Tag: Economics

Graphic Quote of the Week: Pseudo-Economics at Its Worst


Before I go any further let me first declare that I don’t believe in abstract economic research.  I never did.  Even when I was working on my PhD, I concentrated on Applied Economics, developing large-scale cost models for the industrial sector.  

Come to think of it, I don’t believe in studies for the sake of “pure knowledge” in mathematics and the entire spectrum of natural sciences either.  I think that the virtue of abstract thoughts is affordable only in Philosophy, her sister Poetry, and Fine Arts.  After all, the creation of original ideas is the entire purpose of the imaginative process; and all it needs is one genius mind. 

Yet, humans as a species are so fucking insecure and self-centered!  They constantly need reassurance that they are smarter than they really are.  So, they “study” everything there is because they simply “must know” and not because it can help our planet to survive or make a single thing better in this world.  As a result, vast resources are spent on absolutely irrelevant bullshit and poor trees are cut down to bear endless dissertations, monograms, articles in fat journals, etc.  Nobody, except the assigned reviewers, reads, and, more importantly, can possibly put to use any of that crap.   I would like to ask these people, “So, you’ve discovered, dissected, and analyzed this.  Now what?” 

And that’s assuming the actual “discovery” is made and proven, which is, as you can imagine, is not a frequent case.     

Enters the graph above.  My friend texted it to me.  I stared at my phone’s screen for two seconds and was like, “Hmm, this is fascinating!”  Seeing that the graph was posted by Economist.com, I looked it up.  It turned out to be a part of a “research” paper Forbidden Fruits: The Political Economy of Science, Religion, and Growth (no less!) collectively conceived by a Princeton “scientist” and his two Italian colleagues out of the IMT Institute for Advanced Studies.

[FYI (so you don’t have to look it up):  IMT Institute for Advanced Studies is a research establishment and a graduate school located in Lucca, Italy.  It primarily specializes in various branches of economic and computer sciences.  Note, this is where Princeton and Italy’s highest ranked institution for economic studies allocate their grants.  I mean, right now!]

The paper was published by American National Bureau of Economic Research and, according to the Economist’s note accompanying the graph, the authors explicitly claim to find “a strong negative correlation between innovation, as measured by patents, and religiosity, measured by the share of a population that self-identifies as religious.”    

Huh? What? Where? And WHY? Are you looking at your own graph, gentlemen?  Well, I am.  And if I had to focus my disbelief in just a few most problematic areas, I would have to holler:           

1.  How is this research in the subject of Economics?  By definition, Economics as a branch of social science deals with structures and forces that drive production, distribution, and consumption of goods and services.  While religiosity is definitely a factor in consumption patterns, innovations by themselves (especially the number of filed patents per capita) do not necessarily have direct or even indirect correlation with production and distribution.  In fact, in isolation this statistic doesn’t mean much at all.  More on this below. 

2.  How did these people even come up with the idea for this research?  With all social, political, and economic problems this world is facing, this was deemed crucial  – to find if religious people can produce as many, more, or less patents as atheists?  More importantly, what was the thesis?  That religion is invariably bad for innovations and economic development? The commentary to the chart in The Economist states that “the authors do not claim to prove that religion causes an innovation deficit.”  No?  Then why the said commentary is titled No Inspiration From Above?  Such, liars!  I think that’s exactly what they were trying to show – that being religious stuns one’s creativity; that every political leader who believes in God will force anti-scientific polices.  Such unscientific absolutism!  I wish I could ask them face to face: Do you know anything about the history of innovations?  The majority of the greatest innovators from 1400’s through early 20th century were believers of various degrees.  Even the Man of Proof and Reason himself, Leonardo, did not deny God’s existence.   

3.  Whatever cockamamie tangent cross-sectioned sub-sub-branch of science these  narrow specialists are trying to plow, what were the purpose and application of this exercise?   What were they trying to achieve with this research?  How did they plan to impact the world?  Let’s assume for a second that they’ve found an undeniable inverse correlation between a country’s religiosity and level of innovation.  What’s then?  Cancel religion?  Some countries already tried that, as students of history know.  Agitate people to overthrow their governments for the sake of scientific progress?  There are more important causes to start revolutions.   

