Category: Economics

The Silent War

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The Book of the Week is “The Silent War, Inside the Global Business Battles Shaping America’s Future” by Ira Magaziner and Mark Patinkin, published in 1989. When Magaziner worked for Boston Consulting Group, he would conduct extensive research on industries, markets, businesses and people in order to generate reports that would presumably help his clients (consisting of big-name companies). He argued that America was economically falling behind the rest of the world because it was resisting global trade and because its federal government wasn’t financially assisting business and industry.

One time, in the mid-1970’s, Magaziner’s report’s conclusions contradicted those of his client, a big steel mill company. He asked where the executives got their information. Each one’s source material, “… was all the same– all based on one original study done a few years earlier by some professors.” The executives’ groupthink and herd mentality in relying on old, faulty data led to financial trouble for their industry.

In another case, in the late 1970’s, when General Electric partnered with Samsung to make microwave ovens, they struggled to arrive at the most profitable arrangement for both of them. One major cultural difference was that the South Koreans (unlike the Americans) worked sixty to eighty hour weeks because they believed in making sacrifices for future generations. Incidentally, they sent their children to universities in the United States to be educated, and taught them the value of hard work.

Obviously, Americans too, wanted better for their children, but their labor unions and a different mentality prevailed in their workforce. South Korea eventually became an economic powerhouse, not just with the help of American financial aid, but also through maximizing its exporting of goods.

In the 1960’s and thereafter, Singapore’s leader, Lee Kuan Yew, tried a few different territory-wide economic initiatives that failed. One included legislating a 10% wage increase for all workers. Foreign companies, with all the then-availability of sweatshop labor, simply moved their factories to Thailand and Malaysia, where workers were paid less so that goods could be produced more cheaply.

One successful economic program Yew executed was to train his citizens’ factory workers in connection with an Apple-Computer partnership in the 1980’s. The workers made the sacrifices to attend night-school (tuition-free) after a long day’s work two to three times a week, for two to three years. The benefit for the partnership was that the workers’ experience allowed them to submit innovative ideas to improve manufacturing efficiency. Again, in the United States at that time, labor unions discouraged new ideas lest workers automate themselves out of jobs. Which happened to them, anyway. But the non-unionized Singaporean workplace was such that workers weren’t laid off– they were retrained for higher-level positions.

Yet another reason the United States began to economically trail the rest of the world in the latter half of the twentieth century, was that its securities markets accelerated impatience in America’s corporate psyche. American industry became unwilling to finance and do the hard work of, continuing research and development and take a loss in bad times to keep pace technologically with Asian competitors. It wanted to prop up stock prices instead and make its executives rich quick. Still does.

One company that bucked the trend was Corning. In late 1983, (finally, after sixteen years of losses!) it had the cutting-edge technology in fiber-optics for telecommunications, ready to deliver finished products to its first big customer, MCI, to turn a profit. Corning did it on its own– receiving scant financial help from the United States government.

Times have changed little since the 1980’s, when photovoltaic scientist Paul Maycock remarked, “I hated the whole concept of buying oil from the Persian Gulf and spending $50 billion a year defending that part of the world.” He wasted a lot of time and effort on environmentally-friendly business initiatives. Sadly, those were incompatible with the United States’ strategic interests. The start of the Reagan Era saw the Department of Energy nix further funding for solar-technology research. The solar panels (installed during the Carter administration) on the White House roof were removed.

Further, since in the 1990’s (after the book’s writing) there has arisen an orgy of patent litigation in software and computer hardware. Technologically inexperienced patent clerks and court personnel have made legal decisions that have been economically damaging to the country. Additionally, the American government has a history of eagerly funding innovations that have military applications while denying funding for innovations that have commercial applications.

And yet, astute perpetrators of American foreign policy have damaged other nations’ economies not only by waging war, but also through dispensing bad advice on “shock capitalism” and other subtle (“classified”) methods of indirectly causing mass destruction. So the United States remains the economically dominant nation in the world, despite suffering its share of financial crashes and certain sectors’ damaging policies that weaken it economically as a whole; sectors such as healthcare and education.

