When Regulators don't embrace failure

One of the pillars of US economic growth has ironically been its willingness not only to accept but embrace failure (Entrepreneurship.org). The slate is even ultimately wiped clean following a bankruptcy with financiers/venture capitalists willing to look beyond past failures.

Paul Kedrosky does "an eye-opening comparison of the differential ease of starting and closing a business in various countries":

After all, if you're an entrepreneur in these countries, the incentives for creating any startup (let alone a riskier one) drop dramatically if the costs of failure are excessively high.

The Choice Society Makes: Unequally Wealthy or more Equally Poor

There isn't a middle ground - and this is only highlighted by the recent financial crisis (WSJ). Personally I only consider inequality an issue if there doesn't exist equality of opportunity (the proof of which is income mobility) - and as I think I've attempted to make painfully clear in the past, I actually think that's improving with technology.

US Administration fails Trade Litmus Test

via Greg Mankiw, from the AP:

Obama to impose tariffs on Chinese tires
President Barack Obama on Friday slapped punitive tariffs on all car and light truck tires entering the United States from China in a decision that could anger the strategically important Asian powerhouse but placate union supporters important to his health care push at home.

I can't say it is terribly surprising based on some of the policy decisions in the last several months. I would however quibble with the AP's throwaway comment that somehow this decision was necessary for union support on healthcare given how aggressive they have been at pushing the healthcare bill on their own (Patterico). In what amounts to a de facto tax grab for unions, it is consumers who will bear the greatest costs.

Curiously, I note that this was released on the Friday night of a shortened week. It is a long standing tradition that organizations release bad news on Friday nights in hopes that people will forget by Monday morning. Unfortunately, the costs of a policy like this will live on long after. I simply hope that consumers will remember just as long.

Insight into the Google Machine

Cringely has a remarkable (and short) profile of how the Googleplex works. Ideas that clearly wouldn't work for most companies/markets but are fascinating to consider. A few highlights:

• "Peer review at the heart of everything" (up to 20% of an employee's time)
• "Most decisions seem to be reached through a combination of peer review-driven concensus and literal popularity polls"
• "Process is s-l-o-w but the code is clean"
  
• "Google developers outnumber testers by 50-to-1"
• "Typical Google manager has 50-60 direct reports and has time for nothing but meeting after meeting"
• "Developers bid for what they want to do with their time. If there’s a big job to be done people commit to parts of it. And the parts nobody commits to do? They don’t get done."
• "There is no marketing input. Effectively, there is no marketing."
• "Google isn’t a software company at all. It’s an advertising company."

What I've Been Reading

I keep saving all these links that I keep intending to post about but never do. As a result, I have a few massive text files on my computer desktop that keep getting bigger. Instead of attempting to digest them for you, I figure I'll just link them with brief descriptions.

Development
Africa desperately needs trade links - cause or effect? (aid watch)
The age of the celebrity tyrant (forbes.com)
Healing in a post-genocidal world: a survivor returns to Burundi (wsj.com)

China
Segmenting 22 groups among China's consumers (blogs.wsj.com)
China's growing shanzhai / open fabrication movement (tigoe.net)
Lost opportunities: "Enterprises that should have disappeared, survive" (chinastakes.com)
China warms to new credo: business first (nytimes.com)
The China consumption versus the rest of the world (kedrosky.com)

Economics & Politics
Having more money kills people says a new NBER paper. (kedrosky.com)
Ocean freight update: GRA increase of $400-500 (3plwire.com)
Net insider selling: 'investors will get big shock this fall' (theneweditor.com)
The revolt of the masses: global non-confidence vote (wsj.com)
A tale of two $100,000 jobs; a tale of two Americas (blog.american.com)
Americans rate government, self employment as top job choices (rasmussenreports.com)

Technology & Trends
The growing role of the private sector in space flight. (economist.com)
The human brain is even more efficient than we thought. (scienceblogs.com/cortex/)
Thin film solar startup Nanosolar announces $4B in contracts (wired.com)
Super-strong German steel velcro (popsci.com)

Choice and Development

A paragraph from an Acumen Fund Blog posting that may be as controversial as it's true:

The sessions closing sentiment related to each firms contribution to change in the developing world. Tim explained IDEO is about enabling choice; creating new choices that didn’t exist, so that people can make them if they desire. At the core of what both firms seek to produce, Jacqueline concluded, “real dignity ultimately comes from choice and opportunity.”

