceptable level of comprehension. It also stressed, however, that speed reading wasn't appropriate in all situations - for example for reading literature or for highly technical matter.
Similarly, we need to go back to the situation and goals for fluency. If our goal is to produce a citizenry and workforce that can quickly read basic instruction (i.e. don't stick your fingers in this machine), then speed is the important variable. But that may be an industrial age mentality. If the goal in this I-Cubed (Information-Innovation-Intangibles) Economy is to increase (analytical and creative) thinking, then deeper comprehension may be the desired outcome.
And it the No-Child-Left-Behind Act isn't fostering that goal, it should be changed.
Posted by Ken Jarboe at 8:36 AM | Comments (0) | TrackBack
October 20, 2006
Inconsistent research incentives
From the Friday Evening Wrap - WSJ.com:
Budget Bots
Building a really, really fast robot just got a lot less lucrative -- that is, if you're looking for a big payout from the federal government. The Defense Advanced Research Projects Agency says a provision in the defense-spending bill signed into law this week by President Bush pulled away $2.7 million in prize money set out for engineers who win a robot race. Winners will now get shiny trophies, paid for out of the pocket of Darpa's director, instead. The agency, which also fostered the birth of the Internet, has sponsored the cash prize competitions to inspire development of smart vehicles that could be used in the battlefield. But now, the incentives for some competitors are falling away. "The icing on the cake is gone,'' Ivar Schoenmeyr, leader of California-based Team CyberRider, which is retrofitting a Toyota Prius hybrid, said to the Associated Press.
Is this anyway to run an R&D policy?
Posted by Ken Jarboe at 5:27 PM | Comments (0) | TrackBack
Measuring human capital
Recently, the Lisbon Council for Economic Competitiveness and Social Renewal (a Brussels-based think-tank focusing on the EU's Lisbon Accord to become the premier knowledge economy) released its European Human Capital Index:
Based on a methodology devised by Peer Ederer, director of the Human Capital Project, the study predicts major challenges for key European countries – such as Germany and Italy – that do too little to invest in and develop their human capital. If current trends are not reversed, the study says citizens of Sweden and Ireland (which invest heavily in their human capital) could enjoy a living standard up to twice as high as citizens of Germany and Italy – a trend which would turn the traditional economic hierarchy of Europe on its head.
Specifically, the study measures human capital stock, deployment, utilization and evolution in 13 EU countries, and ranks those countries by their ability to develop their human capital to meet the challenge of globalisation.
The index is made up of four factors:
1) Human Capital Endowment. This figure measures the cost of all types of education and training in a particular country per person active in the labour force (i.e. employed person). Specifically, we look at five different types of learning for each active person: learning on the job, adult education, university, primary and secondary schooling and parental education. The figure is subsequently depreciated to account for obsolescence in the existing knowledge base and some level of forgetting.
2) Human Capital Utilization. This figure looks at how much of a country’s human capital stock is actually deployed. It differs from traditional employment ratios in that it measures human capital as a proportion of the overall population.
3) Human Capital Productivity. This figure measures the productivity of human capital. It is derived by dividing gross domestic product by all of the human capital employed in that country. This diverges from traditional productivity measures, in that the figure takes account of how well educated employed labour is, instead of just how many hours are being worked.
4) Demography and Employment. This figure looks at existing economic, demographic and migratory trends to estimate the number of people who will be employed (or not employed) in the year 2030 in each country.
An interesting finding of the study is how European nations are diverging, rather than converging in their human capital:
If policy makers in Germany and Italy continue ignoring the human capital dimension of today’s policy mix, economic power will inexorably seep from the centre to the periphery, thereby reversing the traditional economic hierarchy that has defined Europe for centuries. Long-term potential economic growth could start to diverge sharply among European nations, with Scandinavia, Netherlands, UK and Austria replacing “old Europe” as the core of the new European economy.
The study represents an innovative new approach to measuring intangibles. For example, it includes informal parental education (the general skills and cultural adaptation that parents teach their children) and informal on-the-job learning in its measure of human capital endowment as well as measures of formal education. These measures may or may not be the best answer to the question of how to measure intangibles. But at the very least they are a stab in the right direction.
Even more important, by crafting new measures, the study has the potential for re-focusing the policy debate on areas in need of attention. The Economist’s Charlemagne column, The brain business, probably had the most telling comment:
The study is also a timely reminder that much European debate on innovation and the “knowledge economy” is woefully inadequate. The next time you hear Europeans talking excitedly about increasing research and development spending, as they will undoubtedly do at next week's EU summit, remember that such efforts are only a tiny part of the wider task of building and deploying knowledge.
Substitute the word "US" for "European" and the exact same comment can be made about our side of the pond. Maybe the Lisbon Council's study can be a mechanism for all of us to focus more on the wider task.
Posted by Ken Jarboe at 8:13 AM | Comments (0) | TrackBack
October 19, 2006
Brazilian cachaça
Speaking of geography (see last posting), Brad DeLong directs our attention to the burning issue of Cachaca! And Free Trade. And Intellectual "Property" - how Brazil is seeking geographical indications rights for its popular drink cachaça.
If the EU can push for "geographical indications rights" to protect produces such as Parma ham, Greek feta cheese and Champagne (and the US can push for protections for "Idaho potatoes"), the Brazilians area well within their rights. (See my blog entry on this of last year). Note that the enforcement of these IP protections is the same as for any other IP (such as music and video) - you threaten the other country with WTO approved retaliatory tariffs if they don't crack down on the illegal counterfeiting inside their country.
When we opened up trade measures to internal market activities – as with TRIPS – we dramatically altered the dynamics of trade enforcement.
So Brad, when you are having a glass at the Cafe de la Paz in Berkeley, contemplate this bit of wisdom from the trade experts: it possible to enforce IPR on another countries’ internal activities, but not labor or environmental rights (that would be interference with the market and other nation's laws).
Posted by Ken Jarboe at 9:39 AM | Comments (0) | TrackBack
Geography still matters
A new study by Josep M. Vilarrubia of the Banco de Espana on the Neighborhood Effects of Economic Growth looks at the geography of growth and the geographic spillovers.
