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April 30, 2008
The lastest in the patent wars
Lying or honest mistakes? That seems to be the crux of one of the sticking points in the patent reform bill, according to a story in today's New York Times - Battle Over Patent Law a Boon to Lobbyists:
A fight has erupted in Congress over whether drug makers and other companies should be allowed to keep patents they obtained by misrepresentation or cheating.
The issue has emerged as a contentious point in legislation to overhaul patent laws. In several cases, the courts have voided patents after finding that companies intentionally misled the Patent and Trademark Office.
The legislation, affecting a wide swath of the American economy, has been a boon to lobbyists. In 15 months, two dueling business coalitions have spent $4.3 million lobbying on the legislation, which calls for the biggest changes in United States patent law in more than 50 years. Companies from almost every major industry have joined the battle.
Patents can protect an invention for up to 20 years. But federal judges can void patents after finding that companies engaged in “inequitable conduct,” meaning that they misrepresented or concealed information with an intent to deceive the patent office. In such cases, judges can declare the patents unenforceable.
Robert A. Armitage, a senior vice president and general counsel of Eli Lilly & Company, said, “This is like imposing the death penalty for relatively minor acts of misconduct.”
Brand-name drug companies are urging Congress to eliminate the penalty — or to curtail it as proposed under a bill passed by the House.
Debra S. Barrett, a vice president of the American unit of Teva Pharmaceutical Industries, the world’s largest maker of generic drugs, said the changes sought by brand-name drug companies “would make it easier for them to cheat and get away with it, easier for them to defend their patents and more difficult for us to get generic products onto the market in a timely way.”
Consumer groups like AARP share that concern. They want to speed access to generic medicines, which can cost 30 percent to 80 percent less than the equivalent brand-name drugs.
And the saga continues. In this case, the fight is generics against name brands. Generics want more drug patents invalidated and name brands want to protect their monopoly.
The article has another very interesting quote:
Jon W. Dudas, the under secretary of commerce for intellectual property, said: “We are getting more and more unpatentable ideas, worse and worse quality applications. Historically, in the last 40 years, the allowance rate — the percentage of applications ultimately approved — hovered around 62 percent to 72 percent. It went up to 72 percent in 2000, but dropped to 43 percent in the first quarter of this year.”
That sound very ominous. Let's see if it is ominous enough to get Congress to act.
Posted by Ken Jarboe at 01:10 PM | Comments (0) | TrackBack
The "r" word -- and stimulus
Well, the debate will begin as to whether the US economy is in a recession, a slowdown or what. This morning, BEA said its advanced estimate of the 1Q GDP growth was 0.6% (at an annual rate). GDP grew by only 0.6% in the fourth quarter of 2007. The old rule of thumb (which the official arbiters of recessions at the NBER don't use) is two quarters of negative GDP growth. Now we have two quarters of very slow growth. On previous occasions, we have called this a "growth recession" -- not negative, but not strong enough to absorb the growing population. Hence unemployment usually rises.
Not surprising, residential construction was the biggest drag on the economy. But all other investment was down as well. Durable and nondurable goods consumption were down as well. Only consumption of services grew. Most of those "services" however are housing and medical care. Purchases of IT equipment and software increased as well (counted under the category of "fixed investment").
The news media is already calling this good news. According to Reuters (via the New York Times) U.S. First-Quarter Growth Stronger Than Forecast, the number "handily topping a forecast for 0.2 percent growth in an advance poll of economists by Reuters." The Wall Street Journal was a little more restrained -- Economy Grew 0.6% in 1st Quarter Despite Weak Consumer Spending: "Economists surveyed by Dow Jones Newswires expected 0.6% GDP growth during the first three months of 2008." It looks like folks are just happy to see a positive number, regardless of how small.
The slow growth may prompt some to call for an additional stimulus package. On the other hand, the Administration is already stated that it prefers to wait and see how the tax refunds work out. Those checks are in the mail now. But since GDP is a quarterly number, their effects will not be known until the 2nd quarter advanced estimate is released in July.
If there is a further stimulus package, it should include some elements that help the I-Cubed Economy. Let me make a suggestion. Add a tax break for worker training -- a knowledge creation tax credit. In a time of slower production, rather than send workers to the unemployment office, let's send them to the classroom. If we can give companies a tax break for a new piece of equipment (as we did in the first stimulus package), surely we can give companies a tax break to upgrade their most valuable asset: their workers.
Posted by Ken Jarboe at 09:00 AM | Comments (0) | TrackBack
April 29, 2008
Future of securitization
Earlier this month, the Wharton School's online newsletter - Knowledge@Wharton ran an interesting piece entitled Coming Soon ... Securitization with a New, Improved (and Perhaps Safer) Face. The article quotes a number of Wharton's finance and real estate professors on what the reforms are needed in the real estate and securities market. I was specifically interesting in there comments on the securitization process (as opposed to the underlying real estate market). They make the point that the securities market became too complex and complicated which resulted in overly risky investments and a crisis of confidence as those investments collapsed. The article quotes Professor Richard Herring as saying, "there has been a highly rational flight to simplicity."
Interestingly, Peter Morici at the University of Maryland School of Business made a similar point in a recent piece one overall economic and trade policy -- Rethinking Fed Policy - Forbes.com:
In addition to adjusting interest rates and bank reserves, Bernanke needs to sit down with the largest banks and fixed-income investors to define simpler, more transparent loan-backed securities that bond-rating agencies can more reasonably evaluate and that fixed-income investors can purchase with confidence.
These are the same points I have made before as well -- and the reason why I believe there may be an opportunity here for intangible asset securitization, as I note in our new Athena Alliance working paper (Intangible Asset Monetization: The Promise and the Reality). Investors need a clear understanding of the asset underlying the security, the risk associated with that asset and the revenue stream generated by that asset. Intangible asset back securities can be crafted with that transparency. And if the nature of the risks involved is acknowledge upfront, specific measures can be taken (and clearly explained) to mitigate that risk. That may be of more comfort to investors than the previous practice of assuming an AAA rated security was risk-less.
Ultimately, the future of an intangible asset backed securities market will depend on the creation of a primary market in intangibles. Certain intangibles -- book and music rights -- are routinely bought and sold. It is no surprise, therefore, that music rights were among the first to be securitized (the Bowie Bonds). In other areas, such as patent, rights have long been traded but organized markets are just beginning to emerge.
Helping these primary and secondary markets will require a number of actions, including patent reform (to ensure that the patent is really worth something) and maybe the creation of an institution akin to Fannie Mae/Freddie Mac (an Ida Mae). (See earlier posting for a list of the most important policy recommendations).
In any event, securitization is here to stay. As we fix the problems from the previous abuses, let us not only prevent future bad things from happening. Let us also explore ways to make good things happen in the future. Promoting responsible securitization of intangible assets would be one of those good things.
UPDATE: Another opinion on securitization, from Bob Pozen (How to Revive Securitization Markets - WSJ.com):
Most markets for securitized debt have dried up. The cause is uncertainty: Since no one knows exactly who owns the potential losses from securitized mortgages, many investors stay away. When the Securities and Exchange Commission Advisory Committee on Improving Financial Reporting meets on Friday, it can take a big step toward reviving this critical part of our financial market. It should recommend that the regulators require someone to "own" the securitization process as well as require more disclosures about who will bear the losses from the assets underlying these securities
. . .
The market for securitized assets can revive if trust sponsors make these disclosures and an independent holder of substantial trust equity is given some governance powers. Under these conditions, FASB can safely continue to allow bank sponsors to keep the trusts off their balance sheets – a necessary step lest we go back entirely to banks holding mortgages to maturity and lose the increased funding available for home purchases generated by the securitization process.