Anyway, read the book to learn: of additional business cases that related to the aforesaid themes, and the four major reasons the Japanese technology sector achieved great success in the past.

Pity the Billionaire

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“It is as though the frightening news of recent years has driven them into a defensiveness so extreme that they feel they must either deify the system that failed or lose it altogether.”

No, not the Republican Party in connection with Donald Trump.

The Republican Party in connection with Republican voters’ gullibility in believing the Right’s propaganda machine that rationalized away Wall Street’s unmitigated hubris and unconscionable greed amid the subprime mortgage crisis of 2008-2009. As is well known, the rich were made richer and poor, poorer in the second half of the single-digit 2000’s. The GOP’s clever aftermath-messaging led to big wins for them in the 2010 midterm elections.

The Book of the Week is “Pity the Billionaire, The Hard-Times Swindle and the Unlikely Comeback of the Right” by Thomas Frank, published in 2012. This short volume described how the political group called the Tea Party (“TP”), a subset of the GOP, whipped an alarmingly high number of Republican voters into a hysterical rage against the Obama administration’s handling of bailouts of financial institutions and foreclosed-upon ex-homeowners.

It appeared to be counterintuitive, that the TP raged against bailouts for bankers, brokers and lenders. After all, taxpayers were forced to reward these greedy perpetrators of the economic disaster. Through flawed reasoning, though, the TP propagandized that capitalism should be free of any and all economic intervention from the government, whether in the form of regulation or assistance. They pretended to be an enemy of big business, screaming “Socialism!!!” at the government’s every move. They did this because the resulting continued excessive deregulation would make Republicans wealthier and more powerful, and each trait would feed on the other ad infinitum. As ought to be well known– politics cannot be divorced from economics.

The TP was really pushing for 100% pure, capitalistic Libertarianism. Under the “you have two cows” scenario (look this up on the Web): you can do with the cows whatever you wish, whenever, wherever. Also, remove: ALL regulation from all aspects of American life, taxation and social safety nets. And to make the situation truly American, throw firearms into the mix and see what happens. Absent rule-of-law, sanity and civility, the resulting ruthlessness would evolve into (judging from the federal-level administrations’ gyrations of the most recent thirty years) a dictatorial kleptocracy (sort of like Zaire (aka Congo) in the 1980’s), and then anarchy, not unlike… Somalia (?)

Fortunately, a sufficient number of Americans– despite most politicians’ cronyism with big-money donors– clung to the country’s democratic underpinnings (reasonable regulation, taxation with representation, and social safety nets) to weather the storm. The author harshly criticized Obama and his Democratic party for not punishing the morally bankrupt financiers and enforcing the law in helping the bankrupted borrowers. It is possible the president felt it was worth selling his soul to those big-money donors; he wouldn’t have been reelected otherwise and wouldn’t have been able to accomplish more of his agenda. His Democratic party, too, was too nice to get down in the gutter and use the GOP’s sleazy propaganda techniques.

Anyway, read the book to learn of how the pronouncements of the TP and Glen Beck and the contents of Ayn Rand’s novel Atlas Shrugged influenced numerous voters in 2010, and other reasons the nation’s political history unfolded the way it did in the early 2000’s.

Car Wars – BONUS POST

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The Bonus Book of the Week is “Car Wars, The Rise, the Fall, and the Resurgence of the Electric Car” by John J. Fialka, published in 2015. This volume provided a brief history of how manufacturing and sales of renewable-energy vehicles has been evolving in the last few decades. Clearly, the author wrote about relevant subjects from documents, and people to which he had easy access.

The (lazy?) author dismissed the electric cars of the late 1800’s in two sentences, saying they were obsolesced by 1920 via an innovation by engineer Charles Kettering; an electric ignition system replaced a burdensome hand crank in gas-powered cars, especially in the Cadillac of 1912, and then just like that, everyone started buying gas-powered cars. A propaganda war, profiteering and politics likely played a role in that major development in standard-setting in transportation, but the reader wouldn’t learn that from this book.