Now compare that to the approach NGOs and developing agencies take in the developing world and you only begin to understand the extent of the problem.

More on the World Bank's Doing Business Report

On the global state of markets and regulation from Freakonomics (em. mine):

The World Bank’s annual Doing Business report indicates that capitalism has fared better than feared in the recession. For the year ending in May 2009, 131 countries introduced 287 reforms, more than in any year since the survey began in 2004. Rwanda led the way, followed by other low and lower-middle-income countries. Research has shown that pro-business reforms are particularly beneficial in developing countries. The Economist notes that, “One study shows that, in poor countries, a ten-day reduction in the time it takes to start a business can lead to an increase of 0.4 percentage points in GDP growth.”

"Law and Hoarder": The problem banning anything in absence of immediate harm

Edward Tenner, from the Atlantic (via Instapundit):

There are three problems with a legislative ban on anything in the absence of immediate harm.

The first, as the German case shows, is that some people who might have increased their use of energy-saving bulbs, will protest limits on their choice by hoarding -- resulting in more energy spent producing bulbs that may outlive their purchasers.

The second is that it removes an important incentive for the development of compact fluorescent lamps and light-emitting diodes that produce a more pleasing light, killing off the competition and reference standard.

And the third is that it is an arbitrary and inconsistent way to promote energy saving; there's no limit to the wattage of new-style bulbs. The industry failed to learn from its founder, Thomas Edison, whose light bulb was designed to be not only more convenient than gas light, but more pleasant, according to Charles Bazerman's study.

Dismembering University

I'm not exactly sure why I'm seeing all these articles lately - hopefully it's not just wishful thinking on the part of parents paying tuition bills this week but here's another article on how the web will disrupt education (BigMoney) - much in the same way it's changed journalism/the news (for the better while killing off the slow and weak? [TechCrunch]).

BigMoney focuses on especially low cost liberal arts degrees and ever rising tuitions. While it's a nightmare scenario for some, if these institutions are able to adequately build or identify the quality of thinking their offline counterparts do, this will be a boon especially to the poor (both relative and absolute) around the world who have even greater access to higher ed:

When this happens—be it in 10 years or 20—we will see a structural disintegration in the academy akin to that in newspapers now. It will mean fewer professors and worse pay; low-paid, untenured faculty will do much of the teaching. Online instructors are already joining freelance reporters in the underpaid, insecure, overeducated work force that works from home. The market will encourage this trend. The typical 2030 faculty will likely be a collection of adjuncts alone in their apartments, using recycled syllabi and administering multiple-choice tests from afar.

Neuroeconomist Paul Zak on the "Innately Virtuous" Nature of Markets

From Reason.tv:

Zak discusses his oxytocin argument, presented in Moral Markets: The Critical Role of Values in the Economy and why even the most untrustworthy among us leads to a healthy and moral marketplace.

Burying the Lede on Solar

According to The Information Network, "Solar crisis [is] set to hit in 2010, 50% of [solar] manufacturers may not survive". Except there's this little nugget:

Average selling prices could drop below US$1 per watt in 2010 and US$0.50 in 2011. As many as 50% of the more than 200 solar manufacturers, mired in red ink with current selling prices above US$2.00 per watt, may not survive, The Information Network stated.

So basically, the companies that are inefficient are going to cease to exist. That's what's supposed to happen. Further, if they're right about the $1 per watt costs, this could mean that we're about to experience a revolution in energy. $1 is the tipping point that solar becomes cost competitive at an installation level. Add to the fact that solar doesn't require fuel, so that operational costs are minimal makes this very exciting. So other than the fact that we may have finally reached a nirvana in cheap and abundant energy, maybe this is a crisis after all (note: set sarcasm meter to high).

It's an incredible time to be an entrepreneur

In the midst of our little financial crisis, it never ceases to amaze me the companies that have continued to thrive. Here's a tidbit of SurveyMonkey - something I remember first using in university and a company that has kept a pretty low profile (and maybe this is why) - from TechCrunch:

They never raised outside funding and grew the business to a rumored $30 million in revenue in 2008, with 85% EBITDA margins. This year revenue will be more like $45 million, we’ve heard (the company won’t comment).

