The Intangible Economy: May 2007 Archives

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May 31, 2007

Registering copyrights

A good article on the state of play of copyrights by Hal Varian this morning -- Copyrights That No One Knows About Don’t Help Anyone - New York Times. As Varian points out, there is no longer a need to register your copyright with the Copyright Office. Copyright is automatically given when the work (such as this blog posting) is created. Some of us voluntarily have adopted the Creative Commons copyright -- but we don't register our works with Creative Commons, just our general conditions for reuse.

The article discusses both the Copyright Office's orphan copyright project (to track down owners) and Larry Lessig's idea of requiring a positive act of registration after 14 years to continue a copyright. I support both of these ideas.

Varian also highlights the notion of creating a copyright registry:

Creating a registry is not that difficult from either a technological or a business perspective. The Copyright Clearance Center (www.copyright.com) was established by a group of publishers in 1978 to provide rights clearance for printed works. The Harry Fox Agency (www.harryfox.com) serves as a clearinghouse for those who want to make recordings of songs, and there are plenty of Web sites devoted to image search to ease the sharing of photographs.

But would the creators charge excessive fees if rights clearinghouses became widespread? I would argue that just the opposite would occur. An easy-to-use, efficient and competitive marketplace tends to push prices down. Reducing the transactions costs of acquiring reproduction rights potentially makes both creators and users of information better off.

Here I have to begin to disagree. I think there is a case for a public/private partnership in creating such a registry, not simply a competitive market. Basic access to information on who owns a copyright should be a governmental function -- just like basic information on who owns a piece of property. But the bells and whistles of a search and data analysis process should be a private undertaking ("value added" is the phrase). The model is the EDGAR system of SEC filings. Anyone can get access to the basic EDGAR -- it is public information. But a host of private value-added services have sprung up, such as EDGAR Online, to provide the additional analytical capability. The partnership works well: the government collects the basic information and the private sector competes to provide the best analytical tools.
(For more lessons learned from the EDGAR system, see our paper Creating A System For Reporting Intangibles -- available as part of Appendix 9 in the EU study on an intangibles reporting registry.)

Having the basic data available to any vendor is the key to fostering the competition Varian talks about. But to do so means the registry system itself need to be an open public system. That sound like a job for the Copyright Office to me.

Posted by Ken Jarboe at 10:20 AM | Comments (0) | TrackBack

Growth?

This just in from the BEA: News Release: Gross Domestic Product and Corporate Profits

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 0.6 percent in the first quarter of 2007, according to preliminary estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.5 percent.

0.6% ???? That is a major revision downward from the advanced number of 1.3% issued last month. It appeared that greater imports, lower government spending and a decline in housing. Of those three, that last two seem to be temporary downturns. As the Washington Post quotes:

The latest report "overstates the weakness of the economy," said Nariman Behravesh, chief economist with the Global Insight consulting firm. He estimated that a rebound in exports and a rise in business spending mean growth for the current three-month period could be as high as 3 percent.

I'm less optimistic. But, the good news is that business investment seemed to pick up. Investment in equipment and software was up 2% after declining 4.8% in 4Q 2006.

And yes, you read that correctly -- software is now counted as a "tangible" investment just like equipment. Of course, what those e GDP numbers don't show are the real investment levels if you counted spending on other intangibles (like R&D and training) as investments. One step at a time.

Posted by Ken Jarboe at 9:24 AM | Comments (0) | TrackBack

The changing organization

Check out James Surowiecki's talk on the future of the organization (based on his book, the Wisdom of Crowds) -- at Power: 2012: Online Only Video: The New Yorker. Going back to the Theory X versus Theory Y, he argues that too many organizations are still run on the command and control model. But, new organizational models are emerging where work is self-organized. While more traditional organizations are trying to utilize better motivation devices, this new non-hierarchy type of organization may be the wave of the future. This new self-organization model runs up against deep seated positive response to power and status -- and our faith in leaders and experts. That faith is often misplaced as "deciders" end up in a situation where their self-confidence results in bad decisions. Reconciling these factors will determine how organizations are managed in the future.

Very interesting.

You might want to also look at the other discussion in the 2007 New Yorker Conference “2012: Stories from the Near Future”.

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

May 30, 2007

When the brand becomes a lock in

Wal-Mart is running into a problem as it tries to go upscale -- itself. According to an internal report (as reported in Is Wal-Mart Too Cheap for Its Own Good? - New York Times), the Wal-Mart model is hindering its growth:

A confidential report prepared for senior executives at Wal-Mart Stores concludes, in stark terms, that the chain’s traditional strengths — its reputation for discounts, its all-in-one shopping format and its enormous selection — “work against us” as it tries to move upscale.

As a result, the report says, the chain “is not seen as a smart choice” for clothing, home décor, electronics, prescriptions and groceries, categories the retailer has identified as priorities as it tries to turn around its slipping store sales, a decline likely to be emphasized Friday during Wal-Mart’s shareholder meeting.

“The Wal-Mart brand,” the report says, “was not built to inspire people while they shop, hold their hand while they make a high-risk decision or show them how to pull things together.”

The document, prepared in October 2006 by the company’s former advertising agency and based on interviews with scores of consumers, offers a candid, wide-ranging explanation for why Wal-Mart, the No. 1 seller of everything from laundry detergent to underwear, has stumbled badly when it comes to higher-end merchandise like silk camisoles and shag accent rugs.

The report contends, for example, that “our low prices actually suggest low quality” for products like high-definition televisions.

Brands have power. They convey certain meanings -- whether you like it or not. Changing that meaning is very hard - if not impossible. Wal-Mart is just the latest to learn that truth. It took the Japanese decades of sustained effort to move "Made in Japan" from meaning "cheap" to "high tech" -- and now they are embarked on an arduous shift to "fashionable." We will see how Wal-Mart responds.

Posted by Ken Jarboe at 10:39 AM | Comments (0) | TrackBack

Update on Chrysler

Two articles on the future of Chrysler and design:
First, there is James Surowiecki latest column Car Trouble: Online Only: The New Yorker saying what many of us have been saying about Chrysler:

Cerberus, then, is going to have to do more than run a tight ship; it’s also going to have to figure out how to anticipate and react to fluctuations in consumer taste. That’s especially challenging in the auto industry, where change generally does not happen quickly: designing and building a new model takes years, retooling factories is complicated and expensive, and union contracts make it hard to shut down or trim back operations. In other industries, like steel, private-equity firms have restructured companies, cut back on (or, via bankruptcy, eliminated) pension and health-care obligations, and watched profits soar. But brand identity and cool design are not factors in the steel industry, so reducing costs and increasing production solves most problems.

And then there was this announcement in Business Week Shake-up at Chrysler Continues;

Following the recent acquisition of a majority stake in the Chrysler Group by Cerburus comes the announcement that there will be a reshuffling at Chrysler's North American design offices. Joseph Dehner and Brandon Faurote will be taking over Vice President positions at the product design offices in Auburn Hills, replacing Thomas Tremont and David McKinnon.

Maybe something is happening? Or maybe not. Time will tell.

Posted by Ken Jarboe at 10:19 AM | Comments (0) | TrackBack

Return of old-line companies?

