Tag Archives: innovation

William Lazonick

Recently I did a post or two on the gospel of shareholder value, where I argued that ethical managers need to consider the implications of their decisions on a variety of stakeholders, certainly including employees and customers, but also the larger society and natural environment. William Lazonick, a professor at the University of Massachusetts, argues that the ideology of maximizing shareholder value has also been a big drag on innovation since it came into vogue in the 1980s. In Harvard Business Review:

For three decades I’ve been studying how the resource allocation decisions of major U.S. corporations influence the relationship between value creation and value extraction, and how that relationship affects the U.S. economy. From the end of World War II until the late 1970s, a retain-and-reinvest approach to resource allocation prevailed at major U.S. corporations. They retained earnings and reinvested them in increasing their capabilities, first and foremost in the employees who helped make firms more competitive. They provided workers with higher incomes and greater job security, thus contributing to equitable, stable economic growth—what I call “sustainable prosperity.”

This pattern began to break down in the late 1970s, giving way to a downsize-and-distribute regime of reducing costs and then distributing the freed-up cash to financial interests, particularly shareholders. By favoring value extraction over value creation, this approach has contributed to employment instability and income inequality…

Retained earnings have always been the foundation for investments in innovation. Executives who subscribe to MSV are thus copping out of their responsibility to invest broadly and deeply in the productive capabilities their organizations need to continually innovate. MSV as commonly understood is a theory of value extraction, not value creation.

He goes into much more detail on his theories in this working paper from the “Academic-Industry Research Network“, and with just a little digging I came across this interview with him and this article by him on the “Institute for New Economic Thinking” blog.

When asked for a dissenting view, Gordon Gekko had the following comment:

the power of the playbook

Here’s some engineer bashing from Strong Towns, this time accusing us of being serial killers of children:

  • The engineering profession is so worried about liability if they vary from any highway design guideline, regardless of how ridiculous they are. Someone needs to sue these engineers for gross negligence and turn that entire liability equation around. It’s way past time.
  • Professional engineers here and elsewhere use “forgiving design” principles in urban areas where they do not apply. They systematically forgive the mistakes of drivers who stray from their lane or go off the roadway by designing systems where these common mistakes are anticipated and compensated for. They systematically show indifference to the easily anticipated mistakes of non-drivers. A kid playing in their yard chases a stray ball out into the street and gets run down. To the engineer, this is a non-foreseeable, non-preventable accident. For everyone else, we understand that cities are more than cars – they include people doing all kinds of complex things – and forgiving the common mistakes of ALL people is what a humane, decent professional does.
  • Professional engineers claim that they cannot alter human behavior with their street designs. A highway lane width is 13 feet just the same as your local street lane width. There is often no appreciable difference in the cross section of a highway and a local street except for the posted speed limit, which is up to the police to enforce. (I wrote about this years ago.) Despite this, the engineers in this situation – knowing there was an obvious problem – as well as many others in similar situations, put their brains to work to come up with all kinds of ways to attempt to alter human behavior, but only for those humans outside of their automobiles.

This language is a little dramatic but the argument is justified. The field of engineering, and the education of engineers, is not supposed to be just about following design guidelines unquestioningly. It is supposed to be about understanding systems well enough to modify them and solve problems. But civil engineers are under a lot of economic pressure – we tend to be paid either by cash-strapped public agencies or by private land development interests engaged in ruthless competition. Under these conditions, following an established playbook is often the lowest stress, lowest risk, and most efficient way to get a job done.

There is a flip side to this though – the keepers of those playbooks have enormous power. Curating a collection of standard details and technical specifications doesn’t sound like a very glamorous job, but actually it is a very important one. If people are blindly following your playbook, you have a lot of responsibility – to use overly dramatic terms, you can either be the savior or the mass murderer of the children. You have the power to mainstream best practices and innovations from elsewhere. Then if there are some engineers downstream who choose not to think or are simply under too much pressure to think, they will blindly implement the right practices. So these are very important jobs, and they need to be filled with people who are very well educated in system thinking, are ethical, and are intellectually curious about what is going on outside their little corner of the world. A certain amount of experimentation needs to be done outside the playbook, and the playbook itself needs to be constantly challenged and revised as new and better approaches become available.

automated aggregation of scientific literature

I am intrigued by this example from Stanford of computerized review and synthesis of scientific literature:

Over the last few years, we have built applications for both broad domains that read the Web and for specific domains like paleobiology. In collaboration with Shanan Peters (PaleobioDB), we built a system that reads documents with higher accuracy and from larger corpora than expert human volunteers. We find this very exciting as it demonstrates that trained systems may have the ability to change the way science is conducted.