One of the most striking features of the world economy is that wealthy countries are clustered together. This paper theoretically and empirically explains a mechanism for this clustering by extending the Acemoglu and Ventura model so that it takes real geography into account. Countries close to fast growing economies experience faster growth in aggregate demand for their exports, stimulating faster domestic growth. As a result, a poor country that is surrounded by other poor countries finds it more difficult to grow because its terms of trade shift against it. When this model is estimated on data for 1965 to 1985, we find statistically and economically significant effects. If the typical European country were located in Africa, these terms of trade effects would have lowered its growth rate by almost 1 percentage point per year. The results strongly suggest that it is very difficult to raise income in poor countries without dealing with regional problems.
An interesting finding. I have to assume that part of it works for localized economies (such as regions/states in the US) as well.
Posted by Ken Jarboe at 8:13 AM | Comments (0) | TrackBack
October 18, 2006
US Japan royalty payments balance of trade
I recently came across a 2004 Bank of Japan analysis of the Japanese balance of trade in royalty payments. Japan recorded its first surplus in royalty payments in 2003, following a shift of industrial production overseas that resulting in greater income from overseas factories.
But the overall US-Japan balance of trade in royalty payments remains in the US favor. The US-Japan royalty balance in industrial property (trademark rights, right of registered designs, utility model rights and patents) turned to a Japanese surplus in 2002, mainly due to automobile, electrical machinery, and IT industries. That surplus is overwhelmed by the trade deficit with the US in copyright royalties, mainly in software. As the report notes:
As the United States maintains a position of overwhelming technological strength in the area of computer programs, roughly 60-70% of Japan’s total deficit in its balance of copyright payments is accounted for by its deficit vis-à-vis the United States.
The report's conclusions are mixed:
What is the outlook for Japan’s balance of royalties and license fees? As it is unlikely US companies will easily lose their superiority in the area of software, Japan’s deficit in its balance of copyright royalties can be expected to remain basically unchanged for the time being. On the other hand, some significant changes can be expected with regard to China, which currently accounts for only 3.5% (first half of 2003) of Japanese exports (receipts) of royalties and license fees. As the Chinese authorities have eliminated their previous general restrictions on royalty amounts, once the manufacturing subsidiaries established during recent years of extremely active foreign direct investment in China begin to show profits, the flow of royalty payments from China can be expected to rise sharply. The royalty incomes of Japanese automobile manufacturers can also be expected to increase steadily as a result of a continued growth of local output in North America and Southeast Asia centered on Thailand. Royalty income will also be boosted by the continued rise in local content ratios. Therefore, we conclude that Japan’s total balance of payments of royalties and license fees will continue to move in the direction of larger surpluses.
However, a closer look at Japan’s balance of payments of royalties and license fees reveals that the current surplus is not the result of an increase in income from licensing intellectual property to non-residents (third parties). Rather, the bulk of the increase is due to payments for trademark and technical instruction received from non-residents (overseas subsidiaries) reflecting both the overseas shift of manufacturing facilities (structural factors) and the increase in overseas output resulting from buoyant economic conditions (cyclical factors). It is also necessary to keep in mind that, in the case of intra-firm trade, the policies of the parent company regarding the recovery of R&D expenditures etc. can significantly affect royalty income (size of surplus). Reviewing the US balance of payments of royalties and license fees from this perspective, it is notable that the US intrafirm trading ratio peaked over a decade ago and has been following a downward trend in recent years. In light of this trend, US companies have maintained their royalty income by licensing software and other core technologies to non-group companies. In its progress toward a truly technology-based economy, it will be desirable for Japan to boost receipts from extra-firm transactions in both software and hardware by achieving higher levels of technology and maturity.
That is the Japanese strategy. What is ours?
Posted by Ken Jarboe at 8:16 AM | Comments (0) | TrackBack
October 17, 2006
Inventors win in Japan
Who owns your ideas, you or the company you work for? Well, in Japan it depends on the terms of your contract.
From Wall Street Journal - Japan Ruling Favors Inventor In Patent Dispute With Hitachi:
Japan's Supreme Court recognized the intellectual property rights of employees who invent products in a landmark ruling Tuesday, ordering Hitachi Ltd. to pay ¥163 million ($1.4 million) to a former worker.
The court backed a January 2004 high court decision that awarded the payment to Seiji Yonezawa who invented technology for reading compact discs and digital video discs while working for the electronics maker, a court official said.
"This is a historic ruling, a first for Japan," said Hidetoshi Masunaga, Mr. Yonezawa's lawyer. He noted that the compensation was much more than the ¥118,000 Hitachi initially gave his client for the invention. "It's simply fantastic."
Hitachi said in a statement that it found the Supreme Court ruling "regrettable." "We fear that this decision may greatly hinder the research development and business efforts of Japanese companies," it said.
In Japan -- a nation that once embraced a tradition of worker loyalty under which employees were guaranteed a job for life but weren't rewarded on performance -- there has been a rise in intellectual property lawsuits by employees in recent years. Some companies don't spell out terms of patent royalty payments in employment contracts, and their scientists have started to complain that they are not adequately compensated for their lucrative inventions.
. . .
Earlier this year, Tokyo-based Toshiba Corp. settled a lawsuit over a flash memory chip patent claimed by a former employee, agreeing to pay him ¥87 million.
My guess is that every Japanese worker will soon be asked to sign an American style contract that signs all IP rights to the company.
Posted by Ken Jarboe at 10:51 AM | Comments (0) | TrackBack
Scandinavia gets it
From Bruce Nussbaum's blog -- Another New D-School Rises--In Europe--Backed By Scandinavian Corporations.
A severe global shortage of innovation talent around the world is leading companies to take an active hand in educating people in design thinking. Thanks to Mark Vanderbeeken for pointing to the fact that Nokia, Lego, Bang & Olufsen and four other Scandinavian companies are backing a new educational institution called the "180 degree Academy" that will teach innovation. It opens its doors in June 2007.
Inspired by the IIT Institute of Design in Chicago and the Stanford D-School, 180 will shift the focus from technology-driven innovation to consumer-focused innovation. The program will follow an MBA model and be interdisciplinary. Students will learn all the ethnography techniques so essential today. More important, they'll learn how to think about possibilities and opportunities.
Scandinavia gets it. What about the US? Nussbaum thinks it is time to do more:
US companies should band together and finance new programs around the country that teach innovation and design thinking. It's time to finance new chairs for professors and perhaps new departments as well. And it's time to do this in both D-school and B-schools.