I don't know about the specifics of this proposal, but I wholeheartedly agree that someone has to "own" the securitization process -- not just own the financial paper. As I understand most current intangible-asset backed securitizations, there needs to be an active manager of the trust to ensure (and maximize) the revenue stream. Such deals often also come with strict performance measures and backup arrangements. That is another reason why clear rules and a model for intangible asset backed securitization are needed.
Posted by Ken Jarboe at 08:27 AM | Comments (0) | TrackBack
April 28, 2008
Is the future now?
And speaking of service sectors in transition, there is this story in the New York Times -- Reluctantly, a Daily Stops Its Presses, Living Online:
With print revenue down and online revenue growing, newspaper executives are anticipating the day when big city dailies and national papers will abandon their print versions.
That day has arrived in Madison, Wis.
On Saturday, The Capital Times, the city’s fabled 90-year-old daily newspaper founded in response to the jingoist fervor of World War I, stopped printing to devote itself to publishing its daily report on the Web.
(The staff will also produce two print products: a free weekly entertainment guide inserted in Madison’s remaining daily newspaper, The Wisconsin State Journal, and a news weekly that will be distributed with the paper.)
. . .
The Web strategy, while seen as a long-term solution, is still a work in progress, [Capital Times editor Paul] Fanlund says. It revolves around a portal, Madison.com, which is owned under the same joint arrangement mandating that both Madison papers share revenues, though they are editorially independent.
The Capital Times will operate a nearly continuous Web newsroom and focus on repurposing online the cultural and entertainment material the staff will begin to produce in the supplement, 77 Square, to be inserted in The State Journal.
And so the experiment really begins.
Posted by Ken Jarboe at 11:20 AM | Comments (0) | TrackBack
The decline of financial services
Speaking of the future of the services industry (see earlier posting) , today's Wall Street Journal is running a Page One story Has the Financial Industry's Heyday Come and Gone?:
For the past three decades, finance has claimed a growing share of the U.S. stock market, profits and the overall economy.
But the role of finance -- the businesses of borrowing, lending, investing and all the middlemen in between -- may be ebbing, a shift that would redefine the U.S. economy. "The role of finance in the economy is going to come down significantly in the coming years," says Carlos Asilis, chief investment officer at Glovista Investments, a New Jersey money manager. "From a societal standpoint, we got carried away with finance."
The trend already has hurt companies beyond banks and Wall Street firms. General Electric Co.'s first-quarter profits at its financial-services businesses were 21% lower than a year earlier. Retailer Target Corp., which got 13% of its before-tax profit last year from credit cards, last month wrote off $55.5 million in credit-card loans, 8.1% of its total portfolio at an annualized rate.
"I think you're seeing a clear inflection point," says Tom Gallagher, an ISI Group analyst. "Whether it's financials as a share of the stock market or financials as a share of GDP, we've peaked."
. . .
For finance workers, this shift could resemble the 1980s, when manufacturing lost its pole position in the U.S. labor market and thousands found that skills they had honed over the years were less marketable. The Bureau of Labor Statistics already counts 60,000 fewer people working in finance than a year ago. Merrill Lynch & Co. is cutting 4,000 jobs, and Lehman Brothers Holdings Inc. is cutting 1,425. Many of Bear Stearns Cos.' 14,000 employees are expected to lose their jobs when J.P. Morgan Chase & Co. swallows the firm.
[New York University economist Thomas] Philippon argues that the surge of financial activity that began in 2002 created an employment bubble that is now busting. His model suggests total employment in finance and insurance has to fall to 6.3 million to get back to historical norms, and that means losing an additional 700,000 jobs in the sector.
Finance has seen job cuts before and bounced back. After the 1987 stock-market crash, E.F. Hutton & Co. was taken over by Shearson Lehman Brothers, then a division of American Express Co., and shed 5,000 jobs. Among them was Jeffrey Applegate's job as a strategist. He spent the subsequent year doing carpentry and thinking he might make a career of it if financial jobs didn't come back. He got hired by Shearson Lehman, which evolved into the present-day Lehman Brothers.
Now chief investment officer for Citigroup Inc.'s Citi Global Wealth Management, Mr. Applegate thinks the damage to the financial sector this time will be more lasting than 1987. (Citigroup has announced 6,000 job cuts since the credit crisis began.)
But he doubts finance's role in the economy will ebb much. Globalization's demand for free-flowing capital will continue. And the process of turning loans into securities is too powerful a tool for risk management and credit creation to abandon. "Is securitization going to go away? I doubt it," he says. "Is it going to be more transparent? Are ratings going to be more robust? Is there going to be more regulation? Yeah."
Are financial services going to wither up and die? No. Is the growth in the financial services sector going to slow down or possibly even retreat? Yes. The bloom may be off the rose, put the rose bush remains -- thorns and all.
And that should be a lesson on understanding shifts in the economic structure: just because a sector is hot today doesn't mean that it will be the economic savior of tomorrow.
Posted by Ken Jarboe at 11:05 AM | Comments (0) | TrackBack
Services innovation
Today, the University of Cambridge and IBM released a new white paper Succeeding through Service Innovation. The report is based upon the 2007 Cambridge Service Science, Management and Engineering Symposium.
The report is part of an ongoing process to define and develop a new area called "services science." The report notes that:
Thanks to the application of science, management and engineering to the improvement of agriculture and manufacturing, remarkable products, from disease resistant crops to automobiles and personal computers, can be produced flexibly and efficiently and are widely available. However, as product complexity and diversity increase, it can take more time and consume more resources to search for, obtain, install, maintain, upgrade and dispose of products than production itself. This offers great opportunities for service innovation – including both incremental improvements and radical changes to service systems.
. . .
The need for science, management and engineering in relation to agricultural and manufactured products has not gone away. They are an integral part of service innovation and have a strong impact on the way that products behave and perform in larger service systems. For example, cutting-edge technologies such as biotechnology and nanotechnology can be applied to enhance consumer experience. But as the scope of innovation continues to move beyond products, we must prepare ourselves with skills and knowledge required for service innovation.
The report has a number of recommendations for moving the agenda forward -- mostly having to do with fostering interdisciplinary activities and greater research and thinking about "services sciences":
• Universities should offer courses in the emerging field of Service Science, Management and Engineering (SSME) – teaching graduates to become “adaptive innovators”, capable of working entrepreneurially across traditional boundaries.I welcome this new trend -- especially the extent to which it looks at the broad range of innovation beyond just new technologies. Almost by definition innovation in the services would require organizational and business process changes.
• Researchers should embrace an interdisciplinary approach to address business and societal ‘grand challenges’.
• Governments should fund SSME education and research and collaborate with industry and academia to develop service innovation roadmaps.
• Businesses should establish employment policies and career paths that encourage ‘adaptive innovators’ and provide funding and support for service research and education.
I do worry a little bit about continuing the use of the nomenclature of "services" versus "manufacturing". I think these lines are blurring. Likewise, not all "services" are the same. As I discussed in an earlier posting, We need to be able to differentiate between the difference between the celebrity chef and the minimum wage fast food workers as well as between the person who designs a bridge and the person who builds it. And what about between composing a symphony and playing a symphony? Engineering a car and building a car?
Services sciences and services innovation may be the opening to explore these deeper issues. But we need to invent a new language to talk about the issues. "Services" and "manufacturing" just don't suffice any more.
