Trade and the Next American President

It's sort of alarming when a Presidential candidate can get away with saying something so blatently absurd (h/t Greg Mankiw):

"I'm not going to put my lot in with economists," Clinton said in an exclusive appearance on a special edition of "This Week" from Indianapolis.

That was in response to a proposal she put forth to temporarily cut gas taxes. Of course, the optimistic view taken by China Law Blog is that neither Obama nor Clinton actually mean what they say - here and here. Given their track records, China Law Blog may well be right.

Stock Based Compensation as Incentive doesn't Work

From the Economist Blog:

In the 1990s compensation that included stock in your firm was considered extremely desirable. The last eight years the potential downside of having your financial and human capital so closely correlated has become apparent.

I should preface that as saying that it's probably no better than cash - and even less so during a bear market if you're stuck with shares that only seem to go down. It's a pretty basic rule that incentives should be provided for targeted results that are in an employee's effective realm of control.

The likelihood of what a frontline staff person does making an impact on stock performance seems pretty low... on the other hand, this obviously works in smaller startups where you have a much smaller group to begin with and where each employee really does have an impact on the value of the firm. My preference (and what we try to do) would be to break a business down to much smaller operating units and reward directly based on that unit's short term and long term profitability.

Implementing the 'Toyota Way' in Semiconductors

A fascinating look at how the principles of the Toyota Production System are changing the way chips are being made and how it could also change what type of chips are being made with a number of lessons other businesses can learn from (IEEE):

Throughout the past 40 years, the only way to move the scale curve has been through the pursuit of Moore's Law, along with the enormous capital investment that this entails. Unfortunately, such spending pushes the curve not only down but also to the right [see graph, “New Opportunities for Profitable Growth” The result has been an increase in the minimum volume at which production is cost-effective. What all this means is that TPS will lower both the minimum cost and the volume of efficient production. When that happens, a lot of the great engineering ideas that have been shot down by the bean counters over the years will suddenly become attractive from a business perspective.

Quote of the Day

From the Adam Smith Institute Blog:

We have too many people who see a fat man next to a thin one, and assume that he couldn't have got that way without taking advantage of the thin one.

Ronald Reagan

Visas into China...

Are now a lot more difficult to get - and it's not just because of the Olympics - the changes may well be permanent. A must read for those interested in getting into China (One Eyed Panda).

Entrepreneur Link Dump

A few interesting links on entrepreneurs:

• Tech entrepreneurs aren't the college students you thought they were (EETimes). They're between the ages of 35-45 (Paul Kedrosky), educated (Dobb's Code Talk) and come from a variety of universities.
• Of course, there are quite a few things about entrepreneurs most of us thought were true, but just aren't (Brazen Careerist): including why entrepreneurs become entrepreneurs (for control and flexibility in lifestyle) and being an entrepreneur might not be as risky as you thought.
  
• These days, the path to entrepreneurship may start in the classroom (NYT): "more than 2,000 colleges and universities now offer at least a class and often an entire course of study in entrepreneurship. That is up from 253 institutions offering such courses in 1985. More than 200,000 students are enrolled in such courses, compared with 16,000 in 1985."

7 years to Learn Mandarin?

Much like the idiotic pronouncements we would need to learn Japanese a few decades ago? From CNN/Fortune:

But a recent study by the economist Angus Maddison projects that China will become the world's dominant economic superpower much sooner than expected - not in 2050, but in 2015.

I get that sensational pronouncements get the pageviews but color me skeptical. While China's growth has been phenomenal, it has an incredible way to go (clamping down on free speech also means clamping down on innovation, not to mention a bankrupt banking system, inability for state run apparatus to forecast water and energy needs, and the list goes on and on and on). China's government has the ability to navigate the obstacles to achieve the momentum to get there at least for a few decades (presuming they stay in power). Don't get me wrong - I think learning mandarin (and many other languages) might be a good thing but it's going to hardly be critical.

English will continue to be the lingua franca of business simply because it will continue to be the English speaking world that drives the bulk of value through innovation in the world (no Jacques, French is no longer particularly relevant).

