Category: Business

Just About Everybody vs. Howard Hughes

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The Book of the Week is “Just About Everybody vs. Howard Hughes, The Inside Story of The TWA-Howard Hughes Trial” by David B. Tinnin, published in 1973.

In the 1930’s, Howard Hughes inherited his father’s oil-industry-equipment company, Toolco, which sold a unique, patented, lucrative drill. By the early 1950’s, Hughes had become a pilot passionate about acquiring jets (whose engines had technology that was obsolescing pistons) for his airline, TWA. He was an alpha male whose desire for control of his company led to decades of complex litigation involving age-old economic and political issues.

As American society became ever more capitalistic in the Postwar Era, businessmen hired more and more attorneys to wield more and more power and influence. They sought to change the tax laws to make more and more money.

Hughes was a victim of his own success in that he was using highly leveraged, deficit financing to purchase the new jets through his Toolco. Into the 1950’s, individuals (rather than their companies or employers) were the ones responsible for debts if they needed to borrow money for their businesses. This economic condition has come full circle with tech startups.

Hughes borrowed from banks and insurance companies, but by the late 1950’s, his debt was so high, they refused to give him special treatment. He used dirty tricks (which arguably weren’t illegal but were unethical, at best) to order jets from a few different suppliers.

Hughes’ incestuous business transactions generated an escalation of commitment among various parties, who were averse to losing even more money if they withdrew from their ongoing deals with him. Need it be said, there is nothing new under the son (or sun– either one). In the early 1960’s, his creditors terminated his borrowing privileges and created a voting trust that took control of TWA. Neither side wanted to see TWA go bankrupt. There were, of course, other wrenches in the works, which are too numerous to mention here.

The orgy of litigation resulting from Hughes’ business activities triggered a very controversial legal and economic issue. Hughes owned 78.23% of the voting stock of TWA, which was financially affiliated with his Toolco. At that time, TWA shares were not owned by the general public. His side argued that he should be allowed to control his companies as he saw fit, because he had a controlling interest in them. On the other hand, he really didn’t own them– his creditors did!

Besides that, if TWA went belly-up, there would be far-reaching economic consequences for many stakeholders. All employees of TWA would lose their jobs, competing airlines would benefit financially, contractors supplying jets and their parts to TWA would lose a customer, Hughes’ lenders would lose megabucks, etc., etc., etc.

According to the book (which appeared to be credible although it lacked Notes, Sources, References, and Bibliography), in June 1961, the big lawsuit initially launched in federal court in the Southern District of New York against Hughes was named TWA v. Howard Hughes. TWA charged Hughes with making special deals with third parties that led to financial harm for TWA. He tried to keep competing airlines from buying jets he wanted for TWA, through monopolistic practices.

BUT, due to disastrous losses (from a downturn in air travel that prompted proposals of various airline mergers, and his tax-evasion tricks), Hughes chose to cancel a portion of jet orders for TWA. Under his crushing debt load, he couldn’t afford to pay for all of his purchases. So the airline couldn’t stay competitive in the commercial airline industry. Other airlines were purchasing jets sooner at lower cost. Hughes’ series of attorneys through the years, of course used all manner of shenanigans (through: filing a blizzard of documents with creative legal arguments, counter-suing and appealing rulings) to delay the case.

One last-minute development that aided Hughes’ attorney before Hughes would be charged with contempt of court yet again, was a curious January 1963 Supreme Court ruling regarding jurisdiction in connection with a monopolistic entity. There was a little federal agency called the Civil Aeronautics Board (CAB), that had been regulating the airlines. The attorney repeatedly tried to get the case against Hughes dismissed– by arguing that CAB, rather than a federal court, should have been trying Hughes’ case.

Read the book to learn every last detail of this suspenseful story that spawned reams of tabloid fodder, but also greatly impacted the legal, economic and tax cultures of corporate America.

Burn Rate

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The Book of the Week is “Burn Rate, Launching A Startup and Losing My Mind” by Andy Dunn, published in 2022. Born in February 1979 in the United States, the author won the lottery in that he had family and friends who knew him well enough to recognize that, given his personality, his behavior was anomalous. He was doubly lucky that not only did he get mental-health treatment before he ended up in jail (well, at least on one occasion) or in the cemetery, but also, he could (with assistance from others) afford it.