4.  You realize, of course, that, in spite of the declining straight line, obnoxiously and arbitrarily drawn through the graph to force their point of view, these pseudo-scientists actually did not prove their preposterous thesis.  There is nothing wrong with that per se, of course.  The prevalent majority of well-financed research projects end in disproving the original theories and hypotheses.  That’s how science works.  By its standards, negative results are just as important as absolute proves.  The problem here is that these particular researchers lie to themselves believing that they came to a positive conclusion.  Well, not to my eye.

According to the graph, the least religious country in the world (and the most populated), China, has the same number of patents per capita as the unspecified cluster of Central & Eastern European countries, whose overwhelming majority of citizens (over 95%) believe in God, and Iran (!).  India (nearly 80% religiosity) and Vietnam (less than 40%) are on the same level of “innovation”; so are Egypt and Uruguay.       

But, of course, the country that completely throws this bullshit study into garbage is the United States of America.  Our patents rate is in the third place after Japan and South Korea (even I was surprised to see that we lead Germany and UK), while, judging by the high percentage of believers, our closest peer should’ve been Guatemala.  

The truth is that if some diligent scientists actually wanted to model the major influences affecting, not innovativeness, which is too broad of a concept, but such specific parameter as the number of government-approved patents, they would have to consider an interwoven complex of factors: social and political structures, distribution of wealth, percentage of GDP re-invested into scientific research, specifics of university systems, extent of fundraising and philanthropy, the existence of entrepreneurial culture, economic mixture (particularly industrial vs. agricultural ratio), the percentage of people who can be motivated on the higher levels of Maslow hierarchy of needs, etc.  And, of course, religiosity, but only as a part of the synthesis.

And one cannot ignore the mundane fact that in some of the sampled countries the patent laws are outdated and the processing bureaucracy is unmanageable.  There might be thousands of applications in those countries that will not see the light of day for decades. 

In all objectivity, though, I cannot dismiss this illustration as completely useless.  As a compilation of data it piqued my curiosity about a few items of information. 

The position of Russia on the chart, for example, shocked me – and not because of their closeness to France and Australia in the number of patents per person, but because of their level of religiosity.  How the hell this country that spent 74 years exterminating God and his devotees with fire and blood, destroying 99% of places of worship and executing priests, rabbis, and imams like mad dogs, in just 24 years since the fall of the Soviet Union shot itself into the 75 percentile of population identifying themselves as religious?         

By the way, all those patents registered in that country (a lot considering its population) mean absolutely nothing in terms of both macro and micro-economics.  Russians are famous for inventing new stuff at their kitchen tables and building prototypes.  None of it ends up in the production because everyone over there, including the entire government, lives for a quick buck, not long-term investment of resources.     

Another thing that kept teasing my attention was the apparent strong potential for innovative achievement in the US; and that despite the pervasive nepotism and escalating irrelevance of merit.  Can you imagine what we could’ve accomplished here if we continued to uphold the fundamental principles of the original American Dream ethos? 

The American Revival of Failed Soviet Labor Constructs


Let mSoviet-poster1e admit right off the bat that Matthew Shaer's article The Boss Stops Here in the June 24th issue of New York magazine has brought my already high level of agitation to a boiling point.  So, if some of my comments appear to be hostile, don't be surprised – you've been warned. 

The article takes up a subject unusual for a life/politics/culture publication - it ventures into the business discipline of organizational management; specifically, a post-modernist pseudo-innovative spectacle of a "non-hierarchical workplace."  Fancy verbage and incorrectly-used business terminology aside, Shaer focuses on a few companies, whose owners, to put it simply, replaced management leadership with the collective's (as in all employees) show of hands. 