Posted by Ken Jarboe at 09:34 AM | Comments (1) | TrackBack
April 25, 2008
The cost of protecting reputation
Steven Pearlstein's column in today's Washington Post is about Cashing In on Corruption. He specifically talks about the rise in internal and external corporate corruption probes. In part, he attributes this to increased enforcement of anti-bribery and other anti-corruption laws in both the US and Europe. But in part it is also defense:
If for no other reason than to protect themselves from legal liability and attacks on their reputations, directors now are quick to order up an outside investigation whenever even the hint of bribery is alleged by customers, employees or competitors.
Protecting both individual and corporate reputations can be costly. Pearlstein estimates the cost of an internal probe to be $1 million to $20 million. And it is providing a lucrative market for Washington law firms (the "cashing in" part of the column's title).
But not protecting one's reputation can be even more costly. Pearlstein notes that in the Siemens bribery case, the company has already spent over $500 million on legal and other fees, been fined $300 million by German courts and is looking at fines that "almost sure to reach into the billions." Siemens stock has also dropped from around $160 per share at the beginning of the year to about $116 today -- but it is unclear whether that is directly due to the bribery scandal or other market and business conditions (see earlier Wall Street Journal story).
In any event, companies are taking their reputations and the anti-corruption probes seriously. We will see if they continue to take a largely defense stance (to the boon of the lawyers paid to come in and clean up the mess) or they will modify their management and control systems to prevent problems from happening in the future. The latter would be a wise move to deal with all sort of threats to companies' reputation and better help them manage their intangibles. But sweeping up the droppings has always been easier than changing management styles.
Posted by Ken Jarboe at 02:07 PM | Comments (0) | TrackBack
National Innovation Foundation
Earlier this week, the Brookings Institution and the Information Technology and Innovation Foundation released a new report on Boosting Productivity, Innovation, and Growth through a National Innovation Foundation:
Innovation drives America’s economic growth and ultimately determines its living standards and those of its metropolitan areas. However, the nation faces a growing innovation challenge in today’s global economy. To respond, the federal government should establish a National Innovation Foundation (NIF)—a new, nimble, lean, and collaborative entity devoted to supporting firms and other organizations in their innovative activities. By enhancing America’s world-class entrepreneurial and market environment, NIF would boost the nation’s innovation leadership for the 21st century and raise productivity and incomes. Moreover, by supporting workforce development and performance improvement in firms, NIF would help create better jobs for high school graduates in manufacturing and “low tech” services as well as those with advanced degrees in high technology industries.
America’s Challenge
* Global competition is increasing. Like manufacturing, call centers, and software production, corporate R&D is also shifting overseas. Over the last decade, the share of U.S. corporate R&D sites declined from 59 to 52 percent within the United States, while it increased from 8 to 18 percent in China and India.
* American innovation leadership is slipping. The U.S. ranks only seventh among OECD countries in the percentage of GDP devoted to R&D expenditures.
* Private markets suffer innovation inefficiencies. Private firms tend to under-invest in innovation because no single business can capture all the economic benefits arising from new technologies, products, or business models.
Limitations of Existing Federal Policy
* There is no national innovation policy. Rather than comprising an explicit, focused, national agenda, federal innovation efforts are scattered throughout government.
* There is little focus on services innovation and commercialization. Existing federal innovation activities pay little attention to the service sector and to the important roles that smaller firms and universities play in the commercialization process.
* There is no systematic innovation partnership between the federal government and state and local governments. Federal policies do little to support the effective, albeit underfunded, innovation efforts established by state and local governments.
A New Federal Approach
The federal government should establish a new National Innovation Foundation (NIF) with the sole mission of promoting innovation. The NIF’s proposed budget would be $1-2 billion per year. The new entity could exist as a new agency within the Commerce Department, a government-related public corporation, or an independent federal agency like NSF. The NIF would:
* Catalyze industry-university research partnerships through national sector research grants.
* Expand regional innovation-promotion through state-level grants to fund activities like technology commercialization and entrepreneurial support.
* Encourage technology adoption by assisting small and mid-sized firms in implementing best-practice processes and organizational forms that they do not currently use.
* Support regional industry clusters with grants for cluster development.
* Emphasize performance and accountability by measuring and researching innovation, productivity, and the value-added to firms from NIF assistance.
* Champion innovation by promoting innovation policy within the federal government and serving as an expert resource on innovation to other agencies.
The report points out something that I have been harping on for years -- we have no national innovation policy. It also points out that we have no policies or programs on services innovation.
The report recommends remedying that fault but pulling all the current innovation programs into a National Innovation Foundation -- which would be the focal point of our innovation policy.
I support that concept. But I would push it even farther. To have a true innovation policy we need to recognize the broader nature of innovation. As Chris Hill has said in his paper "The Post-Scientific Society" is more detailed than simply an argument for using global research:
In the post-scientific society, the creation of wealth and jobs based on innovation and new ideas will tend to draw less on the natural sciences and engineering and more on the organizational and social sciences, on the arts, on new business processes, and on meeting consumer needs based on niche production of specialized products and services in which interesting design and appeal to individual tastes matter more than low cost or radical new technologies.(See also my earlier posting.)
Similarly, the Secretary of Commerce's Advisory Committee on Measuring Innovation in the 21st Century Economy defined innovation as:
The design, invention, development and/or implementation of new or altered products, services, processes, systems, organizational structures, or business models for the purpose of creating new value for customers and financial returns for the firm.(See also this earlier posting.)
So while there is a discussion of services innovation, the focus of the NIF is still largely on technology development and diffusion with only passing reference to organizational and other innovations. That is, in part, because we have yet to come up with a range of policies to support this broader type on innovation. We have decades of policy development in the technology area. We have almost no policy development in the area of organizational and other non-technological innovations.
One starting point in that policy development would be a greater understanding of the role of design as an innovation-catalyst (see for example an earlier posting) and of non-technological innovation. Let me also suggest that an NIF might be combined with an Intangible Asset Investment Corp -- an "Ida Mae" -- which would provide a secondary market for investments in intangible assets like patents (see new Athena Alliance working paper Intangible Asset Monetization: the Promise and the Reality).
A National Innovation Foundation would be a great beginning. Our next step is to come up with the policies to support non-technological innovation to add to the already development tools that the NIF would have in its tool box.
Posted by Ken Jarboe at 10:57 AM | Comments (0) | TrackBack
April 22, 2008
Earth Day and Green Jobs
From the Cetner for American Progress:
GREEN JOBS: At a time when the economy is at the forefront of Americans' minds, the appeal of "green-collar" jobs is reaching beyond the traditional environmental crowd. "The green revolution isn't just creating new and different jobs," said David Foster, executive director of the Blue Green Alliance, a joint venture between two unlikely bedfellows, the Sierra Club and the United Steelworkers. "It's revitalizing and creating new investment in a lot of the jobs we already have." Bracken Hendricks, Senior Fellow at the Center for American Progress, explains, "If we are smart about it, building a green economy will mean new economic development, greater prosperity, and more opportunity for those who need good jobs most." While much of the hype surrounding green jobs has focused on entrepreneurs, most of the jobs are being created in less glamorous sectors: weatherizing homes and offices, installing solar panels, and retrofitting factories with energy-efficient technologies. "This is not an eco-elite, eco-chic movement for people who can afford to buy hybrid cars and shop at Whole Foods," says Van Jones, founder of Green for All, a California-based organization that promotes green job training for low income people. "The green economy to come is going to be a broad-shouldered, mass movement of American labor." Although the development of new technologies is part of the story, green jobs are also about job security. "Making homes, offices and factories more energy efficient not only saves money, it also represents a huge growth opportunity for the people who build our communities and keep them running," said Frances Beinecke, President of the Natural Resources Defense Council. "We're talking about architects and engineers. Drywall and lighting contractors. Electricians and carpenters. Everything from construction to computing. And these are jobs that cannot be shipped offshore, and pay lasting dividends to the American economy."
