"An economist, a chemist and a physicist are marooned on a desert island. Their only food is a can of beans, but they have no can opener. What are they to do? The physicist says, 'Let's try and focus the tropical sun onto the lid—it might melt a hole.' 'No,' says the chemist. 'We should first pour saltwater on the lid—maybe that will rust it.' The economist interrupts: 'You're wasting your time with all these complicated ideas. Let's just assume a can opener.'"

WSJ author Anatole Kaletsky continues: "This little joke tells us more about the causes and consequences of the 2007-2009 crisis than any number of ministerial speeches, Wall Street research reports and central bank monographs. The propensity of modern economic theory for unjustified and oversimplified assumptions allowed politicians, regulators and bankers to create for themselves the imaginary world of market fundamentalist ideology, in which financial stability is automatic, involuntary unemployment is unimaginable and efficient omniscient markets can solve all economic problems, if only the government will stand aside." (The WSJ piece is a book excerpt from Capitalism 4.0; Kaletsky is editor at large of the Times of London.)

Discount my discounting of economists if you will. It is true that I've always thought the discipline a bit of a joke. (Though only when it matters, at times like the present. The economists do quite well in the good times, when the stakes are minuscule.)


Happy Monday!

Happy summer!

Nonetheless ...

I started my day, you'll be glad to hear, with a clean T-shirt. Made in China, of course, but odds are, made in China from highly subsidized cotton grown in Texas. Milk on my cereal this morning, rather inexpensive, courtesy the New England Dairy Compact. Off to the country store to get papers—traveling on a tax-subsidized road. Waved to neighbor's children waiting for a subsidized bus heading to a subsidized school. Whoops, forgot, was online at dawn's early light; most of the tools I used, microchips, Internet, etc., were to a significant degree products of Department of Defense-funded R&D.

If my sore throat doesn't get better, off to the doc's. More subsidized roads, and when I get to the office, out comes my Medicare card. Several testing devices will doubtless have been covered in part by subsidies of some sort.

And so on.
And on.

So I will go on preaching self-sufficiency, free markets, unfettered entrepreneurialism, and the like. But every now and then I reserve the right to laugh at myself for thinking that I'm a self-reliant person.

"You are not paid to rock the boat."

From a front-line employee at McDonald's, single-Mom with two kids, totally forgivable. Or a 48-year-old GM employee now at Wal-Mart.

But this ...

As I said, obviously a mis-quote.
Right?

(Not.)

The attitude in China a couple of weeks ago was pretty good, maybe better than pretty good. There were economic problems, but the group of mostly entrepreneurs I was with vibrated with energy and lived to turn others' problems into their opportunities. Economically (I'm not talking nukes here), the feeling was also pretty good in Korea. Moreover, I was in Seoul to be part of Korea's launch of a new growth strategy, focused on global leadership in "green" industries, and marking a radical departure from business-as-was; the goal is to go beyond "doing good work" to unalloyed planetary leadership in arenas that matter. It did not seem incongruous to them or me that we were having a refreshing discussion of a brave new & exciting future when the current economic numbers were still sketchy—and surprises, even bad ones, could be in store. (E.g., how will the world's markets react to an almost certain GM bankruptcy? For what it's worth, my layman's bet is that after a hiccup or two or three, the markets will settle down and take it in stride. Maybe six months ago the psychology would have been such that true panic would have set in, but not now.) To sum it up, there's no bunker mentality—moving ahead smartly, even audaciously, is the order of march.

In a somewhat similar vein, I've been carrying around a couple-week-old special section of the Boston Globe, titled, "Globe 100: The Best of Massachusetts Business." Some things about MA seem to bug some people, but the academic and entrepreneurial firepower concentrated here surely makes it a Top 10 "success city" in the world—or, rather, success region. (We benefit from a bunch of such regions in the U.S., like the SF Bay Area/Silicon Valley, with no real earthly parallels, Greater Austin, Greater Seattle, Greater D.C., Greater Houston, Raleigh-Durham, Madison WI, great swaths of the LA Basin, etc.)