PS Today is the labour day that the commies celebrate so our offices are closed in Hong Kong and China for the rest of the week celebrating one of China's "Golden Weeks".

Catching up on Startup Links

I've been catching up with overflowing blog feeds so here are a bunch of links that I thought were interesting for those interested in startups:

• A few of the "real" numbers on startup survival rates (Small Biz Trends). Just a few notes that the author hasn't gotten into yet - just because a startup no longer exists, doesn't mean it failed - it can also mean that it was acquired or that the owners decided to go on to other things including retirement.
  
• Making long distance partnerships work (New York Times). Since I've gotten into business myself, I've seen a number of businesses fall apart because the partners no longer seemed to get along. Partnership agreements are a must - because it's about planning for the worst and hoping for the best. I'd also figure out a way to resolve disputes if a majority owner isn't possible. It doesn't matter if business is doing well or poorly, I've heard it said that partnerships are like marriage without the makeup sex. Doing well just means fighting over more money, doing poorly has a way of creating paranoia.
• A bunch of startup resources (How to Split an Atom).
• What they don't tell you about starting a startup (Adeologue): "they never tell you - how painful it is." Too true.
  
• 8 ways to destroy a startup (mytton.net). I'd add a few other suggestions: keep costs as variable as possible. If the service you need isn't core, pay a little more incrementally and don't hope that you'll see all this success that you'll save all these costs by buying expensive equipment or adding fixed costs.
  
• Not really so much advice for startups, but businesses in general: how to pretend you care (Seth Godin) even when you don't.
  

It's the Idea, Silly

Just more proof that it's the idea that's becoming more important than the noise like relationships and inertia. It's an incredible time for entrepreneurs and creatives. I came across 99designs.com the other day which I thought was pretty cool. I'm also a big fan of iStockphoto.com (cheap professional stock photography that can be submitted by anyone). While some people call this crowdsourcing, it's really just about creating new more efficient markets for amateurs - markets that happen to have been enabled by the web.

Outsourcing is like... the Holocaust?

I'm almost afraid to ask what that makes me. There are some remarkably silly things (Commentary Magazine, h/t Instapundit) that a few of the candidates for the US presidency are saying.

Brain Food

A few interesting links on the brain that I came across over the past few days. Managers take note: status is more important than cash (Scientific American). The developing science of thinking smarter and how managers can use it to improve productivity (HBR). Simple brain exercises that can improve your IQ (New Scientist).

update: for an open source version of the program for improving your IQ reported in New Scientist, have a look here.

'What the New York Times thinks Free Markets Look Like'

Hat Tip to the Club for Growth who notes: "The New York Times has an interesting definition for the free market. And by interesting, I mean stupid."

Of course it's heartening to note that readers still recognize quality: NYT readership down substantially, WSJ readership up.

Be afraid, be very afraid...

I'm still trying to stay away from too much political commentary on this blog but this is too funny/scary. Be forwarned... be afraid... because she could eat you (h/t Donald Luskin)

PS. fwiw I'm not particularly enamored by any of the American Presidential candidates which is fortunate I suppose, since I'm not American. It's also nearly impossible to notice though how the media swings its support between different candidates... I remember seeing a few of these pics from the AP recently.

Too Funny...

Light blogging as I've been traveling. Picture of the day from the Club for Growth Blog:

Chinese Imports and the American Poor

Filed under the category of 'stuff you should know but won't hear from the media or Presidential candidates', well except for maybe John McCain. China gets vilified for a lot of things. Helping to improve the standard of living of the poor shouldn't be one of them. From Christian Broda and John Romalis (h/t Greg Mankiw)

We document that much of the rise of income inequality has been offset by a relative decline in the price index of the poor [....]

We find that inflation for households in the lowest tenth percentile of income has been 6 percentage points smaller than inflation for the upper tenth percentile over this period. The lower inflation at low income levels can be explained by three factors: 1) The poor consume a higher share of non-durable goods —whose prices have fallen relative to services over this period; 2) the prices of the set of non-durable goods consumed by the poor has fallen relative to that of the rich; and 3) a higher proportion of the new goods are purchased by the poor.

