An emotionally attractive against the minimum wage? 2

Thanks for the great comments to the previous post. There’s nothing I disagree with from the regular commenters, but I think the arguments tend to appeal more to conservatives or libertarians and illustrate how tough the challenge is.

I’d like to keep on this topic. I’ll refine the challenge a bit.

  • Two sentences max.
  • It must appeal to someone who thinks along the liberal oppressed-oppressor axis (per Kling’s 3-axis model).
  • It must be easy for just about everyone to grasp without the need to modify based on the person.

I read a good example of a short and compelling framing (on a different topic) in Steve Forbes’ recent Fact and Comment column in Forbes. Regarding Keynes’ monetary notions he wrote:

What Keynes posited was the equivalent of saying that manipulating scales is the way to attack obesity.

I think the story of Adam’s son, from the previous post’s comments, comes closest to appealing to liberals. But, I can well imagine that they spin it and say, “see, that’s why we need to guarantee him a living wage.”

Here are couple attempts:

1. Maybe smash-and-grab mobs and the knockout game wouldn’t be growing trends if the minimum wage didn’t prevent employers from paying such potential hires what they are worth — and keeping them more gainfully occupied.

2. Unfortunately, the liberal “We Care” banner is wrapped around a wrecking ball aimed at the very people they think they care about, when their actions result in continuing to fund schools that have not been educating children for decades and raising the minimum wage to make it even tougher for those uneducated children to gain job experience.

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Innovation Clinic

In a recent issue, Forbes held a valuable camp on innovation.

First, I agree with what Leonard Schleifer, CEO of Regeneron (a drug research company), had to say about innovation in his Entreprenuer Clinic in Forbes.

I believe that companies rot, and they rot from the top down. Too often the keys to the kingdom are given to commercial folks who don’t value long-term research. When you don’t value something, you don’t get good results from it, and the bottom line is that then, all of a sudden, the long term becomes the short term, and you don’t have anything.

“Focus” is a dirty word for us, okay? It’s a big mistake to think that you can pick the very best thing that you should focus on and then ignore all the other things. Wouldn’t it be wonderful if we could pick only the things that work in our business? Amgen’s new CEO, I heard, said they only were going to work on the things that work. Good luck to him. We are just not that smart.

Second, the short description of the article, The Secret to Unleashing Genius, says a lot:

Companies suffer when the boss comes up with all the new ideas. Shrewd leaders build organizations that think for themselves.

I’ve seen my share of executive teams where the long-term turned into the short-term and they didn’t have anything and where they were never willing to admit that they are just not that smart.

I think realizing that, is the key that the “shrewd leaders” understand and why they build organizations that think for themselves.

However, in depressing news, Forbes had this article where Google appears to be headed the other direction in what Larry Page described as “more wood behind fewer arrows”.

Google previously had a rule that you could spend up to 20% of your time on side projects. Now they are pulling that rule back a bit. The author of the piece asks a good question:

Now that Google has put some rules  around “20% time,” the one day a week an employee spends on side projects, people are having a field day forecasting the end of innovation at the company that claims to “use their powers for good, not evil.” To those people, I ask one question: Can a company in today’s highly competitive environment survive if they allow 1/5th of their employees’ time to be devoted to work that has no clear alignment with the company’s strategy?

Her answer: “of course not.”  I think there’s a better answer: Google’s stock price. Apparently it has been working for them, so far. In the words of Leonard Schleifer, ‘good luck to him.’

Update: Brian Carney and Isaac Getz agree with my take on Google’s rule change in the Wall Street Journal.

What’s a bubble?

The recent Forbes Investment Guide included this article about how big money is buying foreclosed homes, fixing them up and renting them out. I think it’s a great example of a capitalism at work fixing a mess (junked out homes) created by bureaucrats trying to get votes by helping everyone ‘realize the dream of home ownership‘.

It also raises good questions about whether this is creating another bubble as the big money buying of residential property is pushing up prices and the investors are once or twice removed from the transaction.

Could be. We’ll see. Most markets have transient phases before settling into steady state. Attractive profits attract investors. That pushes up demand and prices to the point where a few marginal players drop out, and prices and demand drop some.

I’m not sure I’d call that a bubble. That’s business a usual.

