Bureaucrats and innovators

There are always tensions between these two types of folks.  There are a couple main sources of this tension.

The first source comes from how they view the world.  Bureaucrats focus on intentions and inputs, on how you do things.  Did you do them they way the bureaucrat liked?  Were your intentions good?  Did you put in maximum effort?

Innovators see all that stuff as nonsense.  They’re more interested in what resulted.  Did customers like that product?  Did it increase sales?  Did it make a significant impact? They care less about how it was done.  They don’t care if the person tried hard or not, as long as it was done right.

The second source of tension between bureaucrats and innovators comes from the bureaucrats’ inability to understand that they rely on innovators.  They don’t realize that their livelihoods depend on the results that innovators have produced, past or present (and sometimes, dangerously, future).

Bureaucrats don’t start successful companies.  They come after the company has been established.  They rarely add value to the company.  They live off the income that’s produced by the innovators who started the business.

Bureaucrats in government tax individuals of the income they generate in innovative activities and spend it on government programs (after taking their cut).

All wealth and income was generated by innovators.  As the previous two paragraphs demonstrate, usually that wealth is generated by the innovator first and then consumed by the bureaucrat at some later date.

Bureaucrats who don’t realize they are living off the wealth of past innovations may make the mistake of borrowing from potential future innovations.  That’s when things go bankrupt.

First Mover Myth

Occasionally I run into someone who trots out this smart-sounding post hoc ergo propter hoc fallacy that many b-school student learn about.

A post hoc ergo propter hoc fallacy is a fallacy of false cause.  Someone sees a business that started something become successful, while competitors seem to languish, and they attribute this to some fanciful idea of a “first mover advantage”.

Recently someone brought this up to me while discussing a new product trial.  This product trial is in a highly untested space.  Many people think there’s a huge potential with this product since nobody is in this space “yet”.  (Though there may be good reasons for that, which they don’t seem to consider.)

They rattle off that this product will get a huge “first mover advantage”.

I ask, do you think there’s anything to that?  Like how Microsoft was the first to word processors, spreadsheets and graphical user interfaces?  Or Netscape was first to web browsing? Or Google was first to online search?  Or Facebook was first to social networking?  Or how Apple was first to the portable digital audio market? Or better yet, like the 8 out 10 new businesses and products that fail trying to get a first mover advantage?

I don’t think it’s being the first.  I think success has a lot to do with offering products and services that customers want, for whatever reason (and sometimes those reasons are mighty elusive).  First movers can and do win, but it’s not because of the illusory first mover advantage.  It’s because they have good products.

More School Choice

Home schooling.

I seem to know quite a few folks who are home schooling their children, which represents another choice in education for parents.

School Choice Exists

In most debates and discussions about school choice, what is usually overlooked is that a good deal of choice already exists in education.

Choice exists at many levels in our education “market”.  Folks who have enough money can choose to pay to send their kids to private school.  Folks who have a little less dough and can’t afford, or don’t wish to pay, for private schools also exercise choice.  They have enough flexibility* to choose where they live and, by and large, choose to live in school districts that are known for quality education.

*By flexibility, I mean they can afford transportation and longer commutes to work.  They don’t have to rely as much on public transportation routes.  They can choose to live in communities with higher priced homes.

The middle market education choice drives local real estate cycles.  Suburban areas with plenty of land to develop have an incentive to provide quality schools to attract new families to develop the land and increase the tax base.

These suburban areas tend to continue to provide quality education as long as there’s land to develop.

However, once these areas run out about develop-able land, watch out.  School boards and administrators become complacent.  Why provide quality education?  The tax base is there.  If families won’t occupy the homes, maybe empty-nesters will.  Or better yet, once the tax base is funded from a good portion of businesses, who needs families?

This is based on observations in my own area.  The urban school district has been a corrupt and incompetent wreck for decades.  Why not?  It still gets funded.

Looking back 25 years, the hot suburbs of those days had the top school districts.  They used those school districts to attract middle income families from the urban core and bring new growth to the area to increase their tax base.

Now, those top-notch school districts from 25 years ago, with a few exceptions, have been surpassed by school districts in the newer suburban growth areas with develop-able land. Those 25-year-old suburbs have been nearly fully developed and the quality of their school districts are on a slow decline.  No longer are they the top notch districts.  They have less incentive to maintain that status.

So, to a certain degree, school choice already exists for wealthy and middle-income families who can choose private and to live where there are quality public schools.

Poor, urban families, on the other hand have less choice on where to send their kids to school.  They may not have the flexibility to live where they want.  They may rely more on public transportation to get them to work.  And they can’t afford private school.  It’s no surprise to me that these aren’t considered the best schools. They have little incentive to be the best. They have close to a captive audience. The parents have less choice, so the schools there have less competition to push them to keep quality high.

So, wealthy and middle income families already have some degree of choice about where to send their kids.  Poor families don’t.  I’ve won a few folks over on the idea of vouchers by simply explaining this and asking them why they are against giving more choice to poor people?

Letting people have more choice on where to send their own kids to school seems to make sense, even if you or I disapprove of their choices.

When we try to assess the quality of a charter school (or any school) based on test scores, I think we miss something.  The fact that when given a choice, a parent chose something other than traditional public schools, is enough evidence for me that something went right.

My “choice” observations are based on what I see in my metro area.  Do they line up with what you see in yours?


With seemingly self-inflicted stumble of Netflix last week, I thought I would mention that my local Blockbuster store seems busier lately.

Their 99-cent pricing for non-new releases seems to be bringing in traffic.

Policy by anecdote

At the 9:30 mark of the Peter Schiff video in this post, Mr. Cummings of the Congress on Jobs Committee says of “stimulus” spending:

You can say what you want about the stimulus bill, but I can bring in a room full of people who would say if it were not for the stimulus the would not have had jobs.  I know it has an effect.

I believe even the staunchest Keynesian (people who actually believe government stimulus works under certain conditions) may advise Mr. Cummings that his anecdote does not actually address the key point made by critics of so-called stimulus spending.  The key point was made by Frederic Bastiat in 1850.

It says that while it’s easy to see the beneficiaries of any specific spending or program, it’s not so easy to see what might have happened without that spending or program, and to determine if the spending helped or hurt on whole.

While we tend to credit that spending amount as 100% beneficial, we don’t consider what would have happened anyway.  Bastiat called this the broken window fallacy.  We see a broken window and say, the silver lining is that the window maker will benefit by selling an additional window.  We easily forget (or are easily distracted) that the money spent to replace the window could have been spent on something else, something even more productive and valuable than replacing something that you already had.

Unfortunately, neglecting what would have happened anyway permeates political and business decision-making.  We focus on what is easily seen and set policy by it.   I call this management-by-anecdote.

Anecdotes are powerful political tools.  If a picture is worth a thousand words, then anecdotes are worth ten thousand.  And, if you can mention the name, place, or show the face of the person in the anecdote, that ups the value of anecdote another 10 fold.  Notice all the anecdotes that sit in the balcony during the State of the Union address.

It concerns me that we have so many people in leadership roles, like Mr. Cummings, in business and government in this country that so easily succumb to the anecdote.