We examine the role played by Chinese exports in explaining the lower inflation of the poor. Since Chinese exports are concentrated in low-quality non-durable products that are heavily purchased by poorer Americans, we find that about one third of the relative price drops faced by the poor are associated with rising Chinese imports.

Design Matters

I don't get why so many businesses have difficulty with this idea: "your customers care about design, even if they don’t". From the Voltage Blog:

A 3-year Fortune-500 study conducted by research firm Peer Insight found companies focused on customer-experience design outperformed the S&P 500 by 10-to-1 from 2000-2005. One more time for those in the back: that was 10-1. Your customers care about design; a lot; ten-to-one a lot. Even if they don’t (know it).

Design as a concept should be applied to all aspects of how a customer or client both interact with a product and from the business itself. So why don't so many businesses bother? Whatever the reason it's fortunate for competitors, startups and entrepreneurs.

Added bonus (not particularly related to anything in particulary): Instapundit calls it a crime against nature. Introducing the Uno: a 'Unicycle-Motorbike-Segway Hybrid'. I think it's pretty cool. I just wonder how it handles potholes - cuz that's what it'd be up against if the target market is developing countries.

What Fake Meat and Microfinance have in Common

Just more proof that revolutionary ideas ruffle feathers - (or maybe it's ideas that I think are cool ruffle feathers). PETA's $1M prize has apparently been quite controversial (h/t Tastespotting):

PETA co-founder Ingrid Newkirk tells the New York Times that the prize offer caused "a near civil war in our office" and that "we will have members leave us over this." Newkirk observes, "In any social cause community, there are people who strive for purity." [...]

Purists see it as a moral surrender. "It's our job to introduce the philosophy and hammer it home that animals are not ours to eat," a dissident PETA official tells the Times. Purists also point out that carnivores suffer more obesity, diabetes, heart disease, cancer, and other diseases. Getting your meat from stem cells might not change that.

Pragmatists point to all the issues lab meat would resolve. No more cages. No more body-inflating drugs. No more slaughter. Less environmental harm. "We don't mind taking uncomfortable positions if it means that fewer animals suffer," Newkirk concludes.

My favorite subject in microfinance obviously happens to be its most controversial one: commercialization. While I'm not sure I would characterize the statist position in microfinance as being pure (simply given the often pervasive inefficiencies and poor business practices), those who object to commercialization and (unlimited) profitability lose sight of the end goal. For microfinance, it's about helping the poor make money to get out of poverty. For PETA it's about killing fewer animals. In the battle of ideas, both use economics as their weapons and as a result, both are considerably more sustainable. Then again, never one to shy away from controversy, proving others wrong (or being proven right depending on your point of view) over time just makes winning that much more satisfying.

How to Make Fake Gold

Kind of random, but neat nonetheless - for those occasions when you, um, need to fool terrorists (Popular Science).

Measuring Innovation

The Freakonomics Blog has a great albeit lengthy roundup of how innovation can be measured. Practical advice on a fairly squishy subject that is fundamental to the profitability of nearly every business.

Compliments are as Good as Cash

According to Dr. Norihiro Sadato of the Japanese National Institute for Physiological Sciences in Okazaki, Japan: Paying people a compliment appears to activate the same reward center in the brain as paying them cash.

It's no secret that I'm a big fan of economics but I think many people mistake my enthusiasm as a belief that I only think about money. Personally I think it's a common error that people think that considering economic choices is "selling out". You often this idea in microfinance or any form of 'social activism'. The reality is that economics is an attempt to understand how people are influenced by incentives. No one has ever said that incentives must be in the form of money alone.

Money and markets are the needs, wants and desires of society quantified. Prices are the intersection where scarcity / abundance and need meet - which in turn help society to most efficiently allocate resources. The elegance and simplicity amidst complexity is very zen imho. While cash incentives obviously have their place, when it comes to reinforcing values, I personally feel that they can do more harm than good - for the simple reason that cash is only one way to motivate. Sometimes all it takes is recognition.