The leverage of the internet and the ability to reach across borders and thousands of miles at a cost of less than a penny is unprecedented. As the Guardian notes, "startups are able to run leaner and meaner" against their often better funded counterparts. It's also not the college students who are succeeding - according to Vivek Wadhwa, "old guys rule" (TechCrunch):

I’ve got a message for all the Silicon Valley venture capitalists who think a CEO is over the hill after age 40. Old guys rule. And they are far more likely to be the founder of a successful technology company than most of you understand. How do I know this? Research that my team conducted, based on a survey of 549 entrepreneurs in high-growth industries, showed that the average founder of a high-growth company launched his venture at age 40. We also learned that these founders are likely to be married and have two or more kids. They typically have six to ten years of work experience and real-world ideas. They simply got tired of working for others and wanted to rise above their middle-class heritage.

So where to start? If I may be so bold, have a look at the compendium of links that I've been saving up and updating and also my latest book summary (though I'm planning on reorganizing and rewriting it).

World Bank's Doing Business 2010 Released

The great news is that there have been significant reforms over the last year despite (or perhaps because?) of the turmoil in the financial markets. "This year's top reformer is Rwanda, a first for a Sub-Saharan African economy." Read on!

Trade, not aid - Entrepreneurs in Africa

Real sustainable solutions to development: a look at a few entrepreneurs in Africa (Freakonomics). The one criticism is that it treats Africa as a monolith that it's not. Policies in economic development and entrepreneurship vary dramatically from country to country.

Wait times and my family doctor

I live in a community that is about an hour away from Toronto (sort of, with the rest of my time spent in Asia or the US). At the insistence of the parental units, I'm going to make an appointment for a checkup with my family doctor (they're concerned about the 1-2 eggs I eat). I was told it will be a half a year wait.

I couldn't help but laugh (and being a guy and having no health issues at the moment and quite close to reaching my workout goals, it is somewhat unimportant to me anyway). Basically in my community, there is a shortage of family physicians so quite a few of my friends who have moved into the area don't even have one and need to use an urgent care clinic for their basic medical needs. At my doctor's office, I've learned that it takes about a week if you need to see her on a specific non-urgent issue and up to a few days where they would double book for a more urgent issue.

Further, if I were to decide I couldn't wait and go to an urgent care clinic, the government (this being a one payer system) would penalize my doctor for my doing so. Ah, fun times and government run healthcare... I have been saving up for a mega rant on healthcare... we'll see if I end up having time to do the round up this week.

Happy Labour Day

I'll let John Stossel take it from here.

More on Disrupting Higher Ed

On the institutions of higher learning, in the words of Cringley - "Burn baby burn":

We’re on the cusp of a new era where the marginal cost of insight is low enough to create new kinds of virtual education institutions. The important concept here is insight, which means more than fact, more than knowledge. It is the link between facts and knowledge, a true act of understanding that enables thinking people to create something completely new. Without insight you don’t know jack. But insight generally comes through personal connections — connections that to this point we’ve typically had to create campuses and pay $50,000 per year to enjoy.

How? "What’s missing here is the higher education equivalent of a GED. Someone will come up with one, or they should, because all the other parts of the system are ready to go." Read more here.

While I agree that change is coming, and maybe certifications/GED-equivalents will fill part of the void, the one thing as an employer that I realize is that there is a large gap between how those who have completed university and those who haven't approach problems and think. This may end up being a gross generalization based on a rather poor sample size, but I suspect universities and the time spent often engrain a greater level of curiosity and also a structured approach to problem solving.

There are obviously exceptions. On the other hand, I also don't know if university degrees are the cause or merely indicators of the quality that existed already. This is not to say that I don't believe we can either build critical thinking skills in other ways, or find better ways to identify it for those who have them - because I believe we can. I think the segmentation and reconstitution of the value in higher education will happen - it's just a matter of when and how and we're already reaching a tipping point where the technology exists and the pressure (ie economic incentives/need) for it to happen is only continuing to build.

Update: On the effectiveness of online schooling K-12 (ReadWriteWeb) - "A key finding of the report is that students doing partial or all course work online rank, on average, in the 59th percentile, meaning better than 59% of all those who were scored; whereas students in traditional classrooms ranked in the 50th percentile."