According to Business Week's list of top 100 small business’s (The Shock Of The Old), old is new:

This year's list, however, is dominated by Old Economy businesses: metal benders, defense contractors, and others that measure their history not in decades but in centuries.

But don't let that misnomer "old economy" fool you. These aren't your grandfather's companies. Take for example the BW story's poster child - Wabtec Corp. Wabtec is the spin off of Westinghouse's locomotive part's business:

A lot has changed since George Westinghouse dreamed up the idea of pneumatic locomotive brakes. Wabtec—still on Air Brake Avenue—mirrors the history of American business. It was bought by conglomerate American Standard Cos. (ASD ) in 1968, taken private in a management-led leveraged buyout 12 years later, and went public in 1995. Since then the company (No. 97) has grown by acquiring other railroad equipment makers, focusing on international markets, and reinvesting some $30 million a year in research and development. One result of that R&D: a cleaner-burning diesel locomotive that helps municipal transit authorities meet federal air-quality standards.

Wabtec Chief Executive Albert J. Neupaver can look out the window of the company offices and see the ornate stone castle that once served as Westinghouse's headquarters. It's now a museum devoted to George Westinghouse. The days of vertically integrated manufacturing are over. The foundry, which once cast steel parts, is a parking lot. Assembly lines where each employee added one bolt have been replaced by a single worker assembling an entire compressor or brake directly from a customer's order. Employee empowerment is in. Several times a year, management and line workers hold brainstorming sessions in keeping with Japan's kaizen philosophy of continuous improvement.

International markets? R&D intensive? Highly automated assembly lines that make parts to customer order? Employee empowerment? That sound a lot like a number of "high-tech" companies now days (can you say "Dell?").

Here are some other examples:

Ceradyne Inc. (CRDN ) (No. 17), which makes ceramic plates for body armor, and Emergent Biosolutions Inc. (EBS ) (No. 27), whose products include a vaccine for anthrax. . . .
Genesco Inc. (GCO ), founded in 1924, once was one of the largest shoe manufacturers in the U.S. As low-cost imports flooded the market, the company became a retailer.

So, can we drop the misleading and distracting mindset of "old economy/new economy"? There is no such thing - at least not based on industry or product. There are companies that are leading edge and there are companies who are lagging behind. Often they are found in the same industry.

The public policy lesson is clear: our job is to help all sectors adapt to the I-Cubed Economy, not write off portions of the US economy as "old" and concentrate only on the trendy "new". That may be a good strategy in the fashion world. But even there, it often pays to stick with the basics. So it is in economic policy. Too bad we often forget that and go chasing after the next big thing or the latest fad (can you say "nanotech"?). The new and the old -- as in many things, balance is important.

Posted by Ken Jarboe at 8:32 AM | Comments (0) | TrackBack

May 29, 2007

Protecting the brand reputation

We all know that corporate reputation is a major intangible asset. Here is a great example of how corporate governance works as a part of that reputation -- Allan Sloan - Aflac Looks Smart on Pay - washingtonpost.com:

When the public face of your company is a duck, you can't afford to foul up your reputation. (Yes, you can groan now.) Take Aflac Insurance, best known for its ubiquitous quacking commercials.

Something funny happened at the company's recent shareholder meeting: nothing. That's because, unlike any other U.S. company with publicly traded stock, Aflac has been smart enough to voluntarily offer its shareholders a "say on pay." Giving in to social-activist shareholders, as Aflac did, doesn't make you popular among the CEO set. But boy, was it the smart thing to do.

Why did Aflac take this course? As Sloan explains:

despite being a big company ($1.6 billion of annual profits, $25 billion in stock market value), it prides itself on holding upbeat, family-type annual meetings. [Chairman Don] Amos told me that the company, founded in 1955 by his father and two uncles who went door to door seeking investors, has never had a dissident proposal on its proxy statement and didn't want one this year.

But more than that was involved. Aflac's top management knows that its reputation is built on more than a duck. The product it sell -- disability insurance -- depends on its reputation for delivering. Disability insurance is not something high on the priority list. If Aflac had a reputation of nickeling and diming its claimants, the reaction might well be "why bother." But the ads stress how well the company takes care of people. Getting into a messy fight over CEO pay could undercut that reputation (by making them look like just another big greedy company). A whole flock of ducks couldn't undo that damage.

And speaking of the duck, top management knows a good thing when they hear it:

"The duck's the cheapest guy we've got working for us -- and the most valuable," Amos said.

So, when do shareholders get to vote on the duck's pay raise?

Posted by Ken Jarboe at 11:07 AM | Comments (0) | TrackBack

Twist in the patent wars

I recently ran in to this interesting twist in the patent war -- how patents and FDA approval can work to knock out the competition. The story involves Adams Respiratory Therapeutics. They make the cold medicine Mucinex - and run the ads featuring Mr. and Mrs. Mucus who take up housekeeping in your nasal passages.

As SmartMoney relates:

Adams has patented the ability of Mucinex to deliver that 600mg dose over a 12-hour period, and relied on favorable regulatory rulings to push the product's growth. After the company gained Food & Drug Administration approval for its extended-release guaifenesin product in 2002, the agency ordered all competing drugs off the market. Now, however, the U.S. patent office is reexamining one of Adams' patents, an action requested by an undisclosed third party.

Yes, you read that right, once Mucinex was given FDA approval, all other competitors became illegal. The Adams 2006 SEC 10-K report goes into further detail:

In 2002, the FDA approved our 505(b)(2) application for Mucinex SE as an OTC long-acting guaifenesin product. Prior to our 505(b)(2) application for Mucinex SE, only short-acting guaifenesin products had been marketed OTC, while long-acting guaifenesin products were marketed as prescription drugs, despite their lack of formal approval by the FDA. Under the Durham Humphrey Act of 1951, the FDA established that no drug may simultaneously be sold as a non-prescription product and as a prescription product at the same dose for the same indication. Any products that violate this rule are subject to FDA regulatory action and removal from the market.

On October 11, 2002, the FDA issued warning letters to 66 manufacturers, distributors, marketers, and retailers of single-ingredient guaifenesin extended-release products. The letters stated that such prescription products require FDA approval, and without FDA approval, they could no longer be marketed legally. A number of the manufacturers and distributors that received a warning letter from the FDA filed a “Citizens Petition,” which is similar to an appeal, with the FDA requesting that the agency either elect not to enforce existing regulatory policies requiring removal of the drugs from the market or delay such enforcement. On February 25, 2003, the FDA issued a letter in response to the Citizens Petition to the 66 recipients of the original warning letter, reiterating that following the FDA’s approval of Mucinex SE in July 2002, all other single-ingredient guaifenesin extended-release drug products may no longer be marketed legally. The FDA decided, however, to allow a grace period for the manufacturers and distributors to remove such drugs from the market as follows:
• the FDA required that the warning letter recipients cease manufacturing unapproved single-ingredient guaifenesin extended-release products no later than May 21, 2003;
• no distribution (including distribution by secondary wholesalers or other distributors) could occur after October 23, 2003; and
• no retail sales could occur after November 30, 2003.