Well, some of the jobs can effectively be shipped offshore -- in design and in manufacturing of the hardware. But, if we do this right, the US can gain a competitive advantage -- and become an exporter of green technology and expertise.
Posted by Ken Jarboe at 02:58 PM | Comments (0) | TrackBack
An innovation in innovation
Here is a great idea in how to spread great ideas -- Planet Eureka!. Planet Eureka is a new web site for exchanging ideas.
As today's Wall Street Journal explains:
Next week, Eureka Ranch Technology Ltd. of Cincinnati plans to unveil the USA National Innovation Marketplace -- an online registry where researchers and inventors can post ideas they've developed. Businesses can then browse through those ideas by category, much like searching through résumés at a job-hunting site. If the companies see something they like, they can contact the inventor to buy the idea or collaborate on it.
Companies of any size can use the registry. But small companies will be able to view new innovations first. They also can list ideas or products that they've developed and want to pitch to big businesses.
The website registry is funded in part by the Commerce Department's Manufacturing Extension Partnership (MEP). MEP certified companies get first crack at the ideas. Then the data is opened up to everyone.
That is the way the public-private partnerships to foster innovation should work!
Posted by Ken Jarboe at 02:34 PM | Comments (0) | TrackBack
April 21, 2008
Post-scientific Society
Yesterday's New York Times ran an interesting story on "How Scientific Gains Abroad Pay Off in the U.S." The gist of the piece is how scientific advances in other countries could help US competitiveness. The story uses the example of Seagate Technology is using research findings developed in other countries to commercialize products.
The story illuminates the discussion going on in the technology policy community about the role of basic research. The standard argument is that the US needs to be the predominate nation in science. But some have been questioning that argument. They raise the point that the US should better utilize research done abroad.
As the NY Times piece puts it:
Americans have long profited from low-cost manufactured goods, especially from Asia. The cost of those material “inputs” is now rising. But because of growing numbers of scientists in China, India and other lower-wage countries, “the cost of producing a new scientific discovery is dropping around the world,” says Christopher T. Hill, a professor of public policy and technology at George Mason University.
American innovators — with their world-class strengths in product design, marketing and finance — may have a historic opportunity to convert the scientific know-how from abroad into market gains and profits. Mr. Hill views the transition to “the postscientific society” as an unrecognized bonus for American creators of new products and services.
Mr. Hill’s insight, which he first described in a National Academy of Sciences journal article last fall, runs counter to the notion that the United States fails to educate enough of its own scientists and that “shortages” of them hamper American competitiveness.
The opposite may actually be true. By tapping relatively low-cost scientists around the world, American innovators may actually strengthen their market positions.
I support the idea that the US should do a better job in utilizing foreign research. But, ironically, that does not mean that the US can back off of its commitment to increased R&D. In order to utilize that foreign research, the US must have top notch researchers here at home to interpret and modify the findings. The NY Times story points this out in the case of Seagate:
Last October, the Nobel Prize for physics, for instance, was shared by French and German scientists for their basic discovery of what is known as the “giant magnetoresistance” effect, which enables much more digital data to be stored on a disk drive. The breakthrough, by Albert Fert and Peter Grünberg, had essentially no commercial impact in Germany or France. But by using open scientific literature and attending conferences, Seagate found ways to capitalize on the breakthrough, which had been financed by European governments.
...
Commercializing science isn’t easy, which is the main reason that rising scientists from India, China and other countries can’t readily achieve business success. In the case of the magneto effect, Seagate engineers ended up using different materials — at different temperatures — than the Nobel winners.
By the way, Chris's paper "The Post-Scientific Society" is more detailed than simply an argument for using global research:
In the post-scientific society, the creation of wealth and jobs based on innovation and new ideas will tend to draw less on the natural sciences and engineering and more on the organizational and social sciences, on the arts, on new business processes, and on meeting consumer needs based on niche production of specialized products and services in which interesting design and appeal to individual tastes matter more than low cost or radical new technologies.
I couldn't have said it better myself.
Posted by Ken Jarboe at 09:22 AM | Comments (0) | TrackBack
April 18, 2008
Innovative companies
Business Week has released is annual list of The World's Most Innovative Companies. Apple leads the list (although I can't find the promised interactive list anywhere on the website yet) - followed by Google (which just reported a surprising profit increase of 30%). Surprising parts of the list are Tata from India and GM. One other surprise (according to an interview with the list's creator) was a focus on business process and business model innovation. Interestingly, the interview also touches on the issue of medical tourism as a major change in the health care industry business model (see earlier postings).
The story also looks at how to maintain innovation during an economic downturn: how to get more bank for the research buck and how to use innovation to improve products and services to gain market share during the downturn. Always good advice.
Posted by Ken Jarboe at 08:47 AM | Comments (0) | TrackBack
April 16, 2008
Monetization of Intangible Assets
This morning Athena Alliance released its new report, Intangible Asset Monetization: The Promise and the Reality. The following is the Executive Summary:
The economy of the United States is now largely driven by intangible assets. These assets include worker skills and know-how, innovative work organizations, business methods, brands, and formal intellectual property, such as patents and copyrights. They are producing an economy very different from the one of the past. As the U.S. moves away from a manufacturing-based economy and toward a technology-and-innovation driven one, intangible asset investments are becoming vital to economic growth and sustainability. Just as physical assets were used to finance the creation of more physical assets during the industrial age, intangible assets should be used to finance the creation of more intangible assets in the information age.
Intangible assets show up in the financial system in various ways. They are valued are already valued – often implicitly, sometimes explicitly – in financial markets by analysts, in stock prices, in ratings by credit agencies and for private lender programs. Mechanisms for raising capital based on intangibles already exist, including securitization, lending, licensing, and outright sale. Recent financial innovations have better captured intangibles in the financial markets.
But the evolution of robust capital markets that both utilize and support intangibles has been slow. Intangibles are still not can be considered on the balance sheet nor given due credit for playing a vital role on the income statement. Intangible assets have no standardized financial tools to capture their value. Each intangible asset financing deal seems to be a unique, one-off event employing differing models to determine the assets’ value. The associated perceptions of risk—in some cases exacerbated by actual events, such as the subprime mortgage meltdown—have greatly hampered the utilization of intangibles in capital markets.
As a result, companies are missing substantial capital resources that could be used for business expansion or innovation investment. To effectively realize the significant potential of intangibles, industry standards and government regulations need to promote the acceptance, use, and dissemination of intangible assets in the economy.
A number of factors must be considered by the financial markets to determine the suitability of an asset, including asset recognition, valuation, separability, transferability, duration, and risk. However, management and capital markets have failed to solve the very real problem of valuation, which severely undermines attempts to create financial leverage for the asset. This valuation deficit must be remedied for businesses and the economy to remain fully viable and sustainable over the long term.
Despite these drawbacks, intangible asset monetization could be the key that unlocks a vault of unexplored, exciting, and extremely useful sets of financial risk-mitigation instruments.
A secure, open, transparent, fair, and efficient capital market for intangible assets depends on government and independent regulatory bodies playing an active role .Yet very little public or private research exists that clearly explores this asset class. Thus, the greatest potential contribution from public policy may be to raise awareness and encourage utilization and better understanding of all facets of intangibles.
Beyond this basic need, numerous other actions are required to change the situation. There is no magic bullet; no single government or industry action will resolve all the issues. But policymakers play a key role in promoting acceptance, use, and dissemination of intangible assets in the market. Areas in need of attention include patent reform, securities definitions, banking regulations, perfection and bankruptcy laws, technology policy and tax policy. Industry standards and procedures also need attention, especially in valuation.