In a number of research papers we demonstrated the power of DeepDive on NMR data and financial, oil, and gas documents. For example, we showed that DeepDive can understand tabular data. We are using DeepDive to support our own research, exploring how knowledge can be used to build the next generation of data processing systems.

Examples of DeepDive applications include:

  • PaleoDeepDive – A knowledge base for Paleobiologists
  • GeoDeepDive – Extracting dark data from geology journal articles
  • Wisci – Enriching Wikipedia with structured data

The complete code for these examples is available with DeepDive.

Let’s just say an organization is trying to be more innovative. First it needs to understand where its standard operating procedures are in relation to the leading edge. To do that, it needs to understand where the leading edge is. That means research, which can be very tedious, and time consuming. It means the organization is paying people to spend time reviewing large amounts of information, some or even most of which will not turn out to be useful. So a change in mindset is often necessary. But tools that could jump start the process and provide short cuts would be great.

This is my own developing theory of how an organization can become more innovative: First, figure out where the leading edge is. Second, figure out how far the various parts of your organization are from the leading edge. Third, figure out how you are going to bring a critical mass of your organization up to the leading edge – this is as much a human resource problem as an innovation problem. Fourth, then and only then, you are ready to try to advance the leading edge. I think a lot of organizations have a few people that do #1, but then they skip right to #4. Then that small group is way outside the leading edge while the bulk of the organization is nowhere near it. That’s not a recipe for success.

online productivity and creativity apps

This article from Civicly lists useful online apps for planners – actually, I think they are useful for anybody whose job involves trying to solve problems with a little creative latitude. I especially like the free tools for infographics – it looks like you can pick a template and customize it for your data.

smart, sustainable infrastructure

This long report is called Infrastructure Crisis, Sustainable Solutions: Rethinking Our Infrastructure Investment Strategies. They try to take all the talk about sustainable and smart infrastructure and boil it down to some actionable recommendations and goals. It’s worth a skim. Just to give some highlights, here are four goals they recommend for 2040:

  • Convert 95% of all types of energy use to renewables; fully deploy efficiency to cut demand 60%

  • Wring out water waste by 60%; integrate across water-wastewater-stormwater silos

  • Upgrade 75% of neighborhoods to“Very Walkable”; connect cities with high speed transit

  • Ensure 90% of products are managed by producers after use, and most ‘waste’ material is recovered by local industry

They talk about green infrastructure elsewhere in the text. Actually, it is now called “natural infrastructure”. People are probably a little burned out on the green buzzword. Some other interesting buzzwords they use are “sustainable asset management” and “performance-based infrastructure”.

spending vs. investment

Maybe somebody can explain all this to me (from Project Syndicate):

With all of the rules pointing toward recession, how can Europe boost recovery?

A two-year €400 billion ($510 billion) public-investment program, financed with European Investment Bank bonds, would be the best way to overcome Europe’s current impasse. Borrowing by the EIB has no implications in terms of European fiscal rules. It is recorded neither as new debt nor as a deficit for any of the member states, which means that new government spending could be funded without affecting national fiscal performance.

Thus, some of the investment spending currently planned at the national level could be financed via European borrowing to relieve national budgets. Such an indirect way of dealing with strict rules would also be easier than starting long and wearying negotiations on changes to the fiscal framework…

In addition, the ECB could purchase EIB bonds on secondary markets, which would help to keep funding costs low – or even reduce them. More important, purchases of EIB bonds would enable the ECB to undertake quantitative easing without triggering the degree of controversy implied by intervening in 18 separate sovereign-bond markets, where concerns that ECB purchases would affect the relative pricing of sovereigns are very real.

Already, €200 billion of EIB bonds are available. Adding €400 billion would increase the pool substantially. Together with asset-backed securities, covered bonds, and corporate bonds, €1 trillion of assets – the threshold widely thought to make quantitative easing by the ECB credible – would be available for purchase.