Historically, long-acting prescription guaifenesin products and, according to the FDA, several thousand other drugs were marketed without FDA approval. Resource limitations prevented FDA enforcement actions against many unapproved prescription and OTC drugs. In October 2003, the FDA published a draft compliance policy guide articulating its existing informal policy regarding drugs marketed in the United States that do not have required FDA approval. In June 2006, the FDA announced that it had finalized its policy, under which the FDA will exercise its discretion in taking enforcement action against unapproved drugs once the FDA has approved a similar drug, whether the similar drug is prescription or OTC. In publishing the policy guide, the FDA publicly affirmed the actions it took relating to long-acting, single-ingredient guaifenesin products. As of this date, however, the FDA has only taken regulatory action to remove from the market single-ingredient, extended-release guaifenesin. The FDA approved Mucinex DM and our maximum strength, long-acting guaifenesin and dextromethorphan combination product, as well as Mucinex D and our maximum strength, long-acting guaifenesin and pseudoephedrine combination product, pursuant to Section 505(b)(2) NDAs. We are hopeful the FDA will take similar action on extended-release guaifenesin combination products. However, we can offer no assurance that the FDA will do so or when any such action may take place.

The company's November 2006 SEC 10-Q filing had this to say about the result:

The FDA’s removal of competitive long-acting, single-ingredient guaifenesin prescription products in November 2003. This removal resulted in Mucinex SE being the only long-acting, single-ingredient guaifenesin product available in the United States. Based on data from IMS Health—NPA TM , we estimate that, for the 12 months ended June 30, 2003, there were approximately 10.5 million prescriptions filled for long-acting, single-ingredient guaifenesin products. After November 2003, we believe that a majority of prescriptions written for long-acting, single-ingredient guaifenesin resulted in OTC sales of our Mucinex SE product. Humibid SE is now also available to meet this demand in a maximum strength formulation.

But, the saga isn't over. As the SmartMoney story pointed out, the patents are in re-examination. And the company points out in its SEC filings, another company is seeking FDA approval for a similar drug.

All in all, as I said, an interesting twist. It is also an interesting insight into the competitive nature of businesses built around intangibles and intellectual property.

Posted by Ken Jarboe at 10:12 AM | Comments (0) | TrackBack

Financial competitiveness - part 8

From this morning's Financial Times -- Spitzer moves to update Wall St regulation:

Eliot Spitzer, New York governor, is to form a top-level panel of Wall Street chief executives, lawyers, consumer groups and regulators to modernise financial services regulation in the state.

Chaired by Eric Dinallo, the New York insurance superintendent, the group will seek to keep New York competitive with London by streamlining and modernising regulation without sacrificing the state’s tradition of strong investor protection.

The focus will be to rationalise state regulation of insurance companies, state-chartered banks and securities dealers and perhaps serve as a model for other states and the federal government.

Given Spitzer's record on investor and consumer protection, this effort may have the credibility to actually get something done -- and, I hope, determine what are the real issues.

Posted by Ken Jarboe at 9:21 AM | Comments (0) | TrackBack

May 27, 2007

Immigration bill

There is an interesting dynamic being played out in the immigration bill vis-a-via competitiveness and offshoring.

There is this from the New York Times a week ago -- Many Employers See Flaws as Immigration Bill Evolves:

Employers, a major force in the national debate over immigration, say their discontent with the bill shaping up in the Senate has deepened over the last week because of changes that could make it more difficult for them to hire foreign workers.
High-tech companies, like Microsoft and Oracle, and employers of lesser skilled workers, like restaurants and construction contractors, already had qualms about the original version of the legislation, forged in three months of talks between the White House and a dozen senators.
But from the point of view of many employers, the bill has become worse in the last week.

And this today -- Washington Wire - WSJ.com : High-Tech Companies Seek Change in Immigration Bill

Under the bill being debated this week, businesses would lose the ability to petition to keep a specific worker; instead, a merit-based system would to determine which workers would be able to come to the U.S., with workers getting points for special skills, expertise in science and math and the support of their employer.
The amendment will “preserve the ability of U.S. employers to determine the critical skill sets needed for global competitiveness and innovation,” the Information Technology Industry Council, which represents such firms as Dell Inc. and eBay Inc., wrote in a letter today to Senate leaders. It was signed by dozens of other groups that represent companies in need of high-skilled workers.

Yet, there is this from the Washington Post about how the bill changes the preferences toward business needs --
Immigration Bill's Point System Worries Some Groups:

For weeks, U.S. senators wrestled among themselves and with White House officials over the question of what mix of skills, background and experience prospective immigrants should bring to their new country.
The answer they came up with, embodied in the immigration bill now on the Senate floor, would represent a radical shift in the philosophy of the U.S. immigration system. Rather than focus on reunifying families, the system would emphasize bringing in better-educated, higher-skilled immigrants who would help the United States compete in the world economy.

Then there is this -- Immigration Fight: Tech vs. Tech:

Oracle, Intel, Cisco, and Motorola (MOT) appear to be taking a similar approach, based on a review of government documents and interviews with some of the companies. Oracle is largely hiring software specialists for work at its Redwood City (Calif.) headquarters, and many are paid more than $100,000 a year. Oracle's Hoffman says that 90% of its H-1B workers are green card applicants. Intel often uses the visas to recruit engineers with advanced degrees from U.S. schools. "Our philosophy is that these people are the golden eggs; they're the innovators and future job creators," says Jenny Verdery, Intel's director of workforce policy.

The outsourcing companies have a different approach. They frequently will bring in workers from their overseas operations to help service a client in the U.S., and then the worker will return home. While Wipro declined to comment for this story, Laxman Badiga, the company's chief information officer, said in February that the company brings to the U.S. roughly 1,000 new temporary workers each year and rotates the same number back to India. He said the on-site training allows Wipro to serve clients better.

Lots of different tensions swirling around in this one. And this is just the first step. If the bill survives the Senate, it still has to go to the House (where it may be killed by technicality) and then conference between the two bodies (with the White House weighing in).

So, stay tuned to this one. I'm not sure what to make of all this or where it is headed. But where ever come out of the process will be an important change in the rules of the I-Cubed Economy.

Posted by Ken Jarboe at 11:40 AM | Comments (0) | TrackBack

May 25, 2007

Dani Rodrik's blog

For those of you who haven't seen this, Dani Rodrik has a new (snarky?) blog. Here is a recent sample:
Dani Rodrik's weblog: It's front page news in the WSJ, so it must be a big deal:

May 24, 2007
It's front page news in the WSJ, so it must be a big deal

Frank Levy chides me for overlooking today's page 1 story in the WSJ on globalization. It's called "Globalization's Gains Come with a Price," and it's all about how the wage distribution has gotten wider in developing countries, contrary to what a lot of people were expecting. When I read it, my first reaction was, "this is news?" Frank assures me that it is to most WSJ readers.

Always worth the read.

Posted by Ken Jarboe at 11:30 AM | Comments (0) | TrackBack

Economic mobility in the I-Cubed Economy

A generally agreed upon "fact" of the US economy is the trade off between economic security and economic mobility. American workers may be less secure than in other countries, but that is the price we pay for greater economic mobility.