Some key policy actions include:
• Reinstate the joint Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) research project on expanded disclosure guidelines for intangibles.
• Convene a special FASB/Securities and Exchange Commission (SEC) task force on the valuation.
• Create a safe harbor in financial statements for corporate reporting of intangible assets.
• Explore the creation of an Intangibles Mortgage Corporation (Ida Mae) to regularize the intangibles-backed securities market, either as a limited government-sponsored enterprise (GSE) or as an independent organization.
• Create a national central registry of intellectual property security interests.
• Create a permanent knowledge tax credit that would increase investments in intangibles.
• Explore lowering the tax rate on intangible asset royalties, in conjunction with stricter regulations on international transfer pricing mechanisms and cost-sharing arrangements and on passive investment companies.
• Enact patent reform legislation and include a review of patent litigation and patent liability insurance.
• Review how the federal technology transfer system, including Bayh–Dole, does or does not facilitate the creation of intangible assets.
• Review the Basel II Accords to better understand their implications for intangible-backed lending.
• Review federal government business loan programs, especially in the small business arena, to ensure that intangible assets can be used as collateral.
• Coordinate with ongoing efforts at market reform, such as the President’s Working Group on Financial Markets, to ensure that intangible-backed assets are properly included.
Perhaps the single most important step is the recognition that intangible assets are not covered in existing financial structures. Our economic policies and regulatory systems, public and private, are still largely set up to accommodate the tangible assets of the industrial era—buildings, fixed resources, and machinery. This is not surprising; these systems have evolved over the past couple of centuries as the industrial revolution unfolded.
Today, intangible assets—knowledge, ideas, skills, relationships, and organization—have come to underpin value creation; their monetization is now essential. But this will require newly relevant policies and structures that unleash the economy from the strictures of the past and pave a new way forward for financial success in America and around the world. The opportunities they portend make the recognition, valuation, and utilization of intangibles essential to the success of U.S. enterprises and prosperity of the U.S. economy.
Posted by Ken Jarboe at 08:10 AM | Comments (0) | TrackBack
April 15, 2008
The health care economy - update
In earlier postings, I've discussed the rise of health care as local economic development. Today's Wall Street Journal is running a page 1 story on this economic trend -- Factories Fading, Hospitals Step In:
Growth in health care is fueling local economies across the country, as medical facilities replace factories. In Duluth, Minn., 20% of the jobs are in health care, compared with 14% a decade ago. In the Canton, Ohio, area, which lost the maker of Hoover vacuum cleaners and dozens of other manufacturers, the health-care industry is expanding rapidly. A similar story is unfolding in Anderson, Ind., once a major producer of cars and car parts.
There are downsides to health care's ever-increasing role. A community that relies on health jobs can end up with a weaker economy, one overly dependent on government programs like Medicare and Medicaid. Greater inequality is a risk, too. In health care and other service industries, there tends to be a wider income gap between what the highest- and lowest-paid workers earn than there is in manufacturing. Surgeons can have salaries in the high six figures, while personal-care attendants often make little more than minimum wage.
The Journal story misses two of the other problems with relying on health care as an economic driver. The first is the rise of medical offshoring (as I've discussed in a couple of earlier postings). Health care is not locally rooted any more. People can travel -- either to major facilities in the US, such as the Mayo Clinic, or to cheaper facilities abroad. The second is the need for this type of "export" to be helpful to the local economy. Every local economy needs to produce something it can sell to others. Unless the health care facility brings in patients from outside the local economy, it can not replace the factory as an economic driver.
Therein is the problem with the health care economy (and the service economy in general). If localized services are to be an economic engine, they need to be tradable to earn export revenues. But if they are tradable, they are subject to the same competitive pressures as goods trade. In other words, a shift to a service economy doesn’t solve the trade problem. You still have to be globally competitive – that is the nature of the economic treadmill we are on.
Posted by Ken Jarboe at 09:33 AM | Comments (0) | TrackBack
Patent bill update
From Intellectual Property Watch (IPW)-- US Patent Reform Stalls as Senate Negotiations Break Down:
Judiciary Committee Chairman Patrick Leahy, Democrat-Vermont, intended to announce that a revised version of the measure would be brought to the Senate floor this week, the Intellectual Property Owners Association reported last Friday. The plan derailed when Leahy failed to agree on several provisions with the panel’s ranking member (lead of the opposing party), Senator Arlen Specter, Republican-Pennsylvania.
“The principal sticking point is the issue of how to assess damages in patent infringement lawsuits,” Specter said on 9 April. The lawmakers thought they had reached agreement, but “the language continued to shift, so we do not yet have a deal on the package,” he added.
According to IPW, the bill may still come up this year -- so stay tuned.
Posted by Ken Jarboe at 08:26 AM | Comments (0) | TrackBack
April 14, 2008
Automated customized research
The New York Times is running a story about an automated book "writer" -- He Wrote 200,000 Books (but Computers Did Some of the Work):
Philip M. Parker seems to have licked that problem [of actually writing]. Mr. Parker has generated more than 200,000 books, as an advanced search on Amazon.com under his publishing company shows, making him, in his own words, “the most published author in the history of the planet.” And he makes money doing it.
However, what Parker is selling is not books, but customized research:
these are not conventional books, and it is perhaps more accurate to call Mr. Parker a compiler than an author. Mr. Parker, who is also the chaired professor of management science at Insead (a business school with campuses in Fontainebleau, France, and Singapore), has developed computer algorithms that collect publicly available information on a subject — broad or obscure — and, aided by his 60 to 70 computers and six or seven programmers, he turns the results into books in a range of genres, many of them in the range of 150 pages and printed only when a customer buys one.
For more, see his video: YouTube - Patent on "Long Tail" for automated content authorship.
So, at this stage I don't think authors have much to worry about. Researcher (like me), however, might be in trouble. On the other hand, maybe people like me are actually the customers for this type of customized, on-demand reports. They might provide the basic information that a research assistant would normally come up. So it may be the lower level research assistant that is displaced. Yet another example that if your job can be routinized, it can be either done offshore in a low wage country or automated (see Levy and Murnane, The New Division of Labor: How Computers Are Creating the Next Job Market).
By the way, Parker thinks that authors might be displaced by his method in the future. According to the Times story:
He has extended his technique to crossword puzzles, rudimentary poetry and even to scripts for animated game shows.
And he is laying the groundwork for romance novels generated by new algorithms. “I’ve already set it up,” he said. “There are only so many body parts.”
Somehow, however, I don't think that major authors have anything to worry about (unless, of course, it is true what writing instructors tend to deny -- best selling novels are all based on a standard formula). We will see.
Posted by Ken Jarboe at 11:37 AM | Comments (0) | TrackBack
Innovation tax credit - an incomplete idea
From the Kaufman Foundation newsletter - NDE-news: April 14 - 20, 2008:
New Bill to Simplify R&D Tax Credit
Many of America’s leading innovative companies utilize the popular research and development tax credit, but unfortunately, the process for using the credits has become much too complicated and cumbersome. A new legislative plan from Congressman Jerry McNerney (D-CA) seeks to remedy this situation. His bill, the Innovation Tax Credit Act (H.R. 5681) would address these challenges by making the R&D tax credit permanent. At present, the credit is temporary and requires regular renewal by Congress. This process has the effect of increasing uncertainty about the credit’s future existence. Computing the credit is also quite complicated. HR 5681 would simplify the process by consolidating the current batch of five related credits into one simplified tax credit that will ultimately provide a credit for up to twenty percent of the cost of qualified R&D expenditures.