I agree. And why can't we get some government money into this as well - similar to the NSF funded Engineering Research Centers.
Posted by Ken Jarboe at 10:02 AM | Comments (0) | TrackBack
Canada's trade in cultural goods
Canada tracks international trade in culture goods. According to Statistics Canada:
Canada's trade deficit in culture goods grew by 8.4% in 2005, the largest increase in six years, as exports fell for the second year, and imports rebounded to 2003 levels.
. . .
Canada's four top trading partners in culture goods, last year, were the United States, China, France and the United Kingdom.
The United States dominated Canada's import trade in culture goods. Imports from south of the border represented 76% of all culture goods imported into the country last year. However, this was a noticeable drop from 1996 when the United States accounted for 85% of total culture goods imports.
Last year, Canada imported $3.1 billion in culture goods from the United States, up 0.2%, while it exported $2.1 billion south of the border, a 3.8% decline. As a result, Canada's trade deficit with the United States widened slightly to $941.6 million.
Imports of books, newspapers and periodicals represented 75% of Canada's total culture imports from the United States, whereas film, advertising and books accounted for just over one-half (52%) of exports.
Exports of film and video to the United States have posted strong gains in the recent years compared to other culture products. The share of total exports of film and video increased to 28% in 2005, more than twice the share of 12% posted in 1998. This was offset, however, by a fall of 9 percentage points in the share of writing and published works exports over the same period.
China has made inroads into the Canadian market in recent years. Canadian companies imported nearly $278.0 million in culture goods from China in 2005, predominantly books and postcards.
Imports from France and the United Kingdom outpaced China in 2005, at annual growth rates of 21.9% and 6.2% respectively. Canadian imports from France surged to $231.3 million, while imports from the United Kingdom rose to $150.3 million.
In contrast, exports of culture goods to China fell for the first time in five years. In 2005, Canadian companies exported only $13.0 million worth of culture goods to China, down 15.7% from the record high of $15.5 million exported in 2004.
Since the US seems to be running a surplus (at least with Canada), where are our measures of US cultural trade?
Posted by Ken Jarboe at 9:06 AM | Comments (0) | TrackBack
October 16, 2006
Workforce skills
While a renewed emphasis on career-ready skills is welcome news (see earlier posting), it is necessary to look at the broad range of skills needed to cope with the I-Cubed (Information-Innovation-Intangibles) Economy. Recently, the Conference Board just issued a report on the skills of new entrants—recently hired graduates from high school, two-year colleges or technical schools, and four-year colleges. The skills businesses are looking for go well beyond technical skills:
Basic Knowledge /Skills
English Language (spoken)
Reading Comprehension (in English)
Writing in English (grammar, spelling, etc.)
Mathematics
Science
Government/Economics
Humanities/Arts
Foreign Languages
History/Geography
Applied Skills
Critical Thinking/Problem Solving—Exercise sound reasoning and analytical thinking; use knowledge, facts, and data to solve workplace problems; apply math and science concepts to problem solving.
Oral Communications—Articulate thoughts, ideas clearly and effectively; have public speaking skills.
Written Communications—Write memos, letters and complex technical reports clearly and effectively.
Teamwork/Collaboration—Build collaborative relationships with colleagues and customers; be able to work with diverse teams, negotiate and manage conflicts.
Diversity—Learn from and work collaboratively with individuals representing diverse cultures, races, ages, gender, religions, lifestyles, and viewpoints.
Information Technology Application—Select and use appropriate technology to accomplish a given task, apply computing skills to problem-solving.
Leadership—Leverage the strengths of others to achieve common goals; use interpersonal skills to coach and develop others.
Creativity/Innovation—Demonstrate originality and inventiveness in work; communicate new ideas to others; integrate knowledge across different disciplines.
Lifelong Learning/Self Direction—Be able to continuously acquire new knowledge and skills; monitor one’s own learning needs; be able to learn from one’s mistakes.
Professionalism/Work Ethic—Demonstrate personal accountability, effective work habits, e.g., punctuality, working productively with others, and time and workload management.
Ethics/Social Responsibility—Demonstrate integrity and ethical behavior; act responsibly
with the interests of the larger community in mind.
Unfortunately, American students are not doing as well as they need to in these areas:
The results of this study leave little doubt that improvements are needed in the readiness of new workforce entrants, if “excellence” is the standard for global competitiveness. While the employer respondents report that some new workforce entrants have “excellent” basic knowledge and applied skills, significant “deficiencies” exist among entrants at every educational level, especially those coming directly from high school.
High School Graduates are:
• “Deficient” in the basic knowledge and skills of Writing in English, Mathematics, and Reading Comprehension,
• “Deficient” in Written Communications and Critical Thinking⁄Problem Solving, both of which may be dependent on basic knowledge and skills,
• “Deficient” in Professionalism⁄Work Ethic, and
• “Adequate” in three “very important” applied skills: Information Technology Application, Diversity, and Teamwork/Collaboration.
Two-year and four-college graduates are:
• Better prepared than high school graduates for the entry-level jobs they fill,
• “Deficient” in Writing in English and Written Communications, and
• “Deficient” in Leadership.
And, unfortunately, the report offers only general suggestions as to how to improve the situation:
All stakeholders should examine the areas of greatest “deficiency” and “excellence,” and consider developing cross-sector approaches to aid in the new entrants’ development. Diversity, Teamwork/Collaboration, and Information Technology Application are now perceived as areas in which the graduates are “adequate.” How collaboration between business and schools on these skills has been promoted is an important area for assessment and modeling.
Business should consider calculating the actual costs of remedial training and determine the financial implications of providing versus not providing remedial training—both in the short and longer term—and should evaluate alternative methods of intervention.
Businesses should provide better training for new entrants so they better understand the expectations for advancement and are prepared to chart realistic career paths for themselves.
Educators should consider assessing current curricula in response to the deficiencies and future needs reported in the survey. They should research promising models for incorporating more hands-on and practical experience for students in the curricula and seek ways to involve community organizations and businesses to pilot workforce-applicable learning opportunities.
Young people and their families should assume a significant responsibility for learning and teaching, respectively. Students—the future entrants into the workforce—and their families should assume responsibility for seeking relevant and creative ways to develop basic knowledge and applied skills to enable them to succeed in the workforce.