Wrong, says a new report by the Economic Mobility Project. As the Wall Street Journal put it starkly -- Not Your Father's Pay: Why Wages Today Are Weaker:

American men in their 30s today are worse off than their fathers' generation, a reversal from just a decade ago, when sons generally were better off than their fathers, a new study finds.

The project press release elaborates:

According to the report, men who were in their thirties in 1974 had median incomes of about $40,000, while men of the same age in 2004 had median incomes of about $35,000 (adjusted for inflation). Thus, as a group, income for this generation of men is, on average, 12 percent lower than those of their fathers’ generation. While factors other than cash income also contribute to economic mobility, these data challenge the two-century-old presumption that each successive generation will be better off than the one that came before. The findings rely on new analysis of U.S. Census Bureau data.

What about flexibility and mobility. The WSJ notes:

The study suggests that absolute mobility -- the rate at which an entire generation's lot improves relative to previous generations -- has declined. But within a particular generation, individuals can still get ahead if relative mobility, the rate at which the rich and poor trade places, remains high. Poor fathers may have rich sons, and vice versa.

As the study describes:

To illustrate the importance of relative mobility, consider three hypothetical societies with identical distributions
of wealthy, poor, and middle-class citizens:
The meritocratic society. Those who work the hardest and have the greatest talent, regardless of
class, gender, race, or other characteristics, have the highest income.
The “fortune cookie” society. Where one ends up bears no relation to talent or energy, and is purely
a matter of luck.
The class-stratified society. Family background is all-important — children end up in the same relative
position as their parents. Mobility between classes is little to nonexistent.
Given a choice between the three, most people would choose to live in a meritocracy, which is, by its
nature, fairer and more just.

However, the report states::

Data on relative mobility suggest that people in the United States have experienced less relative mobility than is commonly believed. . . .
There is little available evidence that the United States has more relative mobility than other advanced nations. If anything, the data seem to suggest the opposite. Using the relationship between parents’ and children’s incomes as an indicator of relative mobility, data show that a number of countries, including Denmark, Norway, Finland, Canada, Sweden, Germany, and France have more relative mobility than does the United States (see Figure 3).

The report offers little guidance as to why this is occurring. According to the WSJ,

Ms. Sawhill said several factors could explain the divergence: a growing share of income going to the highest-paid workers, or to profits; an increased share of labor compensation going toward benefits such as health care; or a decline in the number of wage earners in the typical family.

Let me offer one of my own reasons -- the changing nature of work. In part, the I-Cubed Economy is a social network economy. How well you do depends on whom you know as well as what you know and how hard you can work. Those with a broader social network of higher income/wealth connections will do better. And in part, the changing nature of work has disrupted the traditional employment and career ladders (see for example Stephen A. Herzenberg, John A. Alic, and Howard Wial, New Rules for a New Economy,: Employment and Opportunity in Postindustrial America (Twentieth Century Fund, Cornell University Press, 1998). I hope the project will look into these factors more closely.

The report goes conclude with a warning and a sobering thought:

One thing is clear. A society with little or no absolute mobility is one in which for every winner there is a loser. It’s a zero sum game. And a society with little or no relative mobility is one in which class, family background or inherited wealth loom large. Equal opportunity is a mirage. Recalling the three hypothetical societies, it is easy to envision why, for these reasons, high levels of both absolute and relative mobility are desirable. Society should strive for both. But rates of growth in mature economies are often slower than they are in societies that are still developing, and this fact makes a focus on relative mobility of increasing importance.

. . .

While belief in this American Dream remains a unifying tie for an increasingly diverse populace, it is showing signs of wear, with both public perceptions and concrete data suggesting that the nation is a less mobile society than once believed. This is not good: the inherent promise of America is undermined if economic status is, or is seen as, merely a game of chance, with some having the good fortune to live in the best of times and some the bad luck to live in the worst of times. That is not the America heralded in lore and experienced in reality by millions of our predecessors.

The Economic Mobility Project promises more analysis and discussion as to how to reverse this disturbing trend. But we will need concrete action at the end of that analysis. Let's see if our political system is willing to take that next step - whatever it may turn out to be.

Posted by Ken Jarboe at 10:16 AM | Comments (0) | TrackBack

May 24, 2007

Buyers versus users - and the challenge of design

Some time ago, I posted a piece on how many products are returned simply because people can't figure out how to use them. This was, I said, an opportunity for improved design.

But,as Shakepeare said, the fault lies not in the stars, but in ourselves. We demand that complexity. As James Surowiecki's latest column in the New Yorker (Feature Presentation) explains:

You might think, then, that companies could avoid feature creep by just paying attention to what customers really want. But that’s where the trouble begins, because although consumers find overloaded gadgets unmanageable, they also find them attractive. It turns out that when we look at a new product in a store we tend to think that the more features there are, the better. It’s only once we get the product home and try to use it that we realize the virtues of simplicity.

This is presents an extraordinary challenge to designer:

The fact that buyers want bells and whistles but users want something clear and simple creates a peculiar problem for companies. A product that doesn’t have enough features may fail to catch our eye in the store. (A cell phone that doesn’t offer a Bluetooth connection, for instance, may be dismissed as underpowered, even though relatively few Americans use Bluetooth headsets.) But a product with too many features is likely to annoy consumers and generate bad word of mouth, as BMW’s original iDrive system did. Intended to give drivers unprecedented control over navigation, temperature, and entertainment through a single device, it was so hard to use that it has been described as “arguably the biggest corporate disaster” since New Coke.

Great products, like the iPod, rise to that challenge. Others are simply swamped by it -- destined to be returned to the store by a buyer turned user who won't spend more that 20 minutes figuring out how it works.

Posted by Ken Jarboe at 9:08 AM | Comments (0) | TrackBack

May 23, 2007

Financial competitiveness - part 7

According to Alan Murray's column in today's Wall Street Journal Wall Street's Capital 'Crisis' Moves to Back Burner, the battle cry has turned into a whine:

last week came the dull denouement. The Treasury announced it was creating yet another study committee...as if the previous three hadn't been enough. And it named former Securities and Exchange Commission Chairman Arthur Levitt as co-chairman, along with former SEC chief accountant Don Nicolaisen. Mr. Levitt has told anyone who asked that hand-wringing about Wall Street's competitiveness is, as he delicately puts it, "absolute garbage."
. . .
At an event sponsored by the Council on Foreign Relations in New York last week, which was held after Mr. Levitt agreed to head the new committee, but before the committee was publicly announced -- the former SEC chief feistily attacked most of the major recommendations of the so-called Paulson committee. "The IPO issue is a nonissue," he declared.

Murray seems to agree with that assessment:

Of course, it was never that much of a crisis to begin with. Wall Street moguls made much of the statistic that only one of the 20 largest IPOs in 2005 occurred in the U.S. But that oft-cited statistic provided a pretty narrow and misleading window on Wall Street's overall health. Moreover, it was distorted by the fact that some of the largest IPOs were former state-owned enterprises in China and Russia that listed elsewhere for nationalist reasons, and that might have had a hard time meeting U.S. listing standards anyway.
Last week, [Treasury Undersecretary Robert] Steel himself cited a compelling set of numbers showing that the U.S. financial markets remain "second to none."