At Menlo Innovations (one of the companies in focus, a software developer), for example, "there are no bosses … and no middle managers."  Instead, "every morning, the entire staff circles up to discuss" the distribution of assignments." Valve Corporation (a video-game company) operates as a network of self-governing teams, with employees choosing at random which team to join and when to switch to a new one.  In all the companies mentioned in the articles, the projects' progress reviews are the collective exercises as well. Obscenely, personal achievement means nothing, because it's the whole team that gets evaluated: the brilliant guy who comes up with incredible solutions at lightning speed gets no recognition and his mediocre team members, who spend weeks gnawing at their portions of work, get to share in his professional triumphs. 

Now, get ready for it! At Menlo et al, hirings, promotions, layoffs, and firings are handled by a committee.  At W.L. Gore & Associates, once a year all (!!!) "employees gather to rank their colleagues based on their contributions to the overall success of the company.  Those rankings are used by a separate committee of associates to determine pay raises or cuts."  The article omits the exploration of how such committees are elected and/or appointed.     

As far as I am concerned, all of this is nothing if not yet more evidence of the incredible ignorance I bring up so frequently.  Most people learn so little about World History, they are not capable of recognizing that there is nothing new about these "experiments."  It has all been done before: In the Soviet Union and other countries of the former Eastern Bloc everything was decided by various committees, starting with the ones in every single place of work and residence through the different medium levels all the way up to the Central Committee of the Communist Party!

Moreover, all these team-work models have already been tested (and failed) in the Soviet Union.  Such groups were given a very special name - they called them Brigades of Communist Labor.  The main purpose of these constructs was to eradicate any form of individualism – intellectual, political, emotional, spiritual.      

Throughout the article, the author kept making an unfortunately confused mistake by calling these unformed socialistic blobs of companies "flat structures."  That just fucking hurt me!  A flat organizational structure is a typical attribute of a small business.  But instead of eliminating the leadership and reducing everyone to some equalizing average, it actually elevates each employee to the level of a multi-functional manager.  Every person handles a multitude of tasks covering entire sectors of the value chain.  Moreover, they do that with little supervision and only general guidelines from senior and executive management.  This is how they achieve, what I call, "career growth in the same chair," raising themselves from one level of expertise to another.  And I'm not talking about mom-and-pop candy shops here – this is how $50-$750 million companies are ran by 10-20 hard-working people.

I have been working in such environments my entire career.  So, it was laughable to me that the article made a big deal about companies with employees setting up their own schedules.  You must be kidding me! Who in a small, or even a mid-size company has got the time to set up their subordinates' schedules!

The author praises some Fortune 1000 companies for trying to fix their management problems through workplace decentralization.  Look, I don't give a flying fuck whether a Fortune 1000, or any large company, recognizes that there is something wrong with it and takes a stab at fixing itself through decentralization and "flattening."   It's not enough to make them more efficient, because, to paraphrase Woody Allen: You know what's wrong with them?  Everything.  Companies are not supposed to be that big – break them up into small entities and the flat structures will come naturally (see above).                

While reading the article I couldn't help but notice that in these companies only functions related to daily operations, general administration, and HR management (much despised and largely ignored by many entrepreneurs) get "delegated" to the workforce masses.  The labor is not actually involved in the decision-making responsible for the strategic development and the survival of the company: which commercial directions to pursue, which projects to undertake, which clients to accept, where to procure the financial resources, etc.  It is so evident that Matthew Shaer had to acknowledge that "overseeing strategy, the long-term vision of Menlo as a whole, still falls" to the two owners, who "also serve as representatives of Menlo at scads of management and business conferences," both in the US and overseas.  Nobody else gets to go.

What can I say?  This is the precise recipe of building the absolute power used by the Soviet leaders (and still employed by their contemporary successors): You let the hoi polloi pretend that they are the "power," delegate to the "collective" the most unpleasant tasks of dealing with each other, but leave yourself with the rights for the real leadership, for the ultimate decisions.  And guess what?  In that top-of-the-Olympus realm, there is nobody who can challenge you, because you got rid of all qualified personnel aka managerial talents.  In Russia, they first called them the enemies of the people and then "cleanse" them out, if you know what I mean.  