“… for many, even a ‘chill’ drug like marijuana can stimulate a manic episode.” The author got to college still unaware that bipolar disorder (aka manic-depressive illness) ran in his family; his grandmother had had it. People who actually have the condition suffer under a Damocles sword their whole lives, as their mental state goes through unpredictable cycles, even with medication. Of course, stress exacerbates the highs and lows. The medication has side effects that are meant to dull the emotions, so bipolar patients don’t experience and enjoy life as much as people whose brain chemicals are more stable than theirs.

According to the book (which appeared to be credible although it lacked Notes, Sources, References, or Bibliography and an index), while in college, the author was ingesting alcohol and controlled substances such as ecstasy, magic mushrooms and marijuana on a daily basis, and taking the (radical) acne medication Accutane. Somehow, he graduated anyway, and got his MBA at Stanford. He explained that the professors there educated students in entrepreneurship, if they wanted to go that route. The author did.

After years of interesting ups and downs, in 2016, the author– a lifelong fan of the Chicago Cubs (who had last been World Series winners in 1908)– was afforded the opportunity to see game 7 of the World Series in Cleveland. But first, he had to rush to JFK airport from the streets in the East 50’s in Manhattan, beginning an hour before his plane took off, to get there. His cab driver did 90 MPH. Sympathetic people at the airport made way for him when they heard about his situation.

Read the book to learn of the author’s other trials and tribulations, triumphs and defeats. Speaking of defeats…

This is the song Hillary Clinton is singing now.

IN POST-CLINTON TIME

sung to the tune of “Sunny Afternoon” (Official Audio) with apologies to the Kinks.

My opponents BEAT me the last two times.
Deplorables and BERnie were unkind.
I SOREly miss the Situation Room.
And though I CAN-not be in charge,
I’m not locked up, I’m still at-large.
All I WANT’S in-the Situation Room.

Save me, save me, save me
from bad publicity.
I’ve got lots of enemies.
It’s a VAST right-wing conspiracy.

And I love to hobnob with elites,
brag about my political feats.
I SOREly miss the Situation Room,
in post-Clinton time,
in post-Clinton time,
in post-Clinton time.

Donald Trump’s ruined my rep.
He’s in his safehouse doing ’24 prep,
spewing the usUAL blather and cruelty.
Now I’m here online,
doing the grass-roots, make-work grind.
I SOREly miss the Situation Room.

Help me, help me, help me
revive my ca-reer.
Well, give my Party money
to get me out of here.

‘Cause I love to hobnob with elites,
brag about my political feats.
I sorely miss the Situation Room,
in post-Clinton time,
in post-Clinton time,
in post-Clinton time.

Ah, save me, save me, save me
from bad publicity.
I’ve got lots of enemies.
It’s a VAST right-wing conspiracy.

And I love to hobnob with elites,
brag about my political feats.
I SOREly miss the Situation Room,
in post-Clinton time,
in post-Clinton time,
in post-Clinton time,
in post-Clinton time,
in post-Clinton time.

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.

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.

Code Name Ginger

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“Now he was inventing a new story, in which I never told him that I was writing a book and in which he controlled anything I wrote.” Sounds familiar. “I” was Steve Kemper, the author of this book, and “he” was Dean Kamen, who became an amnesiac whenever it was convenient.

The Book of the Week is “Code Name Ginger, The Story Behind SEGWAY and Dean Kamen’s Quest to Invent a New World” by Steve Kemper, published in 2003.

Born in 1951 in Rockville Centre on Long Island, Dean Kamen is a spell-binding genius entrepreneur with some social blind spots. Nevertheless, he had a well-founded fear that “…scientific illiteracy would wreck the country’s economy, lifestyle and future.”

Anyway, by the time he graduated high school, he had become wealthy building cool audio-visual lighting systems that synchronized multiple slide projectors for rock bands and friends and family. By age 31, he was a multi-millionaire, after producing patented breakthrough medical products, horrifying other alpha males– ones who held graduate business degrees– with his drastic plans.

In the early 1990’s, some of Kamen’s company-employees began working on his vision for a new product– a wheelchair that adjusted the way a human being would, to different situations such as curbs and stairs. He was extremely possessive of his product, which was his heart and soul. He wouldn’t grant investors more than ten percent financial interest in the product. Ever.