I found the "Globe 100" fascinating. Three of the top five finishers, 13 of the top 25, and 31 of the top 50 were tech companies—that number should actually be about 35; some of the so-called "service" companies are essentially tech companies. I have a house in Boston, though I'm hardly a regular resident, and business in general is my beat—hence I definitely should be plugged into "all this." So I was literally dumbfounded that of the 13 tech companies in the top 25, I had never heard of eight of them—and in particular I'd never heard of #1, Cubist Pharmaceuticals! (It's a half-billion-dollar revenue company—the rankings are performance-based, not size based.)

I actually think my ignorance is very cool—and important. You could say, surely, that it condemns me as "out of it." But I think that would be an erroneous conclusion. My conclusion is that there is a truckload or two or three or four or forty or four thousand of largely-invisible-absolutely-fabulous great stuff going on from Greater Boston to Greater Shanghai to Greater Seoul. The developed world is indeed in the middle of a profoundly troubling financial-economic crisis, and the impact will be felt for years; but unlike the Great Depression, all sorts of extraordinary things are going on or in the works or even accelerating—and the promise of a raft (a big, big, big raft) of future tech-based Revolutions (yes, with a capital "R") is mind boggling; and cause for extraordinary, almost giggle-worthy mid- to long-term optimism.

Shanghai's irrepressible entrepreneurs.
Korea's aggressive, bold green initiative.
The "Globe 100."

And now I'm off to Delhi ...*

(*NB: my trip-to-Delhi reading is alibaba: The Inside Story Behind Jack Ma and the Creation of the World's Biggest Online Marketplace, by Liu Shiying and Martha Avery. Wow!)

(It would be ironic if this Post appeared the day GM applied for bankruptcy. But if it were so, I would not change a word. While I would weep for dislocated families and shuttered businesses, I would also remind myself, and you, that it ain't a GM world, and it actually hasn't been for a good quarter century—even in the U.S.A.)

Well, Larry's hit a home run, as far as I'm concerned, with an idea he passed on to his dealers—in my experience it's an original.

In short, Larry distinguishes between "busy" and "growth." Simply put, "busy" is booking business in good times—which boosts your revenue growth to the heavens, in the short-term. As to "real growth," it occurs "when the troughs in sales come up, not when the peaks go up." That is, on a chart, the bad times bottom-trough today is higher than the trough during the prior problem period.

In a little more detail, directly from Larry's dealer presentation (imagine quotation marks around what follows):

"Busy": OUTSIDE forces acting positively on my business.
"Growth": INTERNAL forces acting positively on my business.

Busy:

Good news: Lots of work available, go get it (but it probably won't last).
Bad news: Can't count on it continuing—so don't let your overhead soar!!!

Growth:

Good news: [Internal-basic] improvements are paying off.
Bad news: Probably been growing because your [internally driven] good work allows you to take competitors' business. But when you [succeed and] become a "big fish in a little pond," you'll have to add higher value to your products to redefine what you do and thus expand the marketspace.

Your call, but I think this approach to business makes a helluva lot of sense—especially to those firms, the great majority in my experience, which did indeed get sloppy during the now departed "good times."

BusinessWeek (04.27), tech companies sitting on cash: Cisco, $27 Billion. Apple, $26B. Microsoft, $21B. Google, $16B. IBM, $13B. Intel, $12B. HP, $10B.

Read yesterday's interview with Cisco CEO John Chambers on page ONE of Investor's Business Daily.

Chambers took over this MANUFACTURING company in 1994.
Revenues 1994: $1 Billion.
Revenues 2009: $40 Billion.

Prospects for technology companies and technology manufacturers in the U.S.A.? Nothing short of staggering in their potential, Chambers asserts. In infotech, let alone biological-based sciences, Chambers declares that we have many, many, and many more LARGE-SCALE REVOLUTIONS to come.