This is not the first study to lay out what skills are needed in the I-Cubed Economy, and to point out the "deficiencies." What is needed is concrete example of curriculum for schools and of on-the-job and other business provided programs to rectify the situation. Otherwise, we will continue to do nothing but study the problem to death.
(Thanks to Convergence for point us to this study.)
Posted by Ken Jarboe at 2:45 PM | Comments (0) | TrackBack
Resurgence of technical & career education
One of the answers to our economic challenges is technical education. As the Christian Science Monitor reports, Suddenly, vocational training back in vogue:
Enrollment in technical education soared by 57 percent - from 9.6 million students in 1999 to 15.1 million in 2004, the US Department of Education reported to Congress.
There's every indication that interest is continuing to rise, as families struggle ever harder to afford the traditional college education and as demand grows for skilled US workers in fields such as aviation mechanics, computer technology, electronics, global positioning, and trades ranging from culinary arts to construction.
"American career technical education is being redefined because the needs of the evolving US and world economies are changing," says Darrell Luzzo, incoming president of the National Career Development Association. "Educators at all levels are recognizing that the world's employers increasingly need skill sets that the conventional four-year college degree doesn't give."
The once-standard offerings of technical education - wood shop, metal shop, machining - don't cut it in today's economy either.
"We are redefining almost everything that has to do with the intersection of new technology and the global economy," says Mark Whitlock, CEO of Central Educational Center in Newnan, Ga., a charter school. "The economy is changing and therefore education has to continue to change."
Fields of study today are likely to include more forward-looking careers: crime forensics, composite-plastic fuselage design, robotics, nanotechnology, radiological diagnostics, 3-D animation, and the burgeoning field of "industrial maintenance technology" (keeping the high-tech systems in a modern industrial building up and running).
Reinvigorating the technical education system is one part of the preserving American economic competitiveness in this new information driven economy. The other is to improve the critical skills that student's need when they enter the workforce. More on that next.
Posted by Ken Jarboe at 8:09 AM | Comments (0) | TrackBack
October 13, 2006
Financial innovation wins Nobel Peace Prize
Press Release - Nobel Peace Prize 2006
The Norwegian Nobel Committee has decided to award the Nobel Peace Prize for 2006, divided into two equal parts, to Muhammad Yunus and Grameen Bank for their efforts to create economic and social development from below. Lasting peace can not be achieved unless large population groups find ways in which to break out of poverty. Micro-credit is one such means. Development from below also serves to advance democracy and human rights.
Muhammad Yunus has shown himself to be a leader who has managed to translate visions into practical action for the benefit of millions of people, not only in Bangladesh, but also in many other countries. Loans to poor people without any financial security had appeared to be an impossible idea. From modest beginnings three decades ago, Yunus has, first and foremost through Grameen Bank, developed micro-credit into an ever more important instrument in the struggle against poverty. Grameen Bank has been a source of ideas and models for the many institutions in the field of micro-credit that have sprung up around the world.
Every single individual on earth has both the potential and the right to live a decent life. Across cultures and civilizations, Yunus and Grameen Bank have shown that even the poorest of the poor can work to bring about their own development.
Micro-credit has proved to be an important liberating force in societies where women in particular have to struggle against repressive social and economic conditions. Economic growth and political democracy can not achieve their full potential unless the female half of humanity participates on an equal footing with the male.
Yunus's long-term vision is to eliminate poverty in the world. That vision can not be realised by means of micro-credit alone. But Muhammad Yunus and Grameen Bank have shown that, in the continuing efforts to achieve it, micro-credit must play a major part.
Bravo!
Micro-credit is one of those exemplary ideas that combines an on-the-ground innovation that fills people's needs with a recognition of the value of intangible assets - people's skills.
Posted by Ken Jarboe at 8:59 AM | Comments (0) | TrackBack
Value of design
IDSA -- News has published a selection of news items from their designBytes on the value of design. There are far too many stories for me to describe, but let me point out a few. There is a great story in the electronics industry newspaper EE Times on "Technology is dead. Welcome to the Age of Design." There is a link to the UK Design Council's report on the financial advantage of design intensive companies. There is a story from FastCompany on how Samsung has used design to transform itself. There is a story . . . Well, you get the idea.
Anyone who has any doubt about the importance of design in economic competitiveness and prosperity needs to spend a day reading these stories.
Then, come back and we can talk about what to do about it.
PS - Thanks to Bruce Nussbaum's blog for point this out.
Posted by Ken Jarboe at 8:52 AM | Comments (0) | TrackBack
October 12, 2006
Is China the future of the service business?
IBM apparently thinks so.
From the Wall Street Journal - IBM to Transfer Key Unit's Base To China From New York State. Note the last paragraph:
IBM is to announce today that it will relocate the head office of its global procurement arm to the southern city of Shenzhen from Somers, N.Y. The division maintains relationships between suppliers and IBM's businesses around the globe.
The move signals a growing outward shift for IBM, one of the U.S.'s leading technology companies and the second-largest software provider in the world in terms of sales after Microsoft Corp.
China is increasingly a key market for many tech companies. In 2004, the country overtook the U.S. as the world's largest exporter of high-tech goods such as laptop computers, mobile phones and digital cameras, exporting $180 billion in products compared with the U.S.'s $149 billion, according to the Organization for Economic Cooperation and Development. Last year, IBM sold its struggling personal-computer business to Chinese PC maker Lenovo Group Ltd.
Although IBM has been buying resources in Asia for more than 50 years, most of its purchases have supplied the hardware-manufacturing side of its business; the company now aims to expand its supply base for software products, as well as the service division, which is the largest in the world.
Now, explain to me why improving US competitiveness isn't the number one topic of discussion in Washington (or at least number two behind Iraqi)? Oh - sorry. "Stay the course" is the watch word of the day - everything is just getting better and better.
Posted by Ken Jarboe at 11:05 AM | Comments (0) | TrackBack
August trade in intangibles
This morning's BEA trade data shows our overall trade deficit for August increasing by $1.9 billion to a record $69.9 billion. An increase of $2.7 billion in exports was more than swamped by a $4.6 billion rise in imports. According to BEA:
The July to August change in exports of goods reflected increases in capital goods ($1.3 billion); industrial supplies and materials ($0.5 billion); other goods ($0.4 billion); foods, feeds, and beverages ($0.4 billion); and consumer goods ($0.2 billion). A decrease occurred in automotive vehicles, parts, and engines ($0.1 billion).The July to August change in imports of goods reflected increases in industrial supplies and materials ($2.0 billion); capital goods ($1.0 billion); consumer goods ($0.7 billion); automotive vehicles, parts, and engines ($0.5 billion); foods, feeds, and beverages ($0.2 billion); and other goods ($0.2 billion).