Anyway, in the 1980’s, previously competing automakers were initially compelled to form alliances to comply with car-emissions limits and meet deadlines set by U.S. laws, especially in the state of California. They shared info on electric vehicle (EV) technology. Over the years, when the deadlines were relaxed by pro-business politicians, the automakers parted ways, and independently pursued only the specific projects they felt would be profitable. Environment be damned.

In 1990, near the campus of the California Institute of Technology, when drivers tested the plug-in recharging feature of the General Motors Impact in their personal garages, their neighbors’ garage doors and TV sets went crazy, because the recharger was actually a huge radio transmitter.

In October 1995, Japan’s Toyota beat American carmakers to the punch when it showed off its hybrid Prius, that got 70 miles per gallon of gas. Of course Japan, of all the industrialized countries in the world, is significantly more motivated to seek efficient, renewable energy sources for its transportation modes– for the sake of its economic survival.

In the late 1990’s in a few select places in California and Arizona, super-rich males leased the first few models of EVs, because the cars had the attractive features of fast acceleration and high velocity; high gas mileage was a secondary benefit.

Meanwhile, in the single-digit 2000’s, a group named the California Fuel Cell Partnership was formed. It consisted of Geoffrey Ballard, Daimler, and Ford, who were working on a competing vehicle that uses fuel cells– whose mechanical components chemically alter water molecules. The selling points for those cars, once the technology’s commercial application is perfected, include: zero-emissions and the ability to fill up the car at existing gas stations. However, oil companies would supply hydrogen tanks.

Read the book to learn some of the politics, economics, entrepreneurs and technologies involved in developing cars that ran on renewable-energy sources, up until the book’s writing.

Free – BONUS POST

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The Bonus Book of the Week is “Free: A Child and A Country at the End of History” by Lea Ypi, published in 2021.

According to the book (which appears to be credible although it lacks Notes, Sources, References, or Bibliography and an index), Albania’s monarchist government and business leaders threw in with their Italian invaders in 1939. In 1944, the Italians retreated and Albania’s occupation by the Soviets resulted in one-Party rule. The practice of organized, monotheistic religions was banned, but Albanians worshiped a real person– a founding-father and WWII military hero named “Uncle Enver.” He severed Albania’s diplomatic relations with Yugoslavia after the war.

The Albanian author, born in September 1979, was indoctrinated to believe that her country was one of the freest on earth. Never mind that the common people had to stand in line for hours and hours daily or sometimes longer (they were allowed placeholders) to obtain such basic necessities as milk, cheese, kerosene, etc. through a voucher system. In addition, her childhood was fraught with lies about her great-grandfather and others in her family’s social circles.

Ironically, just as pedigree among the wealthy in the United States denotes social status, so the “biography” among ordinary Albanians determined whether one would be allowed to join the socialist (political) Party, and determined one’s reputation, and thus one’s work and social activities in daily life. It was guilt by association; one was guilty just by having politically unpopular ancestors, as had the author. Albanians were required, however, to attend meetings at their local civic associations.

In December 1990, there occurred a major political turning point in Albania’s history: free and fair multi-party elections; a turning point in its economics too, as its government heeded bad financial advice it received from Western powers, that invited corruption similar to that of Bolivia’s (See this blog’s post, “Jeffrey Sachs”). In the early 1990’s, for the first time (!), the author found out about or experienced: air conditioning, bananas, traffic lights, jeans, chewing gum, Mickey Mouse, AIDS, anorexia and plenty of other cultural givens the democratic peoples of the world took for granted.

Read the book to learn of the trials and tribulations specific to Albania’s people when they saw how the other half lived (hint: World Bank meddling, a civil war, education shenanigans and more).

How I Cracked the Alpha Code – BONUS POST

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“The new guys were preoccupied with being reelected, the demands of which were not well served by ridiculous fantasies like fiscal discipline.”

American politics? Rogers was actually referring to the money managers of the euro in the early 2000’s. He was cautiously optimistic about the euro when it was first launched. Oh, well.

The Bonus Book of the Week is “How I Cracked the Alpha Code” by Jim Rogers, published in 2013. This was a partially autobiographical, extended essay that gave tips on how to gauge economic prosperity and prospects in different places. At all times, Rogers is on the lookout everywhere for investment opportunities. He made his (take this job and shove it) money and retired from investment banking at 37 years old.