One suggestion of his, which I love, and which Chambers attributes to VC superstar John Doerr: "We should staple a Green Card to every science, technology, engineering, and math advanced degree [awarded by a U.S. university to a non-U.S. national]. The economy is struggling now, but it won't be forever, and we need to attract and keep the best and brightest in our country to maintain our competitiveness as a nation." (TP: Alas, fat chance.) (TP: Chambers is one of the many, me among them, who points out that our top research universities, best in the world by a long shot in terms of quality and quantity, are perhaps the #1 U.S. competitive advantage; we may lament the passing of "old manufacturing," but we damn well better remember that we must pull out all the stops, private and public, to support to the hilt our top research universities.)

(NB: Chambers, arguably the most Republican of Silicon Valley superstars, perhaps surprises with this: "I think the U.S. government is doing the right thing with the stimulus package, and I hope other governments follow suit.")

Hey, I'm just getting used to "trillion"—I guess that's "so yesterday."

Welcome (?) ... Quadrillion!

God help us!

So it goes.

The best may well be yet to come, etc., etc. But the fact is, Norris says, the money is g-o-n-e. That is, yours and mine, and a lot thereof, whether the starting point was modest or immodest.

It may come back.
It may not.
Sooner.
Or later.
Or not at all.

So, act accordingly, that's Norris' message. He finishes this way: "It is not an easy reality to adjust to. But simply assuming that we deserve to live as if it had not happened will only make things worse."

Suit yourself. But it hit me right between the eyes.

We had nothing of note to say—and perhaps that was noteworthy.

The general reaction was, myself included: "The stupidity of AIG 'leadership' boggles the imagination; there can be no sane explanation." In fact I did say it seemed to border on certifiable insanity—though I stopped well short of countenancing suicide. (Grassley had not made his "proposal" at the time.)

Would it be absurd to say that in the most perverse way this act makes me feel better? I have spent an enormous amount of time and psychic energy in recent months examining my own role in all this—and I don't see how I can evade responsibility for inadvertently acting as co-conspirator. (Everything I stand for is opposed to "all this"—but I did not say so forcefully enough, and, in fact, dismissed part of what was happening as a more or less capitalist necessity.) But what makes me feel better in an odd way is the realization that these people, some subset of them, are almost literally insane—and that is beyond my responsibility. (I guess.) (Any serious analysis of why what happened indeed happened must necessarily mimic political scientists' efforts to explain the rise of the likes of Hitler.)

What should "management gurus" do, or what should I do to participate in the cleansing process? Should management gurus resign their posts, as it were, en masse?

I'm really not sure.

(As I finished this brief post I did remember one point of particular interest that arose at the luncheon mentioned above. We agreed that regulation would come and should come—but we also agreed that it probably wouldn't matter much. All rules can be evaded. The issue really concerns civic virtue and moral responsibility—not the crafting of legislation.)

(Anyone seen any stats on how many, if any, of the recipients refused their bonuses?)

The analysis is superb.

Is there a celeb magazine that doesn't cover Jennifer and Brad and Angelina each and every week? With the next story more outrageous than its predecessor? That's the way it feels from the grocery check-out line.

Well, it seems to me that the Eastern press is covering the Great Recession the same way—every story using adjectives more dire than its predecessors. To be sure, bad news piles on top of bad news. And every other day, it seems, GM or Citi needs another $10 billion of your and my money.

And yet there's more to the story of America in 2009 than the lurid webs spun by Chris Matthews, Lou Dobbs, & Co. And more to the U.S.A. than Detroit and Manhattan and the bookends of PA Avenue in D.C.

Lots more.

The news is bad in California, to be sure. The state's budget deficit is catastrophic. Foreclosures occur at the speed of light. But there's more to California than that.

Lots more.

Though I'm in New Zealand, I email California friends and read the daily papers from SF and San Jose, my stomping grounds for three plus decades.

The panic in CA is minimal.
There's a ton, or at least a half ton, of news about start-ups and staggering new technologies; it almost feels like business as usual.
The world continues to turn in CA.
The same world that's stopped turning—according to the East Coast press, the Washington Post and the New York Times and CNN and MSNBC, all of which resemble an economics National Enquirer these days.

We're in for a tough slog. Could go on for years. Yet entrepreneurs and incipient entrepreneurs and university research scientists and any number of companies (Oracle comes to mind) continue to embrace the future—at warp speed, as they have for years. (Such full speed acts of creation, smaller in number to begin with, were effectively AWOL during the Great Depression.)