In 1999, the creators planned to launch the new product, code-named “Ginger” early in the second quarter of 2001, and projected the construction of cookie-cutter factories on different continents that would build two million machines in ten years. However, Dean’s fellow employees felt he didn’t understand that high-volume manufacturing for a product like Ginger required hundreds of employees, a dozen loading docks, fleets of tractor-trailers, etc.

Kamen also reeked of overconfidence, even when presented with ample evidence that disproved his claims. In the late 1990’s, there was already so much competition from other products in the forms of various scooters and folding bikes. At a December 2000 meeting of investors, Steve Jobs told him that U.S. automakers would lobby against Ginger and the automakers would win.

Kamen’s ace in the hole was that he had friendly contact with nearly all of George W. Bush’s cabinet in early 2001. They had the power to grease the wheels of commerce in his favor.

Read the book to learn how the product turned into a toy for the rich but made mobility fun, and the personalities that shaped its evolution.

Every Town is a Sports Town

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“Its demise was caused by low attendance, conflicting agendas among the owners, and a number of very poor business decisions.”

MLB? Possibly, but definitely the USFL by 1985.

Regardless, the Book of the Week is “Every Town is a Sports Town; Business Leadership at ESPN, from the Mailroom to the Boardroom” by George Bodenheimer with Donald T. Phillips, published in 2015.

In September 1979, the Bristol, Connecticut-based cable-TV channel ESPN began televising sports-related shows, by means of deals with: RCA (regarding a space-satellite), the NCAA (regarding covering basketball games), and Anheuser-Busch (regarding sponsoring the programs). The initial concept of the then-shoestring operation was to dispense information on sports 24/7, to serve fans. ESPN won contracts to show March Madness games and the NFL draft to start.

The workplace was team-oriented with a family-feel, so everyone was a jack-of-all-trades. In 1981, the author, a recent college graduate, worked as a mailroom guy and chauffeur of sorts, for executives of ESPN. He was later promoted to videotape librarian. He was willing to relocate when the company opened new branch offices, including Denver.

Anyway, ESPN could not survive financially on ad revenue alone, as the company was paying cable operators to carry its channel. It saw a loss of $25 million annually until it negotiated in 1982 to have cable operators pay the company a certain number of cents for each household receiving its channel, and that figure could rise up to a certain maximum percentage during the term of a multi-year contract.

Due to the ultimate takeover by Capital Cities Communications, and a favorable change in media law– ESPN grew by leaps and bounds. Meanwhile, it added professional tennis, golf, NASCAR, World Cup soccer, the America’s Cup yacht race, and Sunday Night Football (for which ESPN had to pay the NFL) to its lineup in the mid-1980’s.

Globalization, recording devices, the Internet and mobile devices have made the negotiations over intellectual-property rights and sports programming between and among ESPN and other stakeholders, infinitely more complicated. In 1985, ESPN could be watched in about 30 million viewer-households in America; in 1999– in about 80 million in America and about 100 million elsewhere worldwide.

Read the book to learn: of how the author achieved a high position at ESPN, and how he boosted the morale, energy and innovative thinking of his fellow employees; what the company did when it saw its ratings plummet; what his executive team did to resolve the controversy that arose when ESPN made a movie in which the “F” word was uttered approximately thirty times; about the author’s business philosophy; and much more about the history of ESPN.

ENDNOTE: The author’s photo appears on the book’s cover with his head very slightly tilted. This flex is pleasing to the human brain, projecting the impression that he is a people-person. His boyish good looks probably served him well, too. [Total lack of head-flex, projects an unfriendly vibe.]

The Death of Money / Dealings – BONUS POST

The first Bonus Book of the Week is “The Death of Money, The Coming Collapse of the International Monetary System” by James Rickards, published in 2014. This was an all-over-the-map hodgepodge of generalizations on global financial trends, economic theory and what the author claimed was the devastation those trends could lead to, as of the book’s writing.

Prior to 9/11, the CIA possessed no expertise in the nefarious goings-on in the securities industry that could presage the occurrence of a terrorist attack. America’s law enforcement and security agencies had plenty of data, but inter-agency rivalry inhibited information-sharing and creativity– that would have allowed them to “connect the dots” in getting more specific information.

Prior to 9/11, American intelligence did detect irregular trading patterns in the stocks of the two airlines whose planes were targeted in the attacks. A tiny percentage of those trades were illegal because they were made by insiders– by the terrorists who knew those airlines’ share prices would soon plummet; the remaining percentage of anomalous trading was done by those who noticed the unusual activity (but not the reason for it) and jumped on the bandwagon.