However, there was better news concerning our trade in intangibles. The intangibles surplus rose slightly by almost $200 million to $8.1 billion in August, due mostly to an increase in royalty payments from abroad (exports) and a slight decrease in royalty payments to others (imports). Exports and imports of business services increased at about the same rate (for an improvement in the surplus of $10 million). Incoming royalty payments and exports and imports of business services are at record levels.
Bottom line is that trade in intangibles is increasing, but the surplus is growing too slowly to offset our huge deficit in goods trade.
The deficit in Advanced Technology Products dropped by a billion dollars to $3.6 billion. The improvement was due to increased exports in aerospace, reversing last month’s sharp decline in that volatile sector. However, the August deficit in these sectors is still significantly worse than the average for the first six months of the 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 8:52 AM | Comments (0) | TrackBack
October 11, 2006
Nobel thinking
Monday, it was announced that Edmund S. Phelps of Columbia University is this year's winner of the Nobel Memorial Prize in Economic Science for his work on the inflation-unemployment interaction. Since everyone else will be cherry-picking his views, let me add mine.
Highlights from his op-ed piece in Tuesday's Wall Street Journal - Dynamic Capitalism.
On the dynamics of capitalism:
First, virtually everyone right down to the humblest employees has "know-how," some of what Michael Polanyi called "personal knowledge" and some merely private knowledge, and out of that an idea may come that few others would have. In its openness to the ideas of all or most participants, the capitalist economy tends to generate a plethora of new ideas.
Second, the pluralism of experience that the financiers bring to bear in their decisions gives a wide range of entrepreneurial ideas a chance of insightful evaluation. And, importantly, the financier and the entrepreneur do not need the approval of the state or of social partners. Nor are they accountable later on to such social bodies if the project goes badly, not even to the financier's investors. So projects can be undertaken that would be too opaque and uncertain for the state or social partners to endorse. Lastly, the pluralism of knowledge and experience that managers and consumers bring to bear in deciding which innovations to try, and which to adopt, is crucial in giving a good chance to the most promising innovations launched.
On the purpose of innovation:
The main benefit of an innovative economy is commonly said to be a higher level of productivity -- and thus higher hourly wages and a higher quality of life. There is a huge element of truth in this belief, no matter how many tens of qualifications might be in order. Much of the huge rise of productivity since the 1920s can be traced to new commercial products and business methods developed and launched in the U.S. and kindred economies. (These include household appliances, sound movies, frozen food, pasteurized orange juice, television, semiconductor chips, the Internet browser, the redesign of cinemas and recent retailing methods.) There were often engineering tasks along the way, yet business entrepreneurs were the drivers.
. . .
I would, however, stress a benefit of dynamism that I believe to be far more important. Instituting a high level of dynamism, so that the economy is fired by the new ideas of entrepreneurs, serves to transform the workplace -- in the firms developing an innovation and also in the firms dealing with the innovations. The challenges that arise in developing a new idea and in gaining its acceptance in the marketplace provide the workforce with high levels of mental stimulation, problem-solving, employee-engagement and, thus, personal growth. Note that an individual working alone cannot easily create the continual arrival of new challenges. It "takes a village," preferably the whole society.
Let me reinforce the collective and organizational notion of innovation (and capitalism). I have noted in earlier postings this week the problem with the "great man theory" as applied to economic growth. We all know that innovation/knowledge/ideas/information is the key to growth - not just increased utilization of labor and capital. But we tend to focus our attention on the big breakthrough ideas and the geniuses who produced them. In truth, it is the multitude of ideas - some that succeed and others that fail - which result in innovative growth. It is the "the pluralism of knowledge and experience" which Phelps cites as the key dynamic of capitalism.
As we continue to refine our national innovation system, let us keep that key feature in mind: it takes a village.
Posted by Ken Jarboe at 8:48 AM | Comments (1) | TrackBack
October 10, 2006
Aiming at the high-brow
. . . and shooting yourself in the foot.
That Which Simmers Is Not to Be Dissed - New York Times:
Time was when it seemed safe to regard the works of Plato as intellectually superior to the racy romance novels of, say, Nora Roberts. In underground Washington, those days are over.
Consider the hoo-ha over new subway posters that try to capitalize on the percentage of people with advanced degrees living in the region.
The Greater Washington Initiative, a business group devoted to attracting investment to the area, put up the posters, which feature side-by-side photographs: of a man reading Plato’s “Republic,” under the caption “Greater Washington Subway Reading,” and of the same man poring over a romance novel, under the caption “Average Subway Reading.”
The reaction from romance writers — and readers — was as fast and heated as a steamy sex scene.
“I’m an erotic romance/romance publisher, and I live in your marketing area,” Stephanie V. Kelsey, editor in chief and chief operations officer of Mojocastle Press, wrote to the group. “Despite the erroneous position many take that romance is ‘easy money,’ it requires the same hard work, honing of skill and commitment as any other genre. To insinuate otherwise in a media representation of your company is not recommended, and we are not amused.”
Neither was Ms. Roberts, a Maryland resident and best-selling author eager to defend the genre and its fans. “The fact that Romance novels make up about 50 percent of sales of all mass market fiction should be an indication of how many passengers are reading a Romance novel on the D.C. Metro,” she wrote, “and how many might be insulted by this ad.”
The folks at the Greater Washington Initiative have been doing a lot of great work on the Creative Economy. However, in this case I think they fell into the same "great man theory" as the Economist (see earlier posting).
Romance readers are as important to innovation and a creative economy as Plato readers. And are likely to be the same people.