There seems to be grave concern but little panic in California—remember, about 40,000,000 of us live there, though you'd never know it from the press, which seems to consider Michigan the western boundary of the U.S.A. And there's significant, though not grave, concern and no discernable or incipient panic in New Zealand.

Yes, I think we're in for a tough, tough slog, and a long one at that. But the Panic-from-the-East may be overblown—and thence, to some extent, perhaps to some great extent, it has the makings of a self-fulfilling prophecy.

I wish Mr. Obama would come to Stanford or San Jose. I wish Chris Matthews would return for a while to his beat at the SF Examiner. I wish Lou Dobbs would take a Zen class in breathing.

A friend sent me a Peggy Noonan column from last week. Okay, she lives in the East. But she made her bones as a Reagan speech writer—Reagan is the guy, most will recall, whose sunny disposition per se squelched the panic of the eighties. (That, and, I'd remind you, a whopping deficit.) My "a friend," Bo Burlingham, longtime superstar and spirit of Inc. magazine (and a liberal's liberal), all but ordered me to cast my eyes upon the column's final paragraph. I offer it below as the last words of this post:

I end with a hunch that is not an unhappy one. Dynamism has been leached from our system for now, but not from the human brain or heart. Just as our political regeneration will happen locally, in counties and states that learn how to control themselves and demonstrate how to govern effectively in a time of limits, so will our economic regeneration. That will begin in someone's garage, somebody's kitchen, as it did in the case of Messrs. Jobs and Wozniak. The comeback will be from the ground up and will start with innovation. No one trusts big anymore. In the future everything will be local. That's where the magic will be. And no amount of pessimism will stop it once it starts.

(The picture above, from a beach in Abel Tasman Park, is a stingray on patrol. Below, NZ's signature fern.)

Is there more to the current crisis than this?
I (more or less) don't think so.

Yup.

He was interviewed by Chris Matthews last night on Hardball. In his typically, shall we say, raised voice he said-screamed-ranted that we need the giant stimulus package.

Right now.
Not on President's Day.
Right now.
Or insane amounts of shit are quite likely to hit the fan and get sprayed, to be selfish, all over you and me—from head to toe.

I agree.

(FYI, try this link to "The Horrible Jobs Report May Save the Economy.")

Why? Simply because you can't travel at breathtaking speeds on a bullock cart.

Now, imagine you are on the same journey but now you are traveling in a race car instead. (While people can't imagine that in many parts of India, you can totally imagine it here.)

First, you will notice that you can reach your destination considerably faster than before. It's not only more comfortable to travel in the race car, it's also more fashionable. I can go on with all the positives, but there is at least one negative. As you drive at breakneck speeds, if there is an accident, you may really break your neck.

Now, you may be wondering why we are talking about bullock carts and race cars?

Continued reading The Bullock Cart and the Race Car...

Posted by Raj Setty |

Bottom?
What bottom?
(Hmmmm ...)

***The guiding premise of ubiquitous Globalization, of which I have been among the most vociferous champions, is under assault:

"The world has become normal again. The years immediately following the Cold War offered a tantalizing glimpse of a new kind of international order, with nation states growing together or disappearing, and increasingly free commerce and communications. ... People and their leaders longed for 'a world transformed.' ...

"But that was a mirage. The world has not been transformed. In most places, the nation-state remains as strong as ever, and so, too, nationalist ambitions, the passions, and the competition among nations that have shaped history. ... Nationalism and the nation itself, far from being weakened by globalization, have now returned with a vengeance."

From: Robert Kagan, The Return of History and the End of Dreams. The title of the 2008 book is, in effect, a stinging rebuke to The End of History and the Last Man, a wildly influential 1992 book by Francis Fukuyama, in which he argues, "What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of post-war history, but the end of history as such: that is, the end point of mankind's ideological evolution and the universalization of Western liberal democracy as the final form of human government." (Kagan is on most anybody's top five list of influential foreign affairs intellectuals—as is-was Fukuyama, a leading "neocon.") (Not so incidentally, the "exponentially interrelated global commerce ends the likelihood of war" theme was predominant among Europe's "leading intellectuals" in 1910–1912.)