I'm glad to hear that folks are backing off the rush to deregulate in the name of competitiveness. However, I hope that there will be continued thought given to ways to improve our financial markets. Two areas -- not included in the current discussions -- come immediately to mind: how financial markets deal (or don't deal) with intangibles and whether the short term focus is hurting long-term innovation. A study (or studies) that looked at those two issues would be a huge step forward in assessing the competitiveness of our financial markets in the I-Cubed Economy.

Posted by Ken Jarboe at 12:01 PM | Comments (0) | TrackBack

More on copyright

For a cartoon version explaining copyright, see A Fair(y) Use Tale | Stanford Center for Internet and Society, created by Professor Eric Faden of Bucknell University using clips from Disney movies.

No word from Disney yet as to whether they view this as a copyright infringement.

By the way, in further response to Helprin (see earlier posting), as the movie points out, ideas can not be copyrighted -- only the specific representation of that idea. So Mr. Helprin's exact words can be copyrighted -- his ideas can't.

Posted by Ken Jarboe at 11:21 AM | Comments (0) | TrackBack

Harmonizing regulations -- case of accounting standards

Speaking of harmonization of economic regulations (see yesterday's posting), here is a good summary of the problems of accounting standards, from the Economist -- Speaking in tongues:

International Financial Reporting Standards (IFRS), which aim to harmonise financial reporting in a world of cross-border trade and investment, have made great strides since they were adopted by 7,000 or so listed companies in the European Union in 2005. To date, over 100 countries, from Canada to China, have adopted the rules, or said that they plan to adopt them. The London-based International Accounting Standards Board (IASB) expects that to swell to 150 in the next four years.

Even America, no ardent internationalist, is working with the IASB to narrow the gap between its own accounting standards and IFRS, which foreign companies listed in America could choose by 2009, or possibly sooner. Today such companies must “reconcile” their accounts with American rules—a costly exercise that some believe is driving foreign listings away from the United States.

In late April America's Securities and Exchange Commission (SEC) unexpectedly floated the idea of giving American, and not just foreign, companies the choice of using IFRS.

But, it is not that simple. A number of countries, including the UK, want to include their own specific version. That is leading some to worry that companies will continue to use different standards in different countries. Not to worry, say others -- there is room for countries to do their own thing, as long as they tell everyone what that is:

this, claims David Schmid of PricewaterhouseCoopers, another accountancy firm, is not a problem: “Transparency is the greater goal in accounting, not comparability.” In his view, as long as accounting standards flush out information that faithfully reflects the reality of the underlying business, an investor can do his own sums and either accept or reject management's judgments.

Such a rule of transparency and flexibility might be a good basis other sets of harmonized regulations. Within the US, we already have such a system - where uniform state regulatory codes are modified to suit local preferences. As the National Conference of Commissioners on Uniform State Laws points out, "Model Acts are designed to serve as guideline legislation, which states can borrow from or adapt to suit their individual needs and conditions."

I see no reason why this same system couldn't work on an international level.

Posted by Ken Jarboe at 11:13 AM | Comments (0) | TrackBack

May 22, 2007

Needed -- a new trade policy - part 5

In a bipartisan statement -- Changing the Global Architecture - WSJ.com -- Stu Eizenstat and Grant Aldonas make an important point about the future of our trade system:

Regardless of whether the Doha Round succeeds or fails, the era of traditional global trade rounds that require a consensus of some 150 nations is over. The world economy is changing too rapidly to wait five to seven years only to agree on the lowest common denominator.

After Doha, it will be time for a new approach, one that brings together like-minded countries to develop a range of different agreements, in the form of a "variable geometry" within the WTO. This will allow those governments willing to move forward, and with the most at stake, to take responsibility for reducing barriers rather than forcing them to wait until consensus is achieved among all.

As a start, the EU and U.S. should give developing countries greater access to the trans-Atlantic marketplace. The current arbitrary and often conflicting rules the U.S. and EU impose on their preference programs should be replaced by a single set of rules that assures consistency and the greatest degree of market access.

The EU and the U.S. should also rally like-minded countries to eliminate barriers to trade in products and services over the next 10 years. As reductions are agreed, the benefits would be extended to all WTO members using the existing "most favored nation" principle. If countries stay on the sidelines as free riders, products crucial to their economies should be excluded from the benefits of liberalization. Moreover, the EU and the U.S. should recruit other WTO members to liberalize market access in specific sectors, especially those dominated by new technologies such as nanotechnology. These sectoral accords should be premised on strict adherence to WTO rules.

I have long advocated shifting to a more sectoral approach (see After Doha: What The WTO Is Not Talking About). The trick here, as they warn, is not settling for the lowest common denominator. Trade policy has moved beyond trade. It is harmonization of economic regulation. That calls for harmonizing upward (see Tom Palley's comments on that -- Globalization Lock-in: What Should Be Done?).

But, what is upward? As Dani Rodrik has commented:

For one thing, where does harmonization start and stop? If it is OK to harmonize on labor, does that also make it OK to harmonize patent laws, and vice versa? And what exactly in labor do we harmonize? And for another, what if other countries do not want to harmonize their policy regimes with the U.S., because they feel this would hurt their own development prospects?

It seems to me that a robust international economic regime has got to leave enough room for different countries doing their own things. The push for economic globalization is narrowing that space--both from the left (labor harmonization) and the right (patents). So maybe the solution is to reconfigure the balance between international obligations and domestic policy space--and not to build more railroad tracks until we do so.

Rodrik is right to use patents as a good example. For a good discussion of how this is working with respect to patents, see James Surowiecki's New Yorker piece Exporting I.P.. We are attempting to export our patent system at the same time we are trying to reform it here at home.

That is a very difficult trick to pull off. And, just as the addition of labor rights to trade deals has highlighted our own lack of complete compliance with ILO standards, our trade offs on patents will set the tone for future negotiations. Yes, everyone needs some room to do there own thing. But standards are standards. We need to make sure we have our own standards right before we start exporting them -- realizing that changes will be made in the process. The last thing we need is to come back in a few years and tell our trading partners - "oops we changed our minds."

Posted by Ken Jarboe at 12:30 PM | Comments (0) | TrackBack

May 21, 2007

Copywrong

Mark Helprin is a great fiction writer (while every talks about Winter's Tale, I would suggest A Soldier of the Great War as his best). His latest piece of fiction, however, shows up as an op-ed in the New York Times. A Great Idea Lives Forever. Shouldn’t Its Copyright?. Helprin eloquently rails against government confiscation of private property -- because copyright expire. He believes in the "natural right" theory of copyrights: intellectual property is the same as real property. Unfortunately, this idea has its fact and logic backward. Copyrights and patents are state-granted monopolies. As Judge Richard Posner (a leading conservative thinker and founder of public choice theory) and William Landes have argued (in The Political Economy of Intellectual Property Law):

Equating intellectual property rights to physical property rights overlooks the much greater governmental involvement in the former domain than in the latter, at least in a mature society in which almost all physical property is privately owned, so that almost all transactions involving such property are private. Government is continuously involved in the creation of intellectual property rights through the issuance of patents, copyrights, and trademarks. Skeptics of government should hesitate to extend a presumption of efficiency to a process by which government grants rights to exclude competition with the holders of the rights. Friedrich Hayek, than whom no stronger defender of property rights can easily be imagined, warned that “a slavish application [to intellectual property] of the concept of property as it has been developed for material things has done a great deal to foster the growth of monopoly and . . . here drastic reforms may be required if competition is to be made to work.”