Posted by Ken Jarboe at 10:14 AM | Comments (0) | TrackBack
The search for talent
This week's Economist is running a special report on The Search for Talent. (Most of the report requires subscription but the lead article is open to all). The theme through out the report is the global search for talent. Companies are move abroad to get more and cheaper brains. The end point of their analysis is, unfortunately, rather predictable:
America still has overwhelming advantages in the war for talent. One is the quality of its universities, which regularly dominate global league tables. The second is the quality of its business environment—from the availability of venture capital to the quality of its management cadre to its willingness to pay for the best people. The state of California alone has more venture capital than any country outside the United States. Robert Huggins Associates, a British-based economics consultancy, found that the world's top seven regional “knowledge economies”, measured by things such as patent registrations, investment in R&D and the proportion of knowledge workers, were all in the United States.
Europe has less reason to be cheerful than America. Business is burdened by rigidities and regulations. The universities are not what they were. The EU invests 30% less in R&D than America does, and most of its 400,000 researchers working on the other side of the pond have no intention of returning. Yet Europe, too, still has huge strengths in the “tacit” skills that are at such a premium in a knowledge economy. Germany has deep expertise in engineering, Italy in design and Finland in wireless technology. Europe is also doing more than America to reform its immigration system in hopes of attracting talent. All the same, Europe needs to get serious about freeing its economy and its universities from intrusive controls.
Most of the discussion is about how to attract, manage and cope with really smart people. In fact, one of the areas that they highlight as a problem is a potential backlash again talent elites. If smart elites are what drive economic growth in this new economy, then everyone needs to just accept that fact.
I afraid they are taking a wrong turn here. They seem to have fallen in to the "great man" theory of history as applied to economics. Yes, innovation is the engine of economic growth. But, as Edison said, genius is 1% inspiration and 99% perspiration. Much of innovation comes from not geniuses but everyday people. Issue is not how to develop and garner the best of the best - but the talent of everyone. The team that plays like a team usually beats the team with one super star who tries to do it all.
Capturing the tacit knowledge of workers and customers is just as important as nurturing the lone genius.
In fact, one of the articles describes the changing dynamics of why companies go abroad:
If Western companies were initially attracted to the developing world by the low price of talent, they have now moved on to other considerations. Srini Koppolu, the head of Microsoft's India Development Centre (MSIDC), explains that one reason why Microsoft established a development centre in Hyderabad was to gain an edge in the talent war. Being in India gives you access to first-rate techies who do not want to move abroad. MSIDC has grown from 20 employees in 1998 to over 900 today.
The other advantage is local knowledge. Vijay Mahajan, a former dean of the Indian School of Business, which sits next to Microsoft's campus, points out that the developing world is a booming market as well as a huge labour pool. GE calculates that 60% of its growth over the coming decade will come from the developing world, compared with 20% over the past decade. And the only way to understand the new market is to be immersed in it.
Many Western companies thought that their goods would almost sell themselves in the developing world. They reckoned without complicated distribution systems, feisty local competitors and idiosyncratic local habits. Packaged-goods companies found that customers did not want their jumbo packets, for example, because they had little money and little storage space. Local people could have told them that.
Hewlett-Packard has set up research facilities in India in the hope of building a stripped-down 5,000-rupee ($109) computer. Electrolux Kelvinator has developed a refrigerator that will stay cold even after a six-hour power failure. Nokia has produced a mobile phone that includes a built-in flashlight and a dust-resistant keypad.
It is as much the search for localized tacit knowledge that is driving companies as the search for cheaper brains -- which has always been the case.
So, yes we need an educational system that fosters talent and an economic system that rewards it. But we need to keep in mind that “talent” comes in many forms and in many skills. Simply catering to some (self-proclaimed?) knowledge elite is not the way to achieve economic prosperity. Developing the knowledge of everyone is the way to real success.
Posted by Ken Jarboe at 8:53 AM | Comments (3) | TrackBack
October 5, 2006
Corruption as an intangible
Angry Bear ask the question: Measuring Corruption and Other Intangibles.
Not what we normally think of as an intangible asset, but it should be.
Most of his posting is focused on the US case, but he does make a passing reference to the Corruption Index of Transparency International. Having followed the issue for some time (since I was teaching international business at Georgetown in the 1990's), I think the Transparency International data is probably the best. It anyone has anything else, let Angry Bear know.
Posted by Ken Jarboe at 9:17 AM | Comments (0) | TrackBack
Truths about Innovation
From the ain't it the truth department.
The Eight Truths of Real Innovators | Marketing Profs Daily Fix Blog:
Truth #1: Stop equating innovation to R&D.
While white coats are important, there's more to innovation than product & technology. That is why real innovators track every area that could give them a competitive edge and actively seek out areas their competitors have missed.
They introduce metrics to innovate against the customer experience, the processes, the business model of the company. They question every aspect of the organization, not just its product's performance.
The other 7 truths aren't bad either:
Truth #2: Pay people to fail.
Truth #3: Treat everyone as an innovator.
Truth #4: Kill bad ideas quickly.
Truth #5: Launch first, worry about the shortcomings later.
Truth #6: Don’t believe what your customers tell you, dig deeper.
Truth #7: Don’t try radical innovation, buy it.
Truth #8: Mix elements that shouldn’t be mixed.
PS - Thanks to the blog Convergence: Chronicling the alignment of workforce and economic development for providing the tip.
Posted by Ken Jarboe at 8:42 AM | Comments (0) | TrackBack
October 4, 2006
Protecting America's Brand
As I have written about before, I am very worried that America is losing one of its most important international intangibles - its brand. Yesterday, I was at an event that heightened my concerns: a presentation at the Congressional Economic Leadership Institute (CELI) by Keith Reinhard, of Business for Diplomatic Action. Reinhard is a savvy ad executive (remember McDonald's “You deserve a break today”?) who understands brands - and understand that the American brand is in trouble. (See his earlier interview in the Washington Post - New Image for America Begins at Home)
As he pointed out, favorable views of the U.S. have been steadily dropping, according to the Pew Global Attitudes Project June 2006 survey:
A year ago, anti-Americanism had shown some signs of abating, in part because of the positive feelings generated by U.S. aid for tsunami victims in Indonesia and elsewhere. But favorable opinions of the United States have fallen in most of the 15 countries surveyed. Only about a quarter of the Spanish public (23%) expresses positive views of the U.S., down from 41% last year; America's image also has declined significantly in India (from 71% to 56%) and Indonesia (from 38% to 30%).
Even in countries we think of as our friends, their opinion of America has decline: from an 83% favorable opinion in Great Britain in 2000 to 56% in 2006. I remember talking to a good friend of mine who spends half a year in Yorkshire. After 9-11, everyone, even in London, who recognized him as an American spontaneously came up to talk. Needless to say, that doesn't happen any more.