After the attacks, threat-detection software was created for monitoring not just stock trading, but also currency and precious metals trading. The author wrote that a recently trendy means for bringing down an enemy-nation is: doing serious economic and financial harm rather than physical harm. Assaults on a nation’s technology and infrastructure such as the money-handling parts of cyberspace, aviation, dams and utilities, instead of targeting a country’s military and weapons or people of a specific ethnic group, is becoming the new normal.

The author remarked that China’s institutions are actually at risk for attacks, because the country’s government, economically, owns a large chunk of the means of production and arguably, labor; not to mention, capital. Wealthy Chinese business owners and executives have a co-dependent relationship with (corrupt) government officials. Besides, there are: “cross ownership, family ties, front companies, and straw man stockholders.”

The author warned the reader that a global financial crisis is likely in the offing due to prevailing circumstances in the economic heavy hitters of the world (like, the United States and China); among those circumstances: misallocation of investment funds; employers’ power to minimize benefits and compensation; red ink and the ever-widening, (allegedly alarming) gap between rich and poor. Financial panic is correlated with social unrest. That can lead to revolution.

The magnitude and accelerating frequency of financial bailouts of the last twenty-five years just shows how fragile the economic systems of the world are. In the United States, excessive deregulation fueled out-of-control greed, etc., etc., etc. In Europe, the group of nations that agreed to adopt one currency (the euro) thought the other nations would help mitigate their own economic problems, when in reality– they were putting all their eggs in one basket. In effect, they had to get permission from the others to make significant changes to their economic policies; they were forced into unhealthy co-dependent relationships.

Read the book to get the lowdown on: all the different groups of nations which were trying to diminish the U.S. dollar’s hegemony (hint: BRICS, BELL, GIIPS, SCO, GCC) at the book’s writing; the United States’ economic system explained for laypeople (via a Venn diagram, along with how the author defined “money” and “death”– both buried in the middle of the book); and everything you ever wanted to know about the value of gold, among other factors in the American dollar’s declining power in the world.

The second Bonus Book of the Week is “Dealings, A Political and Financial Life” by Felix Rohatyn, published in 2010. This bragfest described the life of the typical alpha male who rode a fabulous career in the securities industry, starting in the 1950’s.

The aforementioned first Bonus Book described the trends indicative of a dire future global financial situation. Many such untoward events have already occurred in the last couple of centuries (!), and keep happening. Every time, the seeds of financial disaster are sown decades prior to when it hits the fan.

The selective memory and cherry-picking of data of participants and victims (not to mention propagandists!) cause readers to perceive that those kinds of events are unprecedented, or are becoming more frequent. Excuse the cliche, THERE IS NOTHING NEW UNDER THE SUN (For more info, see this blog’s posts: Serpent on the Rock, A Fighting Chance, Since Yesterday, Why I Left Goldman Sachs, The Zeroes and Dot Bomb).

Rohatyn described a few major stressful economic near-disasters that he was asked to help remedy. One situation was early 1970’s Wall Street, which was a house of cards about to collapse. Another was the near-bankruptcy of New York City in the mid-1970’s.

The late 1950’s saw the city becoming a bloated, bureaucratic civil-service gravy train, due to the increasing power of unions. The costs of generous contracts (along with other sociological factors) was eroding the city’s tax base. Local politicians stayed in power by staying friendly with the unions. One hand washed the other.

At the dawn of the 1970’s, the city needed more and more short-term loans from banks. Creative accounting allowed the debt explosion to continue. The city got subsidies from the state and federal governments, but only at the end of its fiscal year, so its deficit ballooned annually before then. The city got generous borrowing terms because it was in the state’s and fed’s best interest (excuse the pun) to deregulate the lending banks, as they were political patrons, too. Eventually, push came to shove.

In June 1975, Rohatyn was appointed to a bipartisan (truly bipartisan!) committee to help New York State governor Hugh Carey draft a bailout plan for the city, three weeks before the date on which the city would be forced into bankruptcy. Fortunately, Carey possessed the right temperament for saving the world.

Read the book to learn more about how the author helped impose some adult supervision in various, serious economic episodes in his career, and more about his career itself.

Father Son & Co.

The Book of the Week is “Father Son & Co., My Life at IBM and Beyond” by Thomas J. Watson Jr. and Peter Petre, published in 1990.