Learn more about HR 5681, the Innovation Tax Credit Act of 2008.
Simplification may be fine. But we really need to expand the definition. Innovation is not just R&D. We need to be investing in all aspects of innovation. That means we need a complete knowledge tax credit that couples the R&D tax credit with a training and education tax credit.
Posted by Ken Jarboe at 10:10 AM | Comments (0) | TrackBack
Getting it -- kind of
I've been posting a number of pieces complaining about how companies fail to recognize the value of their front line employees. Here is an opposite story from today's Washington Post -- Security Guards Get Union Contract - washingtonpost.com. According to the story:
The agreement, signed last week by the Service Employees International Union and Admiral Security, AlliedBarton, Guardsmark and Securitas, is the first union contract for private security guards working in commercial buildings in the District.
While the wages and benefits are not high, the agreement does provide for higher wages than required by DC law and greater benefits. More important seems to be the attitude of some in the industry. For example:
Todd Carroll, a senior vice president with Admiral Security Services, said, "I think it is good for the industry. There are a lot of companies that don't give the wages and benefits they should to their officers."
Mr. Carroll seems to get it. If you want steady employees, you have to treat them fairly. Remember, when Henry Ford increased his wages to the unheard of level of $5 per day in 1914, he didn't do it because he was a nice guy. He did it to reduce the turnover and absenteeism that was disrupting the assembly line.
In the case of a security guard, I want someone on duty that treats the job seriously and is paying attention. Paying a decent wage is one step in ensuring that outcome. I've glad to see that the local security industry has recognized that.
Posted by Ken Jarboe at 09:08 AM | Comments (0) | TrackBack
April 12, 2008
Banking patent update
A couple of months ago, I posted a piece on one of the battles being fought as part of the patent reform legislation -- in this case a provision inserted in the bill in committee with little discussion that would grant banks immunity against a pending patent lawsuit. The Administration strongly objected to the provision. And as I stated earlier , I tend to agree. think this is the wrong way to address the issue.
Now comes word, via a Washington Post story -- Immunity Plan for Banks Loses Backer -- that the sponsor of the amendment, Sen. Jeff Sessions (R-Ala.), has withdrawn his support:
Sessions announced his decision in a letter last week to Senate Judiciary Committee Chairman Patrick J. Leahy (D-Vt.). In the letter, he noted that the U.S. Patent and Trademark Office said his amendment to a larger bill could affect more patented check technologies than originally thought and might undercut U.S. patent-protection efforts with trading partners.
This may remove one hurtle to the pending bill. But the banking industry is almost sure to put up a fight to keep the provision in the bill.
Stay tuned.
Posted by Ken Jarboe at 09:49 AM | Comments (0) | TrackBack
April 11, 2008
Recognition of intangibles
I came across this phrase in Steven Pearlstein's latest column, Getting Away From the Dollar. Pearlstein talks about how and why we need to shift away from the dollar as the world reserve currency. Then he says:
It would require the United States to take decisive and politically unpopular steps to bring down its trade and budget deficits, and to be willing to allow foreigners to continue buying companies, real estate, patents and other productive assets. (emphasis added).
The fact that a Pulitzer prize winning commentator would casually refer to an intangible assets in the same breath as traditional assets says a lot about how far we have come.
One other point - on the substance of Pearlstein's comment. If he is correct (and I believe he is), it means that the continued trade deficits will mean that we will have to sell off our assets--including intangible assets--to pay for our debt. Selling off our intangibles means that we get less royalty revenue, which means a higher trade deficit. It becomes a vicious circle. It also undercuts the argument that somehow services and "innovation" alone will save us--by allowing us to live on the fees and royalties. Innovation and intangibles help only if we use them to boost our productive capacity in all areas and industries. We can not continue to run huge trade deficits in goods (with more and more embody intangibles and innovation) and expect to live off the intellectual property.
Posted by Ken Jarboe at 07:54 AM | Comments (0) | TrackBack
April 10, 2008
February trade in intangibles
The US trade deficit jumped in February, according to this morning’s BEA trade data. The overall deficit rose by $3.3 billion to $62.3 billion from January's revised $59 billion. The increase came as a shock. As the Wall Street Journal noted, “Economists surveyed by Dow Jones Newswires, expecting the gap to shrink, had estimated a $57.10 billion shortfall.” The increase was due to imports rising faster than exports. On a positive note, both the volume and cost of crude oil imports declined.
The other bad news was that our intangible trade balance also slipped slightly in February, with our monthly surplus declining by $37 million. Exports of business services actually declined, contributing to the slippage. With imports of business services increasing, the surplus in business services trade declined by $89 million. For royalties, exports increased more than imports with the royalties’ surplus growing by $52 million.
Note: our intangibles surplus covers approximately 45% of our consumer goods deficit.
The deficit in Advanced Technology Products improved slightly in February by $140 million to $3.34 billion. Imports declined and exports grew slightly. The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.
Note: we define trade in intangibles as the sum of "royalties and license fees" and "other private services". The BEA/Census Bureau definitions of those categories are as follows:
Royalties and License Fees - Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term "royalties" generally refers to payments for the utilization of copyrights or trademarks, and the term "license fees" generally refers to payments for the use of patents or industrial processes.
Other Private Services - Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term "affiliated" refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise's voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.
Posted by Ken Jarboe at 10:11 AM
April 09, 2008
The non-benefits of layoffs
From George Anders' "Business" column today:
When companies do announce big job cuts, executives often hope investors will applaud. That's because the company is trying to become leaner and more cost-competitive, even if the move means taking severance charges and enduring short-term reputational damage from mass dismissals.
But the notion of a layoff-inspired leap in a company's stock price is usually a mirage, according to a yet-to-be published study by Gunther Capelle-Blancard, a professor at the University of Paris, Pantheon-Sorbonne, and Nicolas Couderc, a researcher at the same university.
On average, the two academics say, share prices of companies announcing layoffs do about 1.2% worse than market benchmarks in the three trading sessions after news of the job cuts is disseminated. Companies fare even worse -- a 2.2% drop -- if the job cuts are defensive and simply reflect a business downturn. They fare a bit better -- but still lose ground -- if the layoffs are part of a broader retooling of the business without obvious economic pressures.
Their study is a "meta-analysis" that combines the results of 40 published studies looking at stock performance in specific countries during periods from 1990 to 2006. Mr. Capelle-Blancard says he was surprised that the data show investors almost universally view layoffs as bad news, regardless of whether the focus was on the U.S., Europe or other markets.
A myth has grown up, perhaps inspired by the example of International Business Machines in the mid-1990s, that big job cuts can jolt a slow-moving older company into a renaissance of growth. That did work for IBM, under its charismatic CEO at the time, Louis V. Gerstner Jr.
But IBM's turnaround increasingly looks like a rare, once-in-a-generation comeback that defied the odds. Companies slashing payrolls these days can consider themselves fortunate if they merely stop the erosion in their prospects.
'Nuff said.
Posted by Ken Jarboe at 10:27 AM | Comments (0) | TrackBack
Employees are our most valuable asset ... not
Steve Pearlstein’s column today in the Washington Post (Off Balance at the Top) is another great example of how top executives still don't understand the I-Cubed Economy. The story is about how American Airlines has been charging for curbside bag check in. The result is greater profits for the airline but a direct lose of income for the porters:
You would think that at a time when passengers are frustrated by long lines inside the terminal and grumpy about the deterioration of service in general, that airline executives would look to expand upon its successful curbside operation rather than try to squeeze it for an extra tenth of a point in profit margin.