What I think it means is that if we don’t have the money to do the things we want to do, we can just make some more up. But of course, we can’t just make up an infinite amount of money, because we can’t just do an infinite amount of things here on our finite planet. So if we make up too much money, people might start to realize that money is just made up.

Here on this finite planet, we have a certain amount of resources at our disposal that allow us to do things – natural resources like energy, water, and fertile soils; machines, structures, and infrastructure we have built; and the physical efforts, knowledge, and skills of people. Also, less tangible things that we have tended to take for granted in the past – the ability of oceans and other ecosystems to grow food, absorb wastes, and cycle carbon, nutrients and gases that we can’t live without, for example. If we are finding that we don’t have the resources to do all the things we want to do, then we are poorer than we would like to be. We can make up some more money, but ultimately the financial system is just something we have come up with to allocate the resources and efforts we do have available, and ultimately to impose limits on ourselves just short of the actual physical limits, which actually do exist.

Where am I going with this? If we want to get richer, we have to protect the resources we can’t do without, like the health of ecosystems and the atmosphere. We have to impose limits on ourselves voluntarily today before the real physical limits are imposed on us. Then if we want to be richer tomorrow, we need to spend the resources we do have on the right kinds of investments in the right kinds of structures and machines; we need to spend our efforts in smart ways and increase our knowledge and skills in the right areas.

The kind of short term economic and financial press coverage I quoted at the beginning of this post doesn’t make the connections between money and the real world, and doesn’t make a distinction between financial spending in general and smart investment in the future. Jeffrey Sachs has written a nice post that makes some of these points, and argues that there has been a recent drop in true investment right when the world needs it most urgently:

Neither neo-Keynesians nor supply-siders focus on the true remedies for this persistent drop in investment spending. Our societies urgently need more investment, particularly to convert heavily polluting, energy-intensive, and high-carbon production into sustainable economies based on the efficient use of natural resources and a shift to low-carbon energy sources. Such investments require complementary steps by the public and private sectors.

The necessary investments include large-scale deployment of solar and wind power; broader adoption of electric transport, both public (buses and trains) and private (cars); energy-efficient buildings; and power grids to carry renewable energy across large distances (say, from the North Sea and North Africa to continental Europe, and from California’s Mojave Desert to US population centers)…

These considerations are reasonably clear to anyone concerned with the urgent need to harmonize economic growth and environmental sustainability. Our generation’s most pressing challenge is to convert the world’s dirty and carbon-based energy systems and infrastructure into clean, smart, and efficient systems for the twenty-first century. Investing in a sustainable economy would dramatically boost our wellbeing and use our “excess” savings for just the right purposes.

slowdown in entrepreneurialism

I thought that high unemployment and downward pressure on wages was leading to more startup companies and entrepreneurs. Not so, according to Janet Yellen from the Federal Reserve:

With a good deal of justification, the United States has always viewed itself as an entrepreneurial country. Although most new businesses fail, founding a new company is still a key way for people to move up the income distribution, Yellen said. “However, it appears that it has become harder to start and build businesses,” she added. “The pace of new business creation has gradually declined over the past couple of decades.” This decline could serve to depress the growth of productivity, wages, and employment, Yellen went on, and it “may well threaten what I believe likely has been a significant source of economic opportunity for many families below the very top in income and wealth.”

Ryan Avent on Automation

In this Economist podcast, Ryan Avent talks about how automation is leading to a “hollowing out” of the workforce. Basically, the concept is that as computers and machines get better at performing more and more skilled jobs (book-keeping is one example given), there is gradually less demand for the medium-skilled workers who used to do those jobs. High-skilled workers like computer programmers are doing very well, although I presume the automation will gradually creep higher and higher up the chain, so today’s safer jobs will be less safe tomorrow.

At the same time these medium-skilled workers in developed countries are getting squeezed out, developing countries are not benefiting like they used to from their large pools of low-skilled workers as manufacturing becomes more and more automated, and can be done cost-effectively closer to consumers in richer countries.

automation

Longreads has an excerpt from Nicholas Carr’s book The Glass Cage: Automation and Us

The historian Thomas Hughes, in reviewing the arrival of the electric grid in his book Networks of Power, described how first the engineering culture, then the business culture, and finally the general culture shaped themselves to the new system. “Men and institutions developed characteristics that suited them to the characteristics of the technology,” he wrote. “And the systematic interaction of men, ideas, and institutions, both technical and nontechnical, led to the development of a supersystem—a sociotechnical one—with mass movement and direction.” It was at this point that what Hughes termed “technological momentum” took hold, both for the power industry and for the modes of production and living it supported. “The universal system gathered a conservative momentum. Its growth generally was steady, and change became a diversification of function.” Progress had found its groove.