Curiously, the word “mainframe” never appeared in this volume. Not even once.

Born in 1914, Watson Jr. (hereinafter referred to as “Jr.”), who grew up in Short Hills, New Jersey, was the oldest of four siblings. His father (Watson Sr., hereinafter referred to as “Sr.”), who played well with others, executed a financial turnaround of Computing-Tabulating-Recording Company (renamed IBM in 1924).

Sr. instituted a corporate culture of “investiture socialization”– training, educating, and fostering cooperation among employees and rewarding them for performing well. They had air-conditioned offices and factories (rare for the 1930’s) in Endicott, in upstate New York. Their corporate campus afforded them the use of a country club that offered free concerts, a dining room, two golf courses, a shooting range, and library.

Top management encouraged even the lowest-level workers to make suggestions for improving working conditions. On one occasion, an anonymous complaint that reached Sr.’s desk alleged that a heating system in a plant was being renovated too early in spring, making the work environment freezing, and there was one toilet for fifty employees. Jr. was sent to personally investigate. He wrote that he began remedying the situation within one day.

The first half of the twentieth century is obviously a bygone era in employment. The non-union IBM was competing with other employers that provided labor-union: benefits, compensation and job security for their workers.

Sr. was practically the only corporate executive in America in the Depression years who agreed with FDR’s policies. One hard and fast rule under the “cult of personality” which Sr. developed, was that alcohol was prohibited in all IBM offices at all times, including lunchtime off-campus, and even special occasions.

IBM initially sold scales and meat slicers business-to-business, but switched to leasing of, and tech support for, electric typewriters and punch-card machines. That last product automated all accounting functions and processing of sales data.

In 1940, Sr. testified at a Congressional hearing on “technological unemployment”– the unfortunate, economically adverse situation in which people are thrown out of work when processes get automated. Sr. argued that his company was good for the economy, as it stimulated consumerism.

During WWII, IBM contracted with the War Department to manufacture machine guns, and keep tabs on a slew of battle-related statistics: “… bombing results, casualties, prisoners, displaced persons, and supplies.”

IBM found that the most cost-effective way to run its international business through its subsidiary, World Trade, was to assemble machine-parts in various countries so as to force interdependence among them and share the wealth. Immediately after WWII, though, there were disastrous financial losses in Europe especially, until infrastructure could be rebuilt.

By then, the company had about 22,000 employees, most of whom worshipped Sr. His photo hung on the walls of their offices. Nevertheless, at the time, he was smart enough to listen to IBM’s vice president of engineering. The latter was virtually the only manager who had the foresight to raise the alarm early, on the coming obsolescence of the medium of punch-cards, which took up scads of storage space but allowed instantaneous data-viewing. The technologically superior, compact medium of magnetic tape stored data which were invisible until viewed on a monitor. It was unclear how long the transition from punch-card to tape would take, but entrepreneurs were already making inroads on the extremely expensive experimentation required.

In the 1950’s, the U.S. government commissioned IBM and the Massachusetts Institute of Technology to do a joint defense project called SAGE. In 1957, the Soviets’ launch of Sputnik showed SAGE to be “… a costly fantasy, the SDI of its day. Before long, we found ourselves vastly overarmed, faced with the danger of mutual annihilation.”

In 1967, in the wake of racial tensions in America, IBM built a plant in the Bedford-Stuyvesant section of Brooklyn, New York City. It was part of a social program that was modestly successful; suggested by a task force comprised of white business leaders who assisted a black community board with economic development.

The author admitted that IBM had become a monopoly of sorts by the 1970’s. “The [anti-trust case against IBM] dragged on for twelve years, until the Reagan administration finally dropped it in 1981… the natural forces of technology etched away whatever monopoly we may have had.”

Read the book to learn about the role played by IBM with regard to other major negative and positive economic trends driving America over the course of more than half a century, plus more biographical information on the author and his family.

ENDNOTE: Alarmists on both sides of the economic spectrum shouldn’t have nearly as much fodder with which to propagandize, if they heed the lessons from this book, lessons that smack of deju vu all over again :

  • Some people might say Moore’s Law has run its course in the United States (See the post, “Moore’s Law / Elon Musk”).
  • Microsoft learned the most lucrative lessons from IBM in preparing its own legal defense against the Justice Department’s antitrust accusations.
  • The national healthcare system of the United States can only improve in the coming decades– eliminating one major cost for employers that was seriously hampering their bottom line.
  • The way IBM began to do business internationally decades ago, is still in existence. And
  • supply and demand will compel Americans to find solutions to seemingly overwhelming problems, such as those relating to energy, environmentalism and education.