After all, with curbside checking, passengers voluntarily pay a premium for a necessary function that would cost the airline four times as much if it were performed inside by a ticketing agent who earns, say, $15 an hour plus benefits. And in the porters, the airlines have highly satisfied and highly motivated employees whose pay not only varies with the quality of their work, but also varies with airline traffic, going up when times are good and down when times are bad.
But as is their wont, airline executives were not content to leave well enough alone. Rather than raise ticket prices to reflect the reality of higher fuel costs, they decided they could improve their bottom line by robbing the tip jar of their most visible front-line employees.
Of course, they deny that's what they are doing. The $2 per bag charge for curbside check-in, they explain, is simply a way of charging willing passengers for premium service without having to raise prices for everyone else. But the airlines' internal documents put the lie to that explanation. In the case of American Airlines, for example, 2005 planning documents used as evidence in the Boston trial showed that the airline would get $16 million to $20 million a year in new revenue if it were to roll out a curbside checking fee nationwide, while spending only about $7 million on porters' wages. All the rest would be pure profit.
As for the Boston porters, they soon discovered that customers think the mandatory $2 fee is a tip or that they know it isn't but are unwilling to pay a tip on top of the fee. The porters testified that their daily tips typically fell from $200 to no more than $80.
This is not just another story of the incredible stupidity of airline executives and their willingness to sacrifice long-term customers' satisfaction and loyalty to short-term financial pressures. It is also a story of rank hypocrisy. It is these same airline executives who are constantly defending their own generous pay packages -- and those of other corporate executives -- by arguing that you can't retain and motivate key executives if they don't have the carrot of bonus pay dangled in front of their noses at all times.
The problem is more systemic than just greed. It goes much deeper into our way of thinking. It is, in fact, a business system still captive of an outmoded way of thinking (as Keynes remarked “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”)
Under the old industrial age Taylorist model, jobs were divided into thinkers and doers. Managers (engineers, scientists, etc.) were thinkers; front line workers were doers. Thinkers told the doers what to do and how to do it. Front line workers did what they were told. While the more rigorous application of Taylor’s Scientific Management (like time-motion studies) survives in only a few places, the mentality of the division of labor remains rooted in our psyche.
Overlay this deeply rooted mindset with a thin veneer of the information age rhetoric of “employees are our greatest asset” (with little understanding – or, more likely willingness to understand – the deeper meaning of that phrase). The result is what Pearlstein describes. Obviously, in the information age, “thinking” is important. So managers (thinkers) are seen as important intangible assets and given high compensation in order to keep that asset; front line workers such as the porters (doers) are invisible. Never mind that the porters are the first people the airline’s customers see – and as such are a key link in the customer service system.
The Circuit City fiasco is another example of this outmoded way of thinking.
Until and unless the so-called captains of industry shed their old way of thinking, these examples will continue. We can only hope that as a new generation of leaders takes over – who have not learned the outdated lessons of the past – the number of these dinosauric actions will diminish.
By the way – congratulations to Steve Pearlstein on winning a Pulitzer Prize for commentary! Well deserved.
Posted by Ken Jarboe at 09:41 AM | Comments (0) | TrackBack
April 08, 2008
US as a manufacturing base
Is the US regaining its position as a manufacturing base? That is the gist of this story in today's Wall Street Journal - Detroit Sets Bold Goal: Exporting U.S. Cars
Last year's landmark labor deals and the weak dollar are breathing new life into U.S. auto plants, leading Detroit's auto makers to plan sizable exports of U.S.-made vehicles to markets around the world.
General Motors Corp. is looking to export U.S.-made vehicles to Europe as well as to China and Latin American markets such as Brazil, company executives confirmed. Chrysler LLC, primarily spurred by exchange rates, has already started shifting production from Europe to the U.S. to take advantage of lower costs and available plant capacity. Ford Motor Co. is considering ramping up exports if it can bring labor costs down, people familiar with the matter said.
. . .
The trend isn't limited to the big players. Tesla Motors, a Northern California start-up developing an electric car, recently decided to scrap plans to build its $20,000-plus batteries in Thailand. Instead, it will assemble the components in the U.S. because of currency values. Tesla has also pushed ahead its plan to sell cars in Europe by one year in hopes of banking big profits by selling cars to buyers paying in euros.
This may be just a first step. But it gives lie to the story that the US can't make things any more. Nor should you listen when they say manufacturing is old industry. The truth is that making things is as much of the I-Cubed Economy as anything else. What is old is the industrial age mentality of how to make things. As US manufacturers embrace innovation and new manufacturing methods, they will find that they can compete with anyone in the world.
And a competitively priced dollar doesn't hurt, either.
Posted by Ken Jarboe at 11:49 AM | Comments (0) | TrackBack
Patents and the First Amendment
Here is an interesting twist in the patent wars -- American Civil Liberties Union : ACLU Introduces First Amendment Argument In Key Patent Law Case:
Introducing a rare argument applying the First Amendment to patent law, the American Civil Liberties Union filed a friend of the court brief today urging a federal court to uphold the denial of a patent that would, if awarded, violate freedom of speech. In the brief, the ACLU argues that Bernard L. Bilski is seeking a patent for an abstract idea, and that abstract ideas are not patentable under the First Amendment.
"The court must ensure that any test it uses in determining whether to award a patent is in line with the Constitution," said Christopher Hansen, senior staff attorney with the ACLU First Amendment Working Group, who filed the brief. "If the government had the authority to grant exclusive rights to an idea, the fundamental purpose of the First Amendment - to protect an individual's right to thought and expression - would be rendered meaningless."
In 2006, Bilski sought a patent for his idea that the weather risk involved in buying and selling commodities could be minimized if sellers had conversations with two buyers instead of one. The U.S. Patent and Trademark Office denied his request and the Board of Patent Appeals and Interferences affirmed the denial. Bilski appealed that decision to the U.S. Court of Appeals for the Federal Circuit, and the court has agreed to hear the case in a single joint session in May.
"Patent law prohibits the patenting of abstract ideas, but recently the courts and the patent office have been granting patents that consist essentially of speech or thought," said Hansen. "If the government continues to allow patents of speech or thought it risks violating the First Amendment. No one can have a monopoly on an idea or prohibit speech on a particular subject."
The ACLU's brief is available online here: www.aclu.org/freespeech/gen/34783lgl20080403.html
The case is In Re Bernard L. Bilski and Rand A. Warsaw - which many expect to be a vehicle for re-examining the entire software and business process patent concept. As Patent Law Blog (Patently-O): Bilski: Full CAFC to Reexamine the Scope of Subject Matter Patentability explains:
Bilski involves claims to a method of managing the risk of bad weather through commodities trading. The claims are not tied to any particular form of technology — thus, they do not require a computer or particular storage media. In some quarters, this process lacking a technological tie-in is termed a “mental method.”
Bernie Bilski apparently was the CEO and owner of a small company called WeatherWise. At least some WeatherWise patents were purchased in 2007 by the “Pittsburgh Technology Licensing Corp” According to court documents, PTL is a wholly owned subsidiary of WeatherWise holdings. (See WeatherWise v. WeatherBill).
Although we don’t have the text of the application yet, this case looks problematic because of serious obviousness problems and lack of specificity in the claims. Thus, the court will have no sympathy for Bilski — making this the perfect test case for someone wanting to shrink Section 101 coverage and eliminate business method patents.
For more see Why In re Bilski will see the US move closer to Europe - Intellectual Asset Management and United States, Intellectual Property, Federal Circuit To Re-Assess Standards For Patent-Eligible Subject Matter - Fenwick & West LLP - 07/04/2008, Patent.