Bending the Cost Curve on Education

Some have even concluded that "college, as an asset class, is a bubble" (InvestingwithOptions). Technology, in its ability to provide cost effective alternatives may change all that. Washington Monthly profiles StraighterLine, a company that offers accredited courses for an incredible cost of $99/month allowing you to finish as many courses as you can in that time period:

Crucially for Solvig—who needed to get back into the workforce as soon as possible—StraighterLine let students move through courses as quickly or slowly as they chose. Once a course was finished, Solvig could move on to the next one, without paying more. In less than two months, she had finished four complete courses, for less than $200 total.

Another interesting datapoint is one made by the Economist blog that suggests "an increase in tuition makes the school more desirable as a status symbol" and increases networking opportunities for students. What I find fascinating about these stories (beyond the obvious that markets force accountability) is that technology is unbundling university into its component parts - offering knowledge and the recognition of learned knowledge without the extra "features" that consumers aren't interested in. This does not bode well for institutions that ignore the idea that prices can be sustainably divorced from the reality of the underlying value they offer.

Are the Limits to Development Financial?

The most recent posting on "Bill Easterly Watch" is telling of the types of advocacy and solutions that they (and indeed many in the aid world) seek from Dr. William Easterly's blog, and why I somewhat harshly note that they 'just don't get it':

Why the single minded focus on aid effectiveness when we know that the limiting factor in many instances is financial. Primary education, food production, disease control, health, infrastructure, are all in many instances limited by the funds available to be deployed on them.

Do we really "know that the limiting factor in many instances is financial"? If they had read William Easterly's books, like the Elusive Quest for Growth (Amazon), they might learn for example (to roughly paraphrase) that investments in education, while a potential catalyst once economic growth gets going, poorly correlates to economic growth. Their conclusion based on this questionable assumption is that what we need is "more and better aid".

They should have a look at governance indices like The Heritage Foundation's Freedom Index, the World Bank's Doing Business Index, Transparency International's Corruption Perception Index or the International Property Rights Index. While I won't rule out the possibility that it's a massive coincidence that the better a country performs on the various scales also correlates positively with greater the economic growth, I doubt this is the case. Further, not one of these indices cites "aid" as a factor in growth.

I'm not sure if there are any countries in the world that have industrialized as a result of aid initiatives. Indeed, I would suspect there are enough instances where quite the opposite is true - that aid has actually stalled economic growth encouraging the type of centralized solutions that developing countries need the least instead of reinforcing property rights, exiting government involvement where private industries can move in, freer trade and finally, better access to foreign investment.

No Mr. Turner, what we need isn't more and better aid. The problem with aid isn't Bill Easterly either as your blog's name somewhat churlishly suggests. Dr. William Easterly is simply one of the leading voices to call for greater accountability and question the role of aid in development with a growing body of work whose authors include Dr Easterly, Dambisa Moyo, Hernando De Soto, Brink Lindsey among many others.

What we need is less aid and better governance. Countries who nurture these conditions have greater access to foreign investment that greatly surpasses funds available through aid and is generally more accountable.

When "Do Nothing" is better than "Doing Something"

One of the reasons I enjoy William Easterly's blog is his willingness to publish and respond to criticisms by others even when they just 'don't get it' as is the case with the most recent posting by Bryan Turner, founder and coordinator of Students To End Extreme Poverty and Youth Engagement Coordinator of Make Poverty History Canada.

"Aid" is an intervention into a market - a market that may be poorly functioning or even thriving. For this very reason, and for the fact aid by its very nature is unsustainable (if it were sustainable, they'd be called profitable businesses), "doing something" by the well intentioned as Mr. Turner proposes, may be worse than those who look with apathy and "do nothing". Further, real sustainable solutions often have very little to do with the lack of the well intentioned or even the lack of money/resources.

One issue I remember personally experiencing was finding qualified staff in Uganda with distortions caused by aid agencies paying substantially higher wages. Another is the obvious issue of funds being redirected to or alleviating the pressure on corrupt agencies and officials. These are not "straw men" as Mr. Turner proposes. Only the most recent example of waste is highlighted on Easterly's blog - developing the failed "Women's World Market" in Kabul that offered nothing unique, was in a poor location and expensive to boot. This being said, I do think it's pretty important for any dialogue/debate to distinguish between "relief" and "economic development". It is the latter that Easterly most viciously and rightfully criticizes for its abject failure over the last 50 years.