In Australia, the teenage put down is "that's so American."
Not only is growing negative opinion bad for American foreign policy, it is bad for American business. As Reinhard points out, surveys have shown that people in other nations are beginning to not buy American goods as a result. Tourism to the US is down, in part to increased security measures that often border on the rude.
The solutions, he stress, are not easy and not quick. One of the things that caught my attention was a new education project. Business for Diplomatic Action has already created a successful World Citizens Guide to help U.S. business travelers and U.S. students who study abroad become more sensitive to local cultures. Now they propose to create a World Citizens Guide for Kids and a corresponding classroom curriculum.
Give the dearth of geography, history and other social studies in our schools, this is a welcome endeavor. The need is great. For example, a 2006 National Geographic survey, 29% of young Americans (18 to 24) could not located the Pacific Ocean on a map. 11% couldn't even find the US! That is horrific.
It is constantly pointed out that language and cultural skills are just as important as math and science for the future of our prosperity in this international economy. But the talk is not back up with action. Maybe Business for Diplomatic Action can change that.
Unfortunately, their work may be an uphill battle, especially in Washington. The US government is keenly concerned about what the rest of the world thinks of us - but only to try to predict attacks, not that they care about what is said. According to this morning's New York Times - Software Being Developed to Monitor Opinions of U.S. - New York Times:
A consortium of major universities, using Homeland Security Department money, is developing software that would let the government monitor negative opinions of the United States or its leaders in newspapers and other publications overseas.
Such a “sentiment analysis” is intended to identify potential threats to the nation, security officials said.
. . .
American officials have long relied on newspapers and other news sources to track events and opinions here and abroad, a goal that has included the routine translation of articles from many foreign publications and news services.
The new software would allow much more rapid and comprehensive monitoring of the global news media, as the Homeland Security Department and, perhaps, intelligence agencies look “to identify common patterns from numerous sources of information which might be indicative of potential threats to the nation,” a statement by the department said.
Those old-fashioned means of tracking foreign news may not be as sophisticated in their threat pattern recognition as this new software. But, the old-fashioned way was a lot better in understanding what others think of us. Simply reducing world opinion to a threat analysis is the wrong way to go.
So, by all means, look into better software. But understand that people - reading the news and trying to understand the opinions of others - will always be the best source of information. And the best source of the appreciation of others needed to make this a safer and more prosperous world.
Posted by Ken Jarboe at 12:05 PM | Comments (1) | TrackBack
October 3, 2006
R&D and economic growth
Last week, the Bureau of Economic Analysis released its preliminary Research and Development Satellite Account - which measures the effect of R&D on economic growth. As I mentioned earlier, the core of this new accounting methodology is to treat R&D as an investment, rather than an expense. As the Wall Street Journal explained:
In the current system of measuring gross domestic product, R&D is treated like a so-called intermediate expense. For example, salaries paid to research scientists are lumped in with wages paid to assembly-line workers. Under the new approach developed by the Commerce Department's Bureau of Economic Analysis and the National Science Foundation, R&D spending is treated like capital investment, such as the cost of a machine tool or an office building.
This is a major step forward in measuring and understanding innovation and the effect of knowledge and intangibles on economic growth. It is rock solid economics and statistics which deals with many of the difficult technical issues.
The results are impressive:
These experimental estimates of the effect of intangible assets on the U.S. GDP suggest that R&D accounted for a substantial share of the resurgence in U.S. growth in recent years.
* Between 1959 and 2002, R&D investment accounted for 4 1/2 percent of growth in real GDP.
* Between 1995 and 2002, its contribution to real growth rose to 6 1/2 percent.
* In comparison, businesses’ investment in commercial and all other types of buildings accounted for just over 2 percent of real GDP growth between 1959 and 2002.
If R&D were included in the GDP as investment instead of as an expense, business investment would be 11 percent, or $178 billion, higher; and the 2002 national savings rate would be 16 percent instead of 14 percent.
I think it also highlights what an abysmally poor job we have done on issues that really matter for American economic prosperity. Congress can find the money to pass the Paris Hilton tax break (aka repeal of the inheritance tax) but can't find the money make the R&D tax credit permanent.
There will be some, I'm sure, who will try to use this to claim that we are really better off than the critics claim. But that is a distortion of the results. Yes, GDP would be higher, properly measured. But that doesn't mean that the rate of growth would be higher. You have to apply the accounting change to all time period. As the full report shows, GDP would have been higher in all the years they looked at: 2.1%-2.2% higher in 1960; 2.8%-2.9% higher in 1970; 2.4%-2.5% higher in 1980; 2.7%-2.8% higher in 1990.
The real findings are that properly measured, intangibles are a bigger factor in economic growth.
This report is only the first step. As BEA noted:
The estimates measure solely the direct impact of R&D investment. They do not include the effect of R&D beyond those in the industries that conducted the R&D. For example, the increase in output and productivity of the computer industry associated with a new R&D-based innovation are included in the estimates, but the increase in output and productivity of the banking industry associated with using the more efficient computer are not. The banking-industry effect is included in the GDP, but it is not attributed to R&D investment in these estimates. These preliminary R&D estimates are the next steps in BEA’s multi-year program to better measure intangibles.
The full report also pointed out that:
Because intangible assets are increasingly important components of the knowledge economy, BEA is interested in expanding the available data that will allow analysts to understand their role in production and economic growth. BEA is currently engaging in research that might allow it to develop prototype accounts for health care, human capital, and education.
According to the WSJ story:
Paul Romer, an economics professor at Stanford Business School, said the better the measurements of R&D become, the more economists and policy makers will realize other factors may be more important. "If you look at why we had rapid productivity growth in big-box retailing, there were lots of intangibles and ideas that ... don't get recorded as R&D."
We need to continue to look more carefully at all intangibles. The proposed new Measuring Innovation in the 21st Century Economy Advisory Committee is a good step in that direction. Let us hope that the Committee and BEA get the support and resources they need to continue this work.