Of course, there will always be leaders who, grateful for term limits, lacking courage– adopt the attitude of the character Linus in the “Peanuts” comic strip: No problem is ever so big or so complicated that it can’t be run away from.

Wikinomics / Courting Justice – BONUS POST

The First Bonus Book of the Week is “Wikinomics, How Mass Collaboration Changes Everything” by Don Tapscott and Anthony D. Williams, published in 2006.

This book’s authors slapped together a huge number of cliched, vast generalizations in pushing their overly idealistic scenarios of the future. They had high hopes for the open-source movement. Unfortunately, since the book’s writing, most of the open-source projects they mentioned have tapered off, because in the long run, few people can or would want to provide “sweat equity” without ever receiving any equity.

Nevertheless, cooperation and globalization– two other movements for which the authors had great enthusiasm– are still alive, well and prospering. It is debatable, however, how long these two can be implemented before their socialistic aspects reach critical mass, and fail.

The authors mentioned that crowdsourcing of strangers (competitors) who are offered a reward for submitting the best innovative solution for a specific problem- has been very successful. But once the problem has been solved, a corporate entity needs loyal employees to continue to implement the solution.

The authors also contended that cooperation among companies reminiscent of the way the Japanese conduct business, has also been successful. However, long-term, the Japanese way leads to groupthink and herd mentality– lack of new ideas and competition; an oligopoly or monopoly. Free-market economics– competition– forces a company to acknowledge its weaknesses and threats against it, of which it might not even be aware. This is why capitalist economics for most goods and services is the way to go– there is balance between cooperation and competition that allows workers to best fulfill their potential for their employer and themselves.

It might be recalled that pure socialism thrived for a short time when the State of Israel was born. That was an extremely special exception, for the following major reasons; the Kibbutzniks:

  • were forced to work together in order to survive in the desert, geographically surrounded by enemies;
  • were like-minded– oppressed for their religion– seeking a safe place in the world;
  • had a common goal bigger than themselves– building a country for themselves from the ground up– creating the political, social and cultural systems and infrastructure when everything was simple and their population was low;
  • had in common the shared, traumatic experience of WWII and/or the Holocaust; and
  • had substantial financial and military help from the United States.

In the United States, since the Depression Era, there has been heated political debate over how much socialism is too much. To be sure, specific socialistic entities have greatly enhanced the quality of life for Americans for decades: public libraries, the G.I. Bill, Social Security and Medicare.

Capitalistic free markets have also done the same, but when the gap between rich and poor people in a nation becomes too wide because the rich exploit vehicles to wealth through unethical political means, there occurs too much resentment among the poor.

Along these lines, the Second Bonus Book of Week, “Courting Justice, From New York Yankees v. Major League Baseball to Bush v. Gore, 1997-2000” by David Boies, published in 2004, described a few cases of how the author legally fought for underdogs (which were suing super-rich, politically entrenched entities). In antitrust and price-fixing cases, consumers have always been wronged– overcharged– and they are never fully compensated, even when the court rules against the offenders.

Born in 1941, the author (later) attended Northwestern law school in Illinois. He got a scholarship that paid his tuition, books and rent. He wrote, “I also discovered that I could borrow several thousand dollars from the government at no interest, which I did.”

Beginning in 1997, on behalf of the U.S. government, the author litigated an antitrust case against monopolist Microsoft. He helped win the portion of the case he worked on. Unfortunately, he was forced to withdraw from the case due to a conflict of interest. His role in the whole affair was meta-relevant– he represented Al Gore in the 2000 presidential election court fight. The pro-business bent of George W. Bush with his new antitrust department personnel (unethically, at best) changed the course of the Microsoft case.

The author asserted that, “The enforcement of our nation’s laws is supposed to be free from political influence, particularly when a case is ongoing [as was Microsoft’s]… [and in Gore’s case:] The rule of law means, first, that what a court (or other decision-maker) will do must be reasonably predictable, and second, that what a court does must be independent of the identity of the parties. The majority opinion [of the U.S. Supreme Court] failed both tests.”

Read the book to learn the details, as well as several other cases personally litigated by the author.