The conservative Stanford Review has argued that copyright impinges on personal freedom:

Truly vibrant culture requires the freedom to build on, modify, and borrow from others’ work. Copyright makes this process difficult, if not impossible. The creator must apply for permission to use each recognizable source of inspiration, and must change his or her work if denied. Copyright expansion is pushing us toward a sterile, lifeless “culture” where everyone pretends to work in isolation, afraid that others will hurl accusations of theft and sue for damages.

As James Boyle -- FT.com / Comment & analysis / Comment - Rocks in the web’s safe harbours has argued (from the left):

When we are dealing with intellectual property, how do we know who is a trespasser and who is a greedy landowner trying to enclose the public right of way? First lesson, analogies to physical property – like the one I just used – are dangerous. Most of these disputes are about whether a new market, enabled by technology, should lie inside or outside the scope of the artificial monopoly conferred by the intellectual property right. Because these rights are created for a purpose – to foster and disseminate science, innovation and culture – there are inevitable “should” questions involved.

So, the real question is why would a good libertarian like Helprin think the state should step in to stifle competition? After a certain point, copyright is no longer about income and royalties, but about the power to exclude others from utilizing the ideas. As has been pointed out on numerous occasions, one of the biggest flaws in the current copyright system is the blocking of new creations, based in part upon derivative works. (See here and here.) I find it highly ironic that Helprin should advocate state intervention to prevent individuals in the future from further disseminating his ideas.

Copyright exists to provide a balance of incentives for creation and dissemination of knowledge. Unlike Helprin, I think our founding fathers got the idea right when the Constitution provided for intellectual property protection "for a certain time." And when that certain time has expired, ideas should be free -- not locked in some golden cage.

Posted by Ken Jarboe at 9:14 AM | Comments (0) | TrackBack

May 17, 2007

Notes on patenting

From the patent wars:

BUSINESS BRIEFING - washingtonpost.com:

Freddie Mac was sued by a Chicago real estate investment firm that says the McLean company violates its patents with the way it sells bonds. In the lawsuit, filed Tuesday in federal court in Washington, Graff/Ross Holdings says Freddie Mac infringes the patents "by using computer systems and methods to conduct electronic bond auctions of fixed income instruments and will continue to do so unless enjoined by this court."

A Big Stretch - New York Times by Suketu Mehta:

I grew up watching my father stand on his head every morning. He was doing sirsasana, a yoga pose that accounts for his youthful looks well into his 60s. Now he might have to pay a royalty to an American patent holder if he teaches the secrets of his good health to others. The United States government has issued 150 yoga-related copyrights, 134 patents on yoga accessories and 2,315 yoga trademarks. There’s big money in those pretzel twists and contortions — $3 billion a year in America alone.

It’s a mystery to most Indians that anybody can make that much money from the teaching of a knowledge that is not supposed to be bought or sold like sausages. Should an Indian, in retaliation, patent the Heimlich maneuver, so that he can collect every time a waiter saves a customer from choking on a fishbone?

The Indian government is not laughing. It has set up a task force that is cataloging traditional knowledge, including ayurvedic remedies and hundreds of yoga poses, to protect them from being pirated and copyrighted by foreign hucksters. The data will be translated from ancient Sanskrit and Tamil texts, stored digitally and available in five international languages, so that patent offices in other countries can see that yoga didn’t originate in a San Francisco commune.

Stories that have become commonplace as we work through what it means to own ideas in the I-Cubed Economy

Posted by Ken Jarboe at 9:33 AM | Comments (0) | TrackBack

May 16, 2007

Common sense innovation

Sometimes a small procedural change can be a major (and live saving) innovation. Take, for example, this example from today's New York Times column by David Leonhardt:

I was walking through the intensive care unit of a San Francisco hospital earlier this year when I noticed a jarring sight. Most of the patients in the unit were sitting up in their beds. Some of them were gravely ill, drifting in and out of consciousness, but their mechanical beds were still propped up, much as the bed of an alert patient receiving visitors might be.

For more than a decade, it turns out, medical researchers have known that people on ventilators should generally have their heads elevated. When the patients are lying down, bacteria can easily travel from the stomach, up to the mouth and breathing tube, and ultimately into the lungs, causing pneumonia. When people are propped up, gravity becomes their ally.

But hospitals have had a hard time translating this scientific knowledge into better medical care. Patients frequently need to be put on their backs, to be bathed or to receive treatment, and once they are lying down, doctors and nurses — busy worrying about dozens of other things — don’t always remember to move the bed back up.

“When you have to rely on someone to do it, it’s not going to happen every time,” said Dr. Michael Gropper, the director of critical care medicine at UCSF Medical Center, the hospital I was visiting.

So Dr. Gropper made a new rule. Unless there was a written order from a doctor saying that a patient should be lying down, every patient on a ventilator had to be sitting up.

The rule was one small part of a common-sense campaign to reduce infections in the intensive care unit over the last two years. None of it was cutting-edge science, but it has made a big difference: the incidence of ventilator-associated pneumonia has fallen more than 40 percent since 2005. There are people walking around Northern California this morning who otherwise would not be alive.

This idea is called "nudging": make the best choice the default choice. I call it common sense innovation -- something we need more of.

Posted by Ken Jarboe at 2:28 PM | Comments (0) | TrackBack

Financial competitiveness - part 6

The idea that US financial markets are losing their competitive edge due to Sarbanes-Oxley is running up against evidence to the contrary. The latest is a study of the listing of foreign companies on the London and New York exchanges. The paper-- Has New York Become Less Competitive in Global Markets? Evaluating Foreign Listing Choices over Time by Craig Doidge, George Karolyi, René Stulz -- comes to the following conclusion:

Our evidence is consistent with the theory that an exchange listing in New York has unique governance benefits for foreign firms. These benefits have not been seriously eroded by SOX and cannot be replicated through a London listing.

In other words, companies want to be listed on the New York exchange because of the regulations.

The study addresses other issues as well, as the Wall Street Journal (Maybe U.S. Markets Are Still Supreme) explained:

The researchers also say the decline in new foreign listings on U.S. stock markets since 2001 isn't due to regulatory overkill. Rather, today there are simply fewer foreign companies that fit the historic profile for listing abroad: namely, larger, faster growing and less indebted companies from countries with stronger legal protections.

Relative to historical patterns, the U.S. attracted more foreign companies since 2001 than would have been predicted, while London attracted slightly fewer.

The study comes just weeks before the Treasury Department is scheduled to make public its recommendations for regulatory changes. Those changes are expected to include a further advisory committee on changes to SOX.

I hope the Treasury officials have read all the studies - including this latest one -- before making their recommendations.

Posted by Ken Jarboe at 8:22 AM | Comments (0) | TrackBack

May 15, 2007

Manufacturing legislation - update

As I mentioned earlier, the House and Senate are taking different tactical approaches to innovation/competitiveness legislation. Last month, the Senate passed its big America COMPETES Act (S. 761) and the House passed two of its innovation/competitiveness bills -- the 10,000 Teachers, 10 Million Minds Science and Math Scholarship Act (HR 362) and the Sowing the Seeds Through Science and Engineering Research Act (HR 363).