We’ve reached a similar juncture in the history of automation. Society is adapting to the universal computing infrastructure—more quickly than it adapted to the electric grid—and a new status quo is taking shape. The assumptions underlying industrial operations have already changed. “Business processes that once took place among human beings are now being executed electronically,” explains W. Brian Arthur, an economist and technology theorist at the Santa Fe Institute. “They are taking place in an unseen domain that is strictly digital.” As an example, he points to freight shipping. Not long ago, coordinating a shipment of cargo across national borders required legions of clipboard-wielding functionaries. Now, it’s handled by computers. Commerce of all sorts is increasingly managed through, as Arthur puts it, “a huge conversation conducted entirely among machines.” To be in business is to have networked computers capable of taking part in that conversation. Any sizable company has little choice but to automate and then automate some more. It has to redesign its work flows and its products to allow for ever-greater computer monitoring and control, and it has to restrict the involvement of people in its supply and production processes. People, after all, can’t keep up with computer chatter; they just slow down the conversation.

September 2014 in Review

At the end of August, my Hope for the Future Index stood at +1.  As I did last month, I’ll sort selected posts that talk about positive trends and ideas vs. negative trends, predictions, and risks. Just for fun, I’ll keep a score card and pretend my posts are some kind of indicator of whether things are getting better or worse. I’ll give posts a score from -3 to +3 based on how negative or positive they are.

Negative trends and predictions (-8):

  • The drought in California’s Central Valley and on the Great Plains continues to get worse. (-1)
  • There are signs that Europe may be in a long-term economic depression. The term “new normal” is being batted around to describe a possible long term slowdown in growth affecting the entire world. (-2)
  • Governments and corporations are starting to use armed drones in crowd control. (-1)
  • In a new simulation of a society with increasing resource scarcity and technological innovation, increasing resource scarcity wins. (-1)
  • Meat and dairy consumption can’t continue rising at their current rate forever. (-1)
  • Herman Daly reminds us that the most common measure of economic growth does not distinguish between costs and benefits. Benjamin Friedman, in arguing that there is a moral imperative for economic growth, also used a more socially inclusive definition of growth than the most common one in use today. (-1)
  • The Ebola outbreak continues to get worse and worse, although people are arguing that this is not the type of plague that could threaten civilization itself. (-1)

Positive trends and predictions (+8):

  • Some countries have more sustainable policies than others, and the world could become more sustainable if we all copy the best examples. But even then, the world would probably not be sustainable enough. (+0)
  • People have come up with some novel ideas for backyard wildlife habitat. (+1)
  • Big companies are figuring out how to set up units that innovate more like startups. (+1)
  • Walkable cities with green infrastructure may help boost creativity and problem solving. There is plenty of evidence that walkability might be the single most important key to more sustainable cities. (+1)
  • There have actually been small advances in telepathy. Too soon to say if this will be used for good or evil. (+0)
  • There is a new generation of robot vacuum cleaners. Anything that can free humanity from the drudgery of house work has to be a good thing – almost any other use of our time has to be more productive, creative, or at least more fun. (+1)
  • There is some buzz about sustainable consumption. I just don’t know – the whole concept of “consumption” as an end in itself seems unsustainable to me. (+0)
  • There is also continuing buzz about “green growth” and “de-growth”, but in my opinion very little evidence that these ideas are catching on. (+0)
  • We were reminded that green infrastructure is more than just stormwater management. It’s a beautiful vision to link stormwater management, urban trees and parks, corridors and rural reserves together. But we need more people to share the vision and make it happen. (+1)
  • Another way to make cities a lot more sustainable is to have the price of parking actually reflect its total economic, social, and environmental cost, including the opportunity cost of the oceans of land that are just wasted. (+1)
  • Worldwide child mortality has dropped almost by half just since 1990. (+2)

Hope for the Future Index (August 2014): +1

August 2014 change: -8 + 8 = 0

Hope for the Future Index (September 2014): +1