***The Ubiquity of the benefits of extensive outsourcing and new organizational forms emerging is turning out to be a much more complex "transformation" than many expected, me included, again as a "cheerleader-in-chief":

Boeing, according to the Wall Street Journal [1205.08], is getting ready to announce another 6-month delay to delivery of its Dreamliner, bringing launch delays to date to two years. Part of the latest cock-up is attributed to "the volume of work that Boeing outsourced." I.e. coordination is turning out to be nightmarish.

Outsourcing is hardly a discredited idea—but the implementation [ah, execution, the "last 98%"] of extensive outsourcing has been far more difficult than most anyone imagined.

***Good ideas, private equity buyouts aimed at rapidly shaping up ailing firms, are often resulting in unspeakably predatory behavior:

"When [private equity firms, including Chrysler owner Cerberus] bought Mervyns from Target, they promised to revive the limping West Coast retailer. They stripped it of real estate assets, nearly doubled store rent, and saddled it with $800 million in debt while sucking out more than $400 million in cash for themselves. ... The moves left Mervyns so weak it couldn't survive."

From: "What Have You Done to My Company?" BusinessWeek, 1206.08. In July 2008 Mervyns entered bankruptcy and a few months later 18,000 employees were let go without severance. The title, "What Have ..." was uttered in October by 88-year-old Mervyns founder Merv Morris as he visited employees recently at a shuttering store, and was cheered by employees.

This literally sickens me.

While acknowledging the downfalls of private equity deals, I more or less drank the Kool Aid. The saving grace, of some sort, on this one is that many, but not all of us, have been taken waaaaay aback by the magnitude of the expression of greed revealed with each passing day—but that's hardly an adequate excuse. The bloated "guru class" is supposed to issue red alerts long before the bombs drop.

Shit, what a year.

[Belatedly, albeit with a vengeance, I have turned 163.82 degrees toward a radical "back to basics" approach—which was more or less the In Search of Excellence melody. Recall one of the chapter titles from the Bogle book (see immediately above) was: "Too Many Twenty-first Century Values, Not Enough Eighteenth-Century Values."]

"When [the assistant general sales manager] would fly in from the Chevrolet Central Office in Kansas City, I was assigned to stand outside the door of the Muehlenbach Hotel in a snowstorm and I was not to move, because whenever he showed up, I had to be there to open the door. We bought the elevator and blocked it off so he'd have an elevator to go to. We had somebody assigned to stand outside his room all day to take his shirts to the laundry and perform other tasks. And—this is true—we had learned that he had to have his morning orange juice a certain temperature, so we had somebody in the kitchen every day who tested the orange juice with a thermometer." [My italics.]

NB: Pondering Senator Obama's recently announced national security team and the Big Three execs returning with their begging bowls to D.C. this week, this thought occurred: While autoworld's Big Three CEOs took home about $40 million in compensation for their individually and collectively disastrous performance in 2007, the combined pay for the Big Four Generals responsible for our global security (military heads of the Army, Navy, Air Force, and Marine Corps) was about $1 million!

Bill Clinton deregulated financial services!
Bill Clinton didn't bat an eye when the dotcom bubble was pricked!
Bill Clinton gave us "welfare to workfare"!
Bill Clinton got NAFTA passed over fierce resistance from both parties!
[To be sure, Mr Clinton had a little help on the ground from Newt Gingrich & Co, and the intellectual support of Alan "Ayn" Greenspan.]

George W. Bush, to the conservative rag, the New York Times, this morning's edition, has through yesterday unwound the Clinton radical pro-capitalist legacy via $7,800,000,000,000 [$7.8 trillion] in government assistance and guarantees.

(1) To quote Margaret Thatcher, it's a funny old world.
(2) In all seriousness, to those blinded by partisanship who say Mr Bush is sitting out the financial crisis, I say, Baloney! [And thank God.]
(3) Now what?