Earlier this month, the House passed its manufacturing legislation - Technology Innovation and Manufacturing Stimulation Act of 2007 (HR 1868). Among other things, the bill expands the Manufacturing Extension Partnership (MEP) program and replaces the Advanced Technology Program (ATP) with a Technology Innovation Program (TIP). Both of these are much needed changes. I have long believed that the range of MEP activities needs to be expanded to account for the changing nature of manufacturing activity. I hope that the new MEP activities will include more product design and innovation as well as thinks like supply-chain management. Likewise, the new TIP program seems to be a re-orientation of the ATP program in useful ways.

The bill goes to Senate Commerce Committee. It is unclear what the strategy is for a House-Senate reconciliation of the various pieces of legislation. But, at least the train keeps moving.

Posted by Ken Jarboe at 10:51 AM | Comments (0) | TrackBack

on three-headed dogs, innovation and clusters

Yesterday I mentioned Bruce Nussbaum’s plea that the new owners of Chrysler restore the company to the forefront of design. On further reflection, I think they can do much more than that. They have the chance to be new industrial heroes by changing the way the US auto industry operates. Senator Obama has repeatedly called for a new bargain with the auto companies: build more fuel efficient cars and we will absorb your health care costs. Congressman John Dingell has resisted the first part of that formula. Most recently, Dingell was quoted (in the Washington Post) as saying about Obama’s suggestion:

I admire Senator Obama's enthusiasm and his desire to focus on solutions. But with all due respect, as the Sopranos would say, I would not travel to Chicago for the purpose of teaching people how to butcher hogs.

With all due respect to the Congressman, that is exactly what we occasionally need to have happen. Someone has to travel to Chicago to teach them new ways of butchering hogs. Or else someone somewhere else will do it first.

One of the more rooted ideas now days in economic development is the notion of clusters. Like companies locate nearby and surround themselves with all the concomitant and support activities. History is full of clustering – with Detroit and the auto industry being a prime example.

Clusters are a wonderful tool for spurring innovation. Geographical proximity is, as I’ve said before, a huge knowledge management technique. What Alfred Marshall explained 115 years ago is still true today:

great are the advantages which people following the same skilled trade get from near neighborhood to one another. The mysteries of the trade become no mysteries; but are as it were in the air, and children learn many of them unconsciously. Good work is appreciated, inventions and improvements in machinery, in processes and the general organization of the business have their merits promptly discussed; if one man starts a new idea, it is taken up by other and combined with suggestions of their own; and thus it becomes the source of further new ideas.

However, clusters can also be a deadly trap – where companies fall into “groupthink.” Competition becomes strictly defined and limited. It takes an outsider to break through. As innovation scholars often tell us, it is not the incumbent companies that produce the novel changes.

Cerberus can play the role of the outsider who charts a new course. Done right, they can become the new folk heroes of the I-Cubed Economy – the people who created the 21st Century US auto industry. Done wrong, they will go down as just another vulture.

Let me suggest that a good starting point would be to embrace Senator Obama’s proposal. It will not come to fruition quickly. But having Chrysler’s new owners onboard will signal a rejection of the business-as-usual mentality that seems to linger around Detroit. That, in and of itself, will be a step forward.

Posted by Ken Jarboe at 8:33 AM | Comments (0) | TrackBack

May 14, 2007

Private equity and design

Bruce Nussbaum has an interesting take on the Chrysler deal on his blog:
Cerberus Should Use Design To Revive Chrysler, Not Just Cut Costs.
DaimlerChrysler Lost Nearly $30 billion On Chrysler. So Why Do Global Managers Think It Is Innovative?

I have some advice for the private equity firm Cerberus that appears likely to buy Chrysler from DaimlerChrysler--don't just cut costs, the way you always do and then flip the company back out to the public. Instead, use Chrysler's deep tradition of design and innovation to reshape the company into a 21st century consumer-driven, adaptable and cool auto giant.

This raises an important question about the deal. Will it simply be a financial engineering deal or a change to create a long term innovative strategy? (By the way, there is a new book out that explains how private equity works -- Private Equity as an Asset Class). My bet is that it will be the former. But we will see. There is a real chance to do something spectacular, as Nussbaum suggests. Let us hope.

Posted by Ken Jarboe at 12:54 PM | Comments (0) | TrackBack

The globalizing economy

Today's New York Times & International Herald Tribune reports this interesting fact:

This year, for the first time, Standard & Poor's expects the 500 companies in its benchmark stock index to generate more than half of their sales outside the United States.

Much of the rest of the story is a standard discussion about how the decline in the value of the dollar is boosting exports . But there is a more subtle reason for the S&P's findings -- acknowledged late in the article:

In addition to exporting more, many U.S. companies are enlarging their operations overseas. General Motors plans to more than double production in India and build a new plant there.
This expansion is not only taking place among manufacturers. Financial services companies like Ernst & Young are growing fastest in India and China. Investment banks like Morgan Stanley, Goldman Sachs and Merrill Lynch are also going on hiring binges to meet the needs of expanding Asian companies.

That, by itself, could explain the shift. The findings are that over half of the companies' sales are overseas -- not that half are exported. As more a more companies expand their overseas operations, of course more and more of their sales will be overseas.

What the S&P is reporting is the globalization of the S&P 500 companies. Unfortunately, the story misses that point completely.

Posted by Ken Jarboe at 11:51 AM | Comments (0) | TrackBack

Offshoring local news

And following up on last week's posting on immobile jobs, here is an illustration that the question about what can be offshored continues to be explored:
Local news reporting outsourced to India - Los Angeles Times:

James Macpherson, editor and publisher of the Pasadena Now website, hired two reporters last weekend to cover the Pasadena City Council. One lives in Mumbai and will be paid $12,000 a year. The other will work in Bangalore for $7,200.

The council broadcasts its meetings on the Web. From nearly 9,000 miles away, the outsourced journalists plan to watch, then write their stories while their boss sleeps — India is 12.5 hours ahead of Pacific Standard Time.

. . .

Larry Wilson, editor of the 30,000-circulation Pasadena Star-News newspaper, scoffed.

"To pretend you can get the feel and the culture of a town as complicated and interesting as Pasadena by e-mailing and doing things over the Internet is nutty," he said.

I tend to think Mr. Wilson is right - you need to be there to get the details and nuances. This one may end up as a failed experiment - similar to the idea of a few years ago about having a video remote receptionist at the front desk. That notion was an extension of the remote telephone receptionist (who could be anywhere) but ran into the problem of not being able to do the physical activities of a receptionist (open the door, sign for packages etc).

To understand what can and cannot be done locally, we will need to build on the dual notion of tangible services (services that require physical action) (see my presentation of this) and the importance of tacit knowledge.

Some of that understanding will come from experimentation -- like the Pasadena Now website. I expect a lot of failures. But that is how we learn.