I’d be more concerned about a bubble if the third (or fourth) party investors were investing in properties not because of the economics of the individual deals, but rather, on the hope that someone else would bail them out if they make bad decisions.

I think politicians will be less likely to want to bail out these investors, who were chasing profits rather than the ‘dream of home ownership’.

Don’t Miss the Chance to Privatize

According to this Forbes piece, President Obama proposed privatizing the Tennessee Valley Authority (TVA) in his budget, but Republicans from Tennessee are opposed using the very same arguments that democrats used to oppose privatizing the Bonneville Power Administration (BPA), when President Bush proposed privatizing it.

First, I want to point out that politics is politics. In the comments of this post from February, Wally and I discussed the BPA, an electric power provider in the Northwest structured like the TVA as a Federal government stepchild.

It isn’t a fluke that President W proposed privatizing the BPA, while Obama proposed to privatize the TVA. The BPA provides power primarily to states that tend to vote for Democrats, while the TVA does the same in states that tend to vote for Republicans. Might as well take government goodies from your opponents first.

Plus, it doesn’t hurt to get your opponents in Congress spun up on keeping their government goodies so you can claim they are not cooperating with making budget cuts.

But, if I were a Republican I’d put privatizing the TVA on a fast track and call President Obama’s bluff.

It would make a great test case that Republicans could use to demonstrate privatization can happen without calamity. Successful test cases make good sales material. If it works out well, it just might touch off the willingness for more privatizations, including things like the BPA in the Northwest and the TSA.

Editorials say a lot

In this article in Forbes magazine, the owner of 13 “hyperlocal” newspapers in Texas, John  Garrett, tells us that his local editions serve a niche because “everybody is interested in roads and taxes.”

Garrett also said something that complemented my thought about bad journalism in this post:

We don’t editorialize. We lose all credibility when we take one side of an issue.

I wish I would have written that. Of course. How dumb are we?

It makes me laugh when I hear folks who believe media bias only exists on Fox News and in the Wall Street Journal. Not I that I don’t think those sources are biased. Of course they are.

What makes me laugh is that many of these same folks don’t see the bias in their preferred media outlets.

But, here Garrett gives us such a simple and obvious test for that bias. Just look at which sides of the issues they come down on in their editorials.

If they consistently come down on one particular side, how can you trust their reporting to be objective?

Ahead of my time :)

My business school professor: What is the number one goal of a firm?

I raise my hand.

My business school professor: Seth?

Me: To please the customer.

My business school professor: Wrong! To maximize shareholder value. You could please customers by giving your product away for free, but that wouldn’t please your shareholders.

Me: With all due respect, it wouldn’t please your customers for very long if you go out of business by giving away your product for free — especially if they value your product, now would it? 

My business school professor: [This-discussion-is-over glare] [Proceed to explain why maximizing shareholder value is the key goal of a firm].

I never bought the ‘maximize shareholder value’ credo, or at least the moronic behavior it led to. I do believe it is the manager’s job to maximize shareholder value, but I never believed that was the goal. Rather, it is a result of pleasing customers.

I’ve seen too many short-sighted decisions come from the ‘maximize shareholder value’ mantra because the customer was left out of the equation.

 

I was pleased to see this article from Steve Denning on Forbes.com, The Dumbest Idea in the World: Maximizing Shareholder Value. Here’s a key snippet from the article:

Although Jack Welch was seen during his tenure as CEO of GE as the heroic exemplar of maximizing shareholder value, he came to be one of its strongest critics. On March 12, 2009, he gave an interview with Francesco Guerrera of the Financial Times and said, “On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers and your products. Managers and investors should not set share price increases as their overarching goal. … Short-term profits should be allied with an increase in the long-term value of a company.”

I remember one example of this short-sighted focus on shareholder value when I as an engineer for a utility company.  One of our big industrial customers — infected by the shareholder value mantra — approached us seeking to buy the electrical facilities at their plant. We delivered power to them at the low voltage they needed to run their equipment. We also had special switchgear at their site — that we owned — to provide the volume and reliability they needed. We charged them extra for this enhanced service.

They computed the simple math of the cash outlay to buy the equipment from us, the fees that would save them and the cost they thought it would take to maintain the equipment. I saw their analysis. On paper it looked like a good investment, one that would add to their shareholder value by reducing costs and increasing profits.