Born in 1942, Rogers and his wife and young children tried living in Shanghai and Hong Kong (where there was horrible air pollution) beginning in 2005, before deciding to move to Singapore from New York City.

Singapore requires no security at public events, so it is safe for children. He claimed that the education and healthcare systems are excellent. It has entitlement programs in those areas and in home ownership that are roughly equivalent to health savings accounts and 529 plans in the U.S. with contribution-matching through employers, but administered by the government. The public schools require parents to volunteer to help in various capacities. Medical treatment is a great value compared to that in the U.S. No surprise there. It also has the equivalent of America’s E-ZPass system on toll roads and for parking, too.

However, Rogers merely listed the positive aspects of Singaporeans’ lifestyle. He listed no negatives, except for potential, general economic threats that could affect any nation. Another glaring omission of inconvenient information was cryptocurrencies. But he did reveal his basic philosophy: one’s real worth is what one would be worth if one lost all of his or her money. And let financial entities fail so as to encourage creative destruction. Do not bail them out.

Rogers listed some of the kinds of policies and practices that bring a country down economically: wars, litigation, and incompetent leadership. This blogger would add one more: excessive deregulation. He gave tips on what a nation should do to try to reverse its serious financial position: reform the tax system so as to encourage savings and investment, not consumption; “change the education system” and reform healthcare and litigation.

Read the book to learn more cherry-picked information that bolstered the author’s too brief, too pat pronouncements.

Fatal Subtraction

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The Book of the Week is “Fatal Subtraction, How Hollywood Really Does Business” by Pierce O’Donnell and Dennis McDougal, published in 1992.

“I asked myself whether this uncanny similarity and anticompetitive market was the result of coincidence or conspiracy. Thanks to my populist tendencies and a healthy distrust of powerful institutions, I opted for the sinister explanation.”

Politics? Big Tech? Medical, legal, music, sports or oil industry?

The above quote happens to refer (in various ways) to all of the major Hollywood movie studios, just after their most lucrative years. The skyrocketing size of the home video market in the 1980’s made movie studios richer and richer, what with cable TV, VCRs and global distribution. They retained the best entertainment law firms on an ongoing basis so that whenever any powerless parties who felt wronged, tried to hire those firms to bring legal actions against them, there were conflicts of interest.

In 1988, Art Buchwald and Alain Bernheim– respectively a seasoned humorous newspaper writer and lecturer who dabbled in the movie industry, and a producer– sued Paramount Pictures Corporation for thirteen causes of action; among them, breach of contract in connection with the movie Coming to America starring Eddie Murphy. They were fortunate in that they were able to hire a big firm and could afford to pay hundreds of thousands of dollars to hire topnotch attorneys to fight a years-long legal battle.

The crux of the dispute involved the boilerplate contracts almost everyone in Hollywood was compelled by their agents to sign, in order to get work. The studios engaged in cartelizing behavior, so the powerless creative personnel were at their mercy at contract-signing. Only a tiny percentage of powerful elite stars reaped a ton of money for all movies they did, regardless of financial success. The agents claimed they were getting great deals for their less powerful talent, but that was a lie. For, starting in the 1950’s, the contracts evolved pursuant to the studios’ shady accounting practices, in a way that cheated screenwriters especially.

By the dawn of the 1990’s, big-name actors were allowed to behave like prima donnas, basically enjoying excessive expense accounts and reaping outrageously generous compensation from gross movie revenues. The movie idea originators and writers received net profit participation– i.e., the crumbs after all expenses had been deducted. The studios’ definition of “profit” was topsy turvy so when it came time to pay lowly workers, they claimed their movies were losing money!

O’Donnell and his legal team argued that certain provisions in Buchwald’s and Bernheim’s contracts were unconscionable, and therefore legally unenforceable. On principle, the studios’ oligopoly was economically bad not just for his clients, but for society (See this blog’s post “Wikinomics / Courting Justice”).

Read the book to learn every last detail of the case.