Posted by Ken Jarboe at 8:17 AM | Comments (0) | TrackBack
October 2, 2006
Immigration and competitiveness II
I don't often agree with Kevin Hassett of the American Enterprise Institute, but on this I think he is dead-on - "City on a Hill" Is No Place for a Border Fence
There has been a lot of talk among Republicans about building a fence between the U.S. and Mexico.Recent developments in Congress have made final passage of legislation prescribing exactly that more likely before the November elections. Building a fence is a strange move for the party of Ronald Reagan, whose call to tear down the Berlin wall ranks as one of the most memorable lines of the 20th Century.
But it is more than just chicken-wire that some leading Republicans have wrong. Their strong anti-immigration stance is a break from Reagan's vision of America that could have disastrous long-run consequences. Reagan often thought of America as representing John Winthrop's "city on a hill.'"
In his farewell address, Reagan said, "In my mind it was a tall, proud city built on rocks stronger than oceans, wind-swept, God-blessed, and teeming with people of all kinds living in harmony and peace, a city with free ports that hummed with commerce and creativity, and if there had to be city walls, the walls had doors and the doors were open to anyone with the will and the heart to get here.'"
That openness has long been a principal characteristic of our country. In 1920, about 13 percent of the population was made up of immigrants. In 2005, immigrants, both legal and illegal, were estimated to be 12 percent of the population.
Salvation or Enemy?
Such openness is fairly unusual in the world, especially among wealthy countries. In Denmark, even the spouse of a citizen may be stopped at the borders. Many such countries shut their doors to the needy. America welcomes them into a dream, even if they are desperate and hungry.
This stance is absolutely crucial for two reasons. First, because the U.S. is the wealthiest and most powerful country in the world, it is to be expected that citizens of other countries would be wary and envious of our status--and in some cases sympathetic to those, like terrorists, who would harm us.
But if citizens of the world, especially the developing world, know they can become Americans, then America becomes not the enemy, but the salvation. A fence tells the world we are greedy about our success, and wary of sharing it. It fundamentally changes our image in the world, turning the hope of our neighbors into animosity.
Competitive Edge
The second reason immigration is crucial is that it historically offers a tremendous competitive advantage. What kind of person has the courage to leave his home country and head to the U.S.? Economists who model such things generally find that the folks with the courage and wherewithal to move are among the best and the brightest.
If we continually outperform our competitors, a big reason is that we are using their first-stringers. The generally high caliber of our immigrants is visible in the data.
Imagine how tough it might be for you to prosper if we plunked you down in a foreign land. But our immigrants manage, and big time. In 2003, median household income for all U.S. citizens was a bit more than $44,000. New citizens definitely come and find themselves at an initial disadvantage. The median income for first-generation immigrants was only about $27,000.
But the amazing thing is how quickly the children of immigrants melt into the great pot. Second-generation immigrants had a median family income in 2003 of more than $38,000, fully 40 percent higher than that of their parents.
What has always been true about our nation remains true today. We are the land of opportunity, whether your ancestors came from Ireland, like Reagan's, or anywhere else.
The data documenting the success of our immigrants indicate that Reagan's final public words about our country still ring true: "She's still a beacon, still a magnet for all who must have freedom, for all the pilgrims from all the lost places who are hurtling through the darkness, toward home.'"
If America loses that, she loses everything.
Posted by Ken Jarboe at 5:34 PM | Comments (0) | TrackBack
Top Design Schools
Check out Business Week's new special report on The Best Design Schools.
This report highlights a number of things we have been talking about. First, that design is becoming the core of innovation and management thinking. This isn't the old "let's make it look cool" school of design. Design is becoming applied problem-solving -- "let's help the customer solve their problem." Note that I said "help the customer solve" -- not "solve the customer's problem." Key is the interactive nature of the process. This is not top-down imposition of a solution/technology/design. It is participatory problem solving - along the lines of the "customer innovation" process (see A Toolkit for Customer Innovation — HBS Working Knowledge.)
A story in the special report - The Talent Hunt - illustrates the concept. When Mozilla went looking for business development help, they when to Stanford's Hasso Plattner Institute of Design rather than the business school:
It made a big difference. A B-school class would have started with a focus on market size and used financial analysis to understand it. This D-school class began with consumers and used ethnography, the latest management tool, to learn about them. Business school students would have developed a single new product to sell. The D-schoolers aimed at creating a prototype with possible features that might appeal to consumers. B-school students would have stopped when they completed the first good product idea. The D-schoolers went back again and again to come up with a panoply of possible winners.
Second, design thinking is international. Included among the top schools are not only US and Canadian powerhouses and creative new programs, but European and Asian schools. These include school in China, India and South Korea as well Italy, Britain, the Netherlands, Germany, Austria, Finland, Sweden, Switzerland and Japan. Anyone who thinks that design is a built-in American competitive advantage hasn't been paying attention. In fact, as the story Designed in China points out:
With more than 400 design programs in Chinese schools, Asian design education is undergoing its own revolution.
According to the story, America is still ahead, for now:
The best Asian schools provide students with first-rate technical skills, but their graduates leave without the ability to work across disciplines or to use design strategically. They're not about to do much business model innovation, for example. Much of this may be attributed to Asian education systems from primary school on, which still tend to stress repetition over independent thinking. Says Justice: "The U.S. has a quick advantage. We grow up asking questions. This carries over into our advanced education. They don't have that in China, and it will take them years to develop that mindset."
Nevertheless, that U.S. advantage won't last long. Already schools in China, Korea, Japan, and even India are pulling together design concepts in new ways to land spots on our Global BusinessWeek Design Schools list. As the Asian schools' competencies grow, a few U.S. design schools are partnering with them. At Oakland (Calif.)-based California College of the Arts, Yves Béhar, founder of fuseproject, recently launched a partnership with Korean cell-phone manufacturer Pantech that brought 20 Korean design students to the U.S. for a brainstorming workshop over the summer. CCA students then returned the visit to present prototypes for the new phones on which they'd collaborated. Pasadena (Calif.)-based Art Center College of Design has partnerships with Tama Art University in Tokyo as well as INSEAD in Singapore. Smart U.S. schools will follow suit.
So, while Washington is trying to cope with the issue of math and science (Science Technology Engineering Mathematics - STEM) education based in part on the concern over the flood of new Chinese engineers, where is the concern over the estimated 10,000 Chinese designers graduating every year? We need to start paying attention to, and supporting, design thinking as well as STEM.
Posted by Ken Jarboe at 9:22 AM | Comments (0) | TrackBack