I found it very emblematic that the owners of Menlo Innovations consider Thomas Edison a "patron saint" of the company and keep his bust in the middle of their open-style working space.  That same Thomas Edison who hired a very talented engineer named Nicholai Tesla and stole all of Tesla's ideas, patenting them in his own name.  That Thomas Edison who later staged public electrocutions of puppies and other small animals in his attempt to discredit the viable Westinghouse/Tesla high-voltage system, in order to eliminate the competition. 

And "the lady doth protest too much": Menlo employees' readily provided self-convincing quotes insisting that their "self-management" meetings keep the morale high (What about that guy who donated his outstanding one-of-a-kind solution to his team?) and make them feel that they are working toward a common goal.  Oy! Hurts again!  I have always propagated that creating in employees the sense of being important, of being a part of the bigger picture is a key to the successful management of human assets.  But it's not achieved through making everyone into an unrecognizable little screw in a homogeneous pile.  It's done by raising the awareness of each and everyone's crucial value and singular necessity for the company's survival.  

In reality, just as it happened in the Soviet Union, all these collective decisions and committees' resolutions, usually lead to dilettantism.  These people may be great designers and coders, but what the fuck do they know about business administration and organizational development.  In fact, most of the high tech pros I've ever worked with were incredibly disorganized individuals, intellectually far removed from any administrative skills.

Another false agenda the poor schmucks who work for these "organizational innovators" subconsciously force themselves to accept is what I would define as the "evolution of rewards pretense."  Since pre-historic times to these sad days, only three main factors have been stimulating people to work hard: the adequate merit-based pay, the recognition of achievements through promotion (not just title-assignment, but the real elevation of responsibilities), and the self-realization aka pride in your own professionalism. 

When there is no middle or senior management, the promotions are out as well.  It's not like you are going to take over an Owner's position.  Turns out (here comes the funny part) that material stimuli are "irrelevant" as well.  There is a quote in the article from one of the developers at DreamHost, who explicitly says: "Twenty years ago, it was about higher pay.  Now it's more about finding your work meaningful and interesting."  Well now, is that why you are ogling Mark Zuckerberg's photos in Forbes and invest your 401k pennies into high-risk stocks?  And don't deny it, because I know you do.   But hell, of course money is "not important."  What else are they going to say?  The decent jobs are scarce and the candidates are a plenty.  So many young people went into coding and computer engineering; they are literally a dime a dozen.  Those who get employed consider themselves lucky, and if you tell them to drink that "teamwork" and "money's not important" Kool-Aid, they will.      

But the aspects that make this whole collective/committees bullshit especially inconceivable to me have to do with the very core of the business management, i.e. the behavioral science, the human nature itself.  Did these business owners somehow develop some sort of a new breed of people, the kind that's inherently free of the evolutionary pre-built competitive instincts?  Or maybe they psychoprofile every single employee and keep only those who are uncommonly fair and just, or, more likely, idiotically indifferent?  

Incredibly, like all fanatics, these commy-following bosses manage to fool not only their employees, but themselves as well.  Let me remind my readers that the greatest incentive for all organizational restructurings is profitability.  I have no doubt that the private owners of the businesses highlighted in the article are under the impression that by eliminating the key decision-makers they significantly increase their profits.  Let's face it: even in the current market, high-quality execs still make relatively decent salaries.  Unfortunately, these owners, marred by their own special brand of entrepreneurial ignorance, are unable to see the big picture: while their worker-bees spend unnecessary long hours on trying to inexpertly debate the organizational issues, they are not attending to their primary responsibilities, e.g. ACTUALLY WORKING!!!  Talking about real losses! 

The article's author describes one of these long meetings, which started at 11 am and went until 2 pm (!), "and by the midway mark, the proceedings were moving a little more slowly, with more exasperated sighs, or slight but conspicuous head shakes, and sometimes everyone seemed to be talking simultaneously, in one big warbly squawk."  But don't worry.  There is always the pressure-relieving tool introduced at Menlo a few years ago, "walkies" – ten-minute group walks around the block. 