But, their experience was different. They quickly learned that the higher fees they use to pay us included something they didn’t have — expertise and opportunity cost. They realized that trying to figure out how to maintain electrical switchgear took time away producing the products they made for their customers.

They first hired us back to maintain the equipment and then eventually sold the equipment back to us and ‘got out of the business of maintaining electrical switchgear’ so they could again focus on delivering value for their customers.

In their initial analysis, they forgot to include their customers.

 

Worth reading

My latest issue of Forbes has three editorials that I recommend reading:

1. A column that I cannot yet find on Forbes.com entitled, Economic Growth is Easy. Here’s a snippet:

John Stuart Mill long ago observed that we trade “products for products,” so if the desire is for increased consumption, we must stimulate the supply side of the economy. Specifically, we must remove the tax, regulatory, trade and monetary barriers to productivity. For individuals to consume, they must first produce.

Most people don’t understand that, which is one reason we keep electing fools. Consumption does not drive wealth. Investing to take a chance of realizing benefits do.

2. Another from British historian, Paul Johnson, Men Blinded by Their Brains. In it he writes how intellectuals seem to have an affinity for the powerful and evil. In the print version, this appears immediately after the subtitle, Moral Blind Spot:

Of course, intellectuals, whom I define as those who think ideas are more important than people, are notoriously bad at seeing the ordinary world and coming to moral decisions about it.

This article struck me because I’ve known such men. They could reason their way into very bad things and reason their way out of feeling any remorse or accountability for their actions.

3. Steve Forbes’ lead-off editorial, Gold and the Wicked Magicians, is top-notch and important. From his piece:

Linking the value of money to gold removes a huge source of Big Government’s power. No longer can government confiscate wealth by stealth by devaluing your money. Economists hate the gold standard because they think they’re being deprived of one of their magic wands to shape the economy.

Big Government looks after its own interests. Left to its own devices it will relentlessly expand, crushing the private sector. That’s what’s happening in Europe today. Despite all the talk of austerity, the public sector has hardly been touched, while businesses and individuals have been hit with more and more taxes.

Despite thousands of years of experience to the contrary, central bankers and countless policymakers and economists believe that money manipulation can stimulate and wisely guide an economy.

It’s a destructive delusion. The world today would be an immensely richer place were it not for these hubristic notions that a handful of people can keep an economy rolling smoothly with minimal unemployment.

Steve Jobs wasn’t even Steve Jobs

I’ve been noodling on a post for a while about the effects Steve Jobs has on the business world. He’s seen as a hero and other leaders want to also be heroes. They love hearing about this guy who was so difficult, meticulous and sort-of command-and-control. It makes them think they can do it too.

But, they usually turn out to be envious goats who take the batta-batta-batta-”iPad”-swing, miss, then get fired.

The leaders of Intuit don’t want to be Steve Jobs. This is from an excellent piece in Forbes about innovation at that company.

Plenty of companies are a religion, where people take their cues from the top. Intuit is a science lab, where anything can be tested and proven incorrect. “When you have only one test, you don’t have entrepreneurs; you have politicians. When you have lots of ideas you have entrepreneurs,” says Cook.

He’s found a kindred spirit in Smith, who became CEO in 2008. “Genius and a thousand helpers are not going to solve the problems of today or tomorrow,” says Smith, 48… “There are very few Steve Jobses out there. We run small teams and lots of rapid experiments. No politics. No PowerPoints.”

I agree. I’ve seen innovation choked by politics in organizations that take their cues from the top. I’ve seen those same organizations languish and go through multiple leaders who all had the same general idea – their idea, whatever that was.

Other ideas could not get the resources even for a small test because those would take resources away from the leader’s idea. Too bad the hit rate for new ideas is so small. That’s the key insight that the leaders either don’t realize or think they can outsmart it. Or they don’t care because they’ll make a decent sum whether they produce or not.

But, I even think the Steve Jobs story as command-and-control genius is overplayed. No doubt the guy was hard-charging genius. But his greatest genius of all was opening his products to benefit from lots of small tests that would come through the iTunes and app communities.

If iPods and iPhones were just music boxes and phones, I would probably have neither. But, along with these devices, Jobs created a wide community to create stuff for them to make them more useful with minimal political drag on which apps and podcasts could be made available.