Posted by Ken Jarboe at 11:36 AM | Comments (0) | TrackBack
April 07, 2008
Two cities
One of the challenges of globalization in the I-Cubed Economy is understanding why production is located where it is. It is especially important to figure out why production stays in one place or moves to another. This is at the heart one of the pillars of the economic development process (the other pillar is how to foster home-grown companies). In the industrial age, access to resources and transportation were often seen as the key. But in the I-Cubed Economy, the rules have changed -- and we are still trying to sort it out.
Take for example this story in today's New York Times -- When Foreigners Buy Factories: 2 Towns, 2 Outcomes:
HOLLAND, Mich. — Four years ago, a low-slung factory on the fringes of town here was stagnating and shedding workers. Then Siemens, the German industrial giant, bought the plant and folded it into a global enterprise. Today, the factory is shipping wastewater treatment equipment to Asia and the Middle East and employing twice as many workers.
“Globalization has been good for Holland,” said David J. Spyker, once the plant manager and now vice president of a Siemens unit with operations around the world.
About 60 miles to the northeast, such talk provokes contemptuous snickers. Two years have passed since a Swedish multinational shut down what had been the largest refrigerator factory in the country, a sprawling complex along the Flat River in Greenville.
The company, Electrolux, sent production to Mexico, eliminating 2,700 jobs from a town of 8,000 people.
The story gives little guidance in answering this key question. It talks about the general innovative climate in Holland and the lack of opportunity in Greenville. But other than this general impressionistic view, there is little hard analysis. Maybe it is the type of product? Maybe it is the skill level of the workers? Maybe it is the cluster effect?
Maybe we can get some bright graduate student to do their thesis on the issue? It would be a worthy project.
Posted by Ken Jarboe at 09:28 AM | Comments (0) | TrackBack
Model for China trade .. or not
A small item in today's Wall Street Journal caught my eye -- China, New Zealand Sign Trade Pact:
China and New Zealand signed a sweeping free trade agreement Monday, the rising economic giant's first such pact with a developed country.
. . .
When the deal goes into effect Oct. 1, New Zealand exports to China that now face tariffs of 5% or less will be cut to zero. There will be a staggered time frame for cuts on New Zealand exports that face larger tariffs, with 31% of New Zealand's exports to China tariff-free by 2013.
Tariffs on dairy products, a primary New Zealand export, will be phased out over a longer time frame, taking until 2019 when almost all of the country's current exports to China will be tariff-free. "The FTA provides for elimination over time of tariffs on 96% of New Zealand's current exports to China," a New Zealand government statement said.
Beyond trade in goods, the agreement covers the services sector, from insurance and banking to education and labor supply.
The agreement also calls for up to 1,800 Chinese to enter New Zealand each year to work in areas such as traditional Chinese medicine, language teaching and food service.
At first blush, this looks like a major step forward -- especially if it contains new language on services.
But, this may be less of a breakthrough than it looks like. As the Financial Times explains:
Beijing may have used New Zealand as a test case because it has a relatively straightforward trading relationship with the country, but that may also limit it as a model for other deals. “We didn’t have to deal with wheat, rice or motor vehicles,” Mr Goff [NZ Trade Minister] said.
Kevin Rudd, Australia’s prime minister, is due in Beijing later in the week to promote his country’s trade links with China. Although he is expected to emphasise Australia’s interest in securing a deal with China after 10 rounds of talks, the negotiations have lost momentum over the past year.
China has been unwilling to make concrete offers on sectors Australia is most focused on – agriculture and services – partly for fear that any such concessions would flow on to larger countries such as the US and in Europe.
The New Zealand-China agreement probably also didn't have to deal with the single most important factor in the US-China economic relationship: the issue of currency manipulation.
Still, what happens during PM Rudd's visit could give us a better indication of future directions of where the Chinese government sees itself going on trade policy.
One other note on China. There was this item also in the Wall Street Journal - Chinese Firms Face the Music On Downloads:
A Chinese court has agreed to consider copyright-infringement cases against two China-based Internet heavyweights that offer illicit music downloading, potentially opening Chinese companies to hefty damage claims they have previously dodged.
As China evolves its own version of the I-Cubed Economy, issues of intellectual property rights will be a key factor. Many feel that China's growing IP-related industries will force the government to eventually switch from an exploiting IPR to protecting IPR stance. This switch may already be happening -- which is a sign of the growing strengthen of the home-grown technology sector in China. Another thing to keep an eye on.
Posted by Ken Jarboe at 09:12 AM | Comments (0) | TrackBack
April 04, 2008
Bad job numbers
Well, this morning's job data was even worse than expected. BLS announced that the unemployment rate shot up to 5.1% in March and nonfarm payroll employment dropped by 80,000. Wall Street had expected payrolls to drop by 60,000 (see earlier posting). It could have been even worse. As the Wall Street Journal reports, "Had it not been for a rise in government jobs last month, payrolls would have fallen by around 100,000."
Interestingly, the involuntary underemployed problem didn't increase as much as the general unemployment problem. In past two months, the involuntary underemployed (part-time work for economic reasons) increased by 100,000 per month (see earlier posting). In March, the increase was only 30,000. This is not necessarily good news, however. The lower number combined with the higher unemployment number suggests that employers are laying people off rather than simply cutting back on hours.
The biggest losses were in manufacturing, but business and professional services, financial services, information services and retail jobs also declined. Leisure and hospitality employment increased -- but only because of a large increase in food services and drinking places. (So maybe we are all out at the bar crying in our beers?).
Not good news - for either the industrial or the I-Cubed Economy.
Posted by Ken Jarboe at 08:39 AM | Comments (0) | TrackBack
Wall Street Journal announces recession
The National Bureau of Economic Research probably won't say this for months. But why wait? The U.S. economy fell into recession sometime in January.
The NBER -- a nonprofit organization of mostly academic economists -- puts official dates on when recessions begin and end. It looks at a wide range of data, including income growth, industrial production and gross domestic product. Few pieces of data are more important than the Labor Department's monthly payroll employment report, which shows the job market started contracting around the beginning of the year.
The NBER calls the labor market the "broadest monthly indicator" for the economy. The last recession -- which the NBER says began in March 2001 -- commenced just as a succession of payroll employment declines were setting in. The same goes for the recession that began in July 1990.
Payrolls contracted by 22,000 in January and 63,000 in February. Economists surveyed by Dow Jones Newswires expect the Labor Department to report today payrolls contracted 60,000 in March.
You heard it here ... second.
Posted by Ken Jarboe at 07:38 AM | Comments (0) | TrackBack
Back to ... (not the future)
File this under "big black eye" -- Census Back to Pen and Paper - washingtonpost.com:
The government is dropping plans to use handheld computers to count millions of people, citing problems with a contract that was intended to make the 2010 Census the nation's first high-tech head count.
The Census Bureau had planned for its workers to use wireless handheld devices to collect information from people who don't mail in forms, replacing the clipboards, pens and paper that they used in the past. The agency hired Harris Corp. of Melbourne, Fla., under a $600 million contract, to build 500,000 handheld computers and create a system to manage the data, as well as other services.
But problems with the devices and a long list of changes that census officials asked for -- at one point reaching 417 new or clarified technical requirements -- vastly increased costs and made officials question whether the plan was manageable.
Having served as the Senate staffer on one of the oversight committees for the 1990 Census, I know what a massive undertaking this is. So the folks at Census have my sympathy -- but only those who now have to deal with the mess. That the contract was allowed to get to this point is a black eye on the Bureau and needs to be looked into.
This one is right up there with the recent Heathrow fiasco (and no, I was not caught up in the resulting airline delays during my recent travels - but did have to scramble for a hotel room when the hotel I had booked had to accommodate large groups who were delayed) -- see