As my readers know, I am a small-business crusader, who believes that giant corporations structured around towering hierarchies of management are cancerous.  At the same time, people of extremes and ideological fanatics (and don't be fooled: this is exactly what we are dealing with here) always terrify me, regardless of whether their views are "progressive" or "reactionary."  Why does everything always have to be so categorical: either a pyramid of useless bosses, or no bosses at all?  Why can't their be a middle ground: a handful of well-qualified key decision makers whose expertise allows them to make high-priority decisions quickly, without slowing the business down, while all functional decisions are left to the employees? 

I'll tell you why: Because that's a "small business" model.  Unfortunately, these "innovative" owners don't want to remain small and work hard to survive.  Notice that most of them are high-tech.  They want to grow big as fast as possible and sell themselves either to a larger competitor or a private equity firm, or (oh, the sweet dream!) make billions by going public.  Meanwhile, just like the Soviet Commies before them, they pretend to be "just and fair" by "empowering" their "collectives," only to completely abandon and betray them in that bright future.  I fucking hate this phony bullshit!                      

Wave Goodbye to Quality Standards


Declining-chartRemember how in the beginning of the year, we got a cascade of breaking news about problems with Boeing 787 Dreamliners?  First there was a battery fire, then an oil leak, a fuel leak, engine cracks, a damaged cockpit window; then an emergency landing of an All Nippon Airways 787 followed by the airline's grounding of all 17 of the jets.  On the same day Japan Airlines announced that they will stop flying their 787s as well.  It must've made Qantas's execs feel real good about the cancellation of the 35-units order ($8.5 billion list price - nearly 10% of the projected annual revenue) back in August of 2012 due to endless quality-related delivery delays.

It was not the first time either that the largest aerospace company in the world gave up a painfully huge chunk of already budgeted revenue.  In 2008 Boeing lost its bid for a $40-billion U.S. Air Force (!) contract to build 179 refueling aircrafts.  Whose tankers won favors with the Pentagon? The French competitor's – Airbus (!).  I recall reading at the time that Boeing's executives were so sure that the US defense order was pretty much in their American pockets that the celebration gala was already booked and catered.  I also remember that many inside sources cited the higher quality and reliability of the European tankers.

There is a reason why I consider these Boeing's quality issues to be so distressing.  First, the United States lost significant portions of international market shares in steel, heavy machinery, tools, household appliances, electronics, and consumer goods.  The mere notion of an American TV set became a memory: I still remember how it made me feel reading in 1999 about the buyout of the last U.S. TV maker Zenith Electronics by South Korean LG.  

The decades-long American automotive dominance (at one point 75% of the global supply) was first overtaken in the 1980s by the Japanese manufacturers with far superior quality and lower prices.  Now, China became the world's leader in the production of motor vehicles (23% of the global market).  Only the tremendous support of the US government keeps our carmakers in second place with an 11.8% share.  Then again, the frequency of auto recalls are really getting out of control, so it's anybody's guess how long we will be able to keep this standing.

Even while all these repositionings were taking place, I kept saying that the national economy will not completely deteriorate as long as the US continues supplying the world with two types of products, which pretty much define our era – microprocessors (Intel still manufactures in Chandler, AZ and Hillsboro, OR) and airplanes (Boeing's facilities are 90% domestic).  But now, with Boeing's value in an apparent decline, our country really pushes itself into a danger zone.  I mean, a slice of the defense budget, funded by our own taxes, went, of all countries, to France!!!

How did it happen?  Who's fault was that?  It's everybody's fault (well, maybe it's the media's fault first and then everyone else's).  In this celebrity-obsessed culture, merit-based standards have disappeared.  No one wants to work and be rewarded according to their contributions into the final output, being it tangible products or services.  No one cares about the quality of their work.  And nobody looks into the future.  Everyone wants to be rich and famous with a minimal effort, RIGHT NOW.  US manufacturing is getting suffocated by bizarro day-trading patterns, market-driven executive bonuses, union bargaining, wide-spread ignorance, and laid-back work ethics.  What quality?  As a result, a few products and services still produced domestically have a very low value per dollar spent.  From airplanes to… pretty much everything.