Posted by Ken Jarboe at 10:06 AM | Comments (0) | TrackBack

May 11, 2007

Blinder on immoble jobs

In last Sunday's Washington Post, Alan Blinder took an important stab at the vexing question -- just what jobs will be left in America. (See Free Trade's Great, but Offshoring Rattles Me)

In addition, we need to rethink our education system so that it turns out more people who are trained for the jobs that will remain in the United States and fewer for the jobs that will migrate overseas. We cannot, of course, foresee exactly which jobs will go and which will stay. But one good bet is that many electronic service jobs will move offshore, whereas personal service jobs will not. Here are a few examples. Tax accounting is easily offshorable; onsite auditing is not. Computer programming is offshorable; computer repair is not. Architects could be endangered, but builders aren't. Were it not for stiff regulations, radiology would be offshorable; but pediatrics and geriatrics aren't. Lawyers who write contracts can do so at a distance and deliver them electronically; litigators who argue cases in court cannot.

There is only one thing wrong with this analysis -- it is not enough. We still need to earn income from foreigners to pay for all the stuff we buy from them. No economy can sustain itself only with localized jobs. Trade is too important. There is always something that someone else has that you need -- be it physical resources or specialized talent. The key to sustainable economic success is having a competitive product. So we need to think as hard about how we improve the ability of our economic processes (workers, organizations, etc) to compete against those Three Billion New Capitalists (to use Clyde Prestowitz phrase). Other wise, we will continue to sell of assets to pay for imports -- leading to what Warren Buffet calls the Sharecropper Society.

Posted by Ken Jarboe at 9:30 AM | Comments (1) | TrackBack

May 10, 2007

March trade in intangibles

This morning's BEA trade data shows that the overall trade deficit worsened in March, as imports surged. The deficit grew by $6 billion to $63.9 billion. Imports jumped by over $8 billion while exports rose by $2 billion. About half of the increase in imports came from a rise in oil, gas and petroleum products.

The good news is a slight increase in the intangibles surplus – up by $74 million to $8.53 billion. The increase was due completely to exports of business services rising faster than imports. The balance on royalty payments remained the same as imports (payments) and exports (revenue) grew by the same amount.

The other good news is that our deficit in Advanced Technology Products declined by over $1 billion to $2.9 billion. The change was the result of increased exports in aerospace and electronics.

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 9:20 AM | Comments (0) | TrackBack

May 9, 2007

Design for real needs

And speaking of design, the Cooper-Hewitt National Design Museum has a new exhibit of real world design. According to Business Week - Design for the Real Mass Market:

In featuring more than 30 innovative tools—each of which addresses issues such as safe drinking water, shelter, health and sanitation, education, and transportation—curator Cynthia Smith hopes to illuminate the critical need for humanitarian design. "It's a call to action," says Smith, who has worked for the Lee Skolnick Architecture + Design Partnership and studied at Harvard's John F. Kennedy School of Government. "We're trying to show that design can change lives."

BW also has a slideshow of a few of the ideas.

As my friend Stuart Hart (and others) have pointed out, the market for needs at the lower end of the income scale is massive (see Stu's book Capitalism at the Crossroads. But innovation and good design is especially important where costs need to be kept low. Contrary to the standard paradigm, where the high end drives everything else, the size of that untapped market at the bottom just might be a spur to improved design in all our products. What an opportunity.

Posted by Ken Jarboe at 9:55 AM | Comments (0) | TrackBack

Business Week's most innovative companies

The Business Week's annual special report on The World's Most Innovative Companies is out -- and the winner is: Apple (same as last year). Rounding out the top ten are Google, Toyota, GE, Microsoft, P&G, 3M, Disney, IBM and Sony. Wal-Mart is #11, Starbucks is #14 and Target is #15. The biggest surprise is the high ranking of Disney - which was ranked way down at #43 last year. According to BW, the improvement was due to a re-animation (pardon the pun) of their short-film program -- Disney Bets Long on Film Shorts:

The program harkens back to Disney's past. In the 1930s, Walt Disney pioneered the animated short as a way of keeping his animators sharp while waiting for the script for Snow White and the Seven Dwarfs to finish. There's even a piece of this new program that's aimed at employees who don't draw for a living. By joining the "Shorts Club," anybody from a secretary to a tech help-desk employee can gain access to a computer workstation in their off-hours to make a five-minute cartoon. These likely won't make it to a theater. But they could help get everybody in the organization excited about what they're doing.

One of the most insightful parts of the special report wasn't about a company -- it was about patents. But the piece (Are Patents the Measure of Innovation?) went beyond the by now normal complaint that patents are a flawed measure of innovation. They look at the alternative measure of citations and found an important insight:

When the Boston Consulting Group calculated the number of citations on patents filed in the last five years by the companies on our list, they found an unexpected result. Even though technology patents, which protect functions, are far more common in number, the five most-cited patents for the top two companies on our list—Samsung Electronics and Nike (see BusinessWeek.com, 4/24/06, "The Top 100 Most Innovative Companies Ranking")—were all "design" patents. Design patents only cover an item's look or form.
In fact, the single most-cited patent among all the companies on our list, a Motorola (MOT) patent that included a particular keypad layout, was a design patent, too. The prominence of design patents, especially among technology companies like Samsung or Motorola, may be further proof that business is recognizing the value of good design.

As many of us have been saying -- design, not just technology, is what counts. Or, maybe design is the new technology. It has always been part of engineering, it has just been subsumed under other things. Maybe it is time for it to resurface.

BTW - Bruce Nussbaum over at NussbaumOnDesign - BusinessWeek Online has a lot of interesting thinks to say about the survey (and many other topic). I suggest you check it out.

Posted by Ken Jarboe at 9:00 AM | Comments (0) | TrackBack

May 8, 2007

Measuring Intangibles

The measurement of intangibles is nothing new. Humans have been measuring intangibles for a long time. Until recently, however, macroeconomics treated intangibles as residuals. With the rise of exogenous growth theory and the recognition of the importance of intangibles as drivers of economic value, more attempts have been made to specifically measure the value of intangibles. As part of this effort, intangibles have come to be seen as assets (stocks) as well as expenditures (flows). These efforts have advanced progress to quantify intangibles. However, as the most recent Athena Alliance report, Measuring Intangibles: A Summary of Recent Activity, shows, a number of important issues remain unresolved.

The first concerns the classification of intangibles and the proliferation of frameworks for doing so. This confusion stands in the way of any type of comparable analysis. The lack of a standard classification between the micro and macro levels also complicates data collection. Since most macroeconomic data is derived from individual and firm-level surveys, a mismatch in macro and micro categories introduces collection and data-translation errors.

Even with a standardized framework, a host of technical issues remain. Issues of immediate expensing versus depreciation must be addressed. Use of direct measures versus calculated estimates must be further explored. Valuation methods also need to be refined and standardized. Finally, there is the issue of missing data. Some data is adequately captured in existing surveys. Some is part of other measures and needs to be teased out. Still other data is completely missing. More work needs to be done to effectively and efficiently capture the missing data.

The measurement of intangibles has come a long way since its earlier treatment as a residual. We now have a much better overall idea of the size and importance of intangibles to national and firm-level economic activity. However, our estimates are still approximate. Much more needs to be done to change the current economic measurement system so it can account for the way in which intangibles operate in the 21st century, an age of information and knowledge.