This resulted in lots of small bets placed by the thousands of developers and podcast creators and that resulted in tons of content and functions that more and more people found useful, even if it was just a handy way to kill time while standing in line at the grocery store or as a pacifier to keep me from saying truthful, but career-limiting, things in business meetings.

I bought my first iPod when I got tired of listening to the few podcasts that I followed on my computer and discovered that listening to those podcasts while exercising and traveling was something I valued. That was a start.

So, now I have both. And since then, I have found many other ways to make them useful — most of which are not produced by Apple. I have three music boxes: my library, Pandora and another app that lets me tune in radio stations. I play Words/Chess with Friends, but with Family. I ask Siri stupid questions and occasionally, it gives me a useful answer. I don’t get lost. And so on.

The key point: It was those many other things that made iPod, iPhones and iPads the success. I don’t believe any of Apple products would have been nearly the success if they only stored music and surfed the web. iPods probably would have been slightly more successful than the Nomad MP3 players if all they did was store and play music.

So, congrats Steve Jobs. You figured out how to make money off Wikipedia’s operation model and Wikipedia itself (another tool I often refer to through my Apple devices) (I wonder if there is a Wikipedia article on that?) and fool most folks into thinking it was all you.

Small businesses are dead capital

Often, when I’m reading a Forbes article and I think to myself, “This is a darned fine article,” I look at the byline to find it is another good article by Daniel Fisher.

That happened recently while reading, How the Government is Helping Hedge Funds Make Billions off IPOs.  This paragraph caused me to glance at the byline:

Hedge fund managers can thank Congress and the SEC for the opportunity [to buy early stakes in companies before they go public]. Some call it “regulatory arbitrage”: well-meaning but inherently flawed laws such as Sarbanes-Oxley that were designed to protect small investors from the next Enron have imposed such heavy costs on public companies that many private ones are delaying their initial public offerings. Venture capitalists, employees and early investors who want to sell out have little choice but to sell their shares to lightly regulated funds, which can buy stock in the next IPO at a steep discount to what retail investors ultimately will pay.

Innovation has a lot of headwinds these days. Most of it caused by (to borrow Fisher’s words) ‘well-meaning but inherently flawed’ ideas.

But I find the well-meaning and inherently flawed ideas around investing in small businesses especially annoying.

In this country you can easily sign up for an online brokerage account and buy and sell slivers of ownership in thousands of publicly traded companies on the various stock exchanges for as little as $4 per trade, with some assurance that the presence of the Securities and Exchange Commission has lowered your chances of being defrauded.

You can just as easily make personal loans to people who need cash now using Prosper.com.

You can donate money to loan to small businesses and create jobs (and make money). Well, at least you get a bracelet with that one.  Or you can lend money to entrepreneurs all over the world. You can also donate to individuals who need help funding the creative projects like a large tortoise that looks like a trading post.

But, if you want to invest with entrepreneurs here at home, it’s not so easy. You need to know somebody who wants to start a business. Or know someone who knows someone. Or you need to know a venture capitalist. Start-up investing is an opaque network of angel investors and venture capitalists.

This, folks will tell you, is for our own protection because there will be too many con men out to get you to invest in their bogus company.

But, I’d rather make it easier for everyone to invest in start-ups and let the market develop solutions to help people from being defrauded. The SEC currently makes trading equity in unregistered companies very difficult. This basically makes small businesses dead capital.

Prosper.com and Kiva.org use simple approaches to limit your risk.  First, you lend in small amounts to individual borrowers — for example, $25 — and you can diversify across many borrowers. So, if you lend to one deadbeat who doesn’t repay you, you’re not out your life savings.

Second, these sites act as an SEC and rating agency of sorts by qualifying borrowers and setting appropriate interest rates based on credit risk. Kiva.org works with organizations that administer the loans with the entrepreneurs with full disclosure on that organization’s track record.

We could use the Prosper/Kiva/Kickstarter models bring start-up and small business capital alive. A similar service could act as registration agent of sorts and market maker to connect investors and business owners and allow users to invest as little as $5 directly with entrepreneurs.

Why not? I’d rather invest directly in an entrepreneur with a chance, even if it is ever so slight, of getting a return on that investment than donate it with the assurance that I won’t.