Yes, it's not just the industrial sector.  Every step we take, we are confronted with bad attitude and terrible quality.   Commercial and residential construction is slow and unpredictable.  Most of NYC bridges are overdue for maintenance by decades.  The cranes are falling onto nearby buildings, because City inspectors take bribes.  It's common knowledge that there is no such a thing as a leveled house – they are all crooked, with slanted floors and uneven walls.  It's not enough just to hire expensive contractors – if clients want the renovations to go smoothly and with decent results, they must supervise people who are paid $100-$250 per hour.     

Most doctors don't want to think about the patients' specific symptoms - their primary concerns are billing the insurance and getting pharmaceutical "incentives."  And that's why the US is the most overtested and overmedicated country in the world.  Don't even get me started on the sales staff.  If your mechanic tells you that the car will be ready in 3 hours, you would be wise to multiply that by 2.  The food deliveries are always a hit-or-miss – every other order is messed up.  But everyone expects tips, even if your dishes arrive upside down.  The old doormen in my building used to not only know my name, but even recognize the frequent visitors.  The young replacements cannot even associate my face with my apartment number – it's too much to ask. 

My own receptionist, for God's sake, is too lazy to ask about the caller's business – she just gives me a name.  And even that she doesn't care to get right.  A 45 year-old man with a fairly deep voice called the other day.  "Ted Fisher," he replied to her sleepy "Who's calling?" question.  She patches herself through to my extension and says,"Patricia for you." 

Futurenomics of Higher Education


Item_3703People laugh at me when I talk about higher education in negative terms.  And I understand – it sounds hypocritical coming from someone with multiple academic degrees.  But times and environments change.  For my generation, higher education was far less expensive, more intellectually challenging and somewhat more rewarding than it is for young people today. 

Now colleges lower their educational values, so that the degrees seem more intellectually accessible.  The individual thinking is not cultivated anymore and slowly disappears together with independent studies.  It became all about mechanistic skills of test-taking instead of true intellectualism.   

Except for a few institutions still adhering to their academic values, most colleges' coursework does not require any reading beyond the textbooks.  This is how we end up with scores of degreed "professionals" who never read.  My famous pet peeve is having young subordinates with accounting degrees who don't understand the fundamental principles of double-entry bookkeeping. 

So, for $200,000 you get a low-grade minimal intellectual input and the promise of… What?  Nowadays, nothing.  Ok, so wealthy parents may be willing to pay this kind of money in order to delay their children's exposure to the doldrums of the adult life – as far as I am concerned, not a bad idea if you love your children and can afford to do so.  But other than that – it's really just nothing but a bad investment.  

Yet, more and more children continue entering colleges, ending up with unbearable debts.  Some are locked forever in terrible jobs, others are not capable of getting a job at all.   And people still insist that the degrees open some highly desirable doors?  Why is that? 

Because, of that stupid club mentality that pollutes every aspect of our lives.  Hiring managers and recruiters, themselves college graduates, will look down on those without the degrees, regardless of their abilities and knowledge.  This idiotic pattern has to change.  Not to boast or anything, but I always look for a spark of an intellect in a candidate's eyes before I look at the Education section on his resume.     

At the same time, we cannot deny the fact that having graduate and post-graduate degrees inhibits entrepreneurial potential of many bright and capable people.  I have been saying for years that the possibility of being paid good wages prevents people from entering the entrepreneurial route.  It's too scary to gamble on your business success if you have a steady job.   Thus, instead of building small and midsize businesses that could revive our economy, kids "all go to the university, and they all get put in boxes, little boxes, all the same." 

But this point becomes even less relevant now: those highly paid jobs opportunities will not be there in the near future.  Young people, please, you don't have to follow the rest of the sheep.  Think for yourself; let your creativity take you on the self-fulfilling journey.  And you don't have to strive to be rich and famous overnight either – not everyone is meant to be Gates or Zuckerman.  There is nothing wrong with building your own small business that will provide you with middle-class living, while creating jobs for other people on top of that.