Disruption Big Time
In an excellent post on the Lepore-Christensen fracas, John Hagel draws on Deloitte’s Shift Index to provide some data on disruption. Disruption has increased by a variety of metrics.
One of the metrics in our Shift Index looks at what economists call topple rate – the rate at which leaders fall out of their leadership position. In this case, we focused on the rate at which public US companies in the top quartile of return on assets performance fall out of this leadership position.Between 1965 and 2012, the topple rate increased by 40%.
OK, but the skeptic might reply that this is only about financial performance. Another more significant measure of fall from leadership position is provided by my old colleague and mentor, Dick Foster, who looked at the average lifespan of companies on the S&P 500. In 1937, at the height of the Great Depression and certainly a time of great turmoil, a company on the S&P 500 had an average lifespan of 75 years. By 2011, that lifespan had dropped to 18 years – a decline in lifespan of almost 75%. At the same time that humans are significantly increasing their lifespan, large companies have been heading rapidly in the opposite direction.
Another measure of disruption is executive turnover which has increased.
Some of Deloitte’s work also speaks to the implicit idea in Piketty that capital accumulation is easy. Once someone has capital, Piketty argues, that capital just grows and grows at r>g. Not so, and less so today than ever before. According to Deloitte the return on capital is decreasing and the volatility is increasing. Here’s the return on assets by top and bottom quartile. Even in the top quartile, r is decreasing but it’s easier than ever before to pick wrong and lose your shirt in the bottom quartile.
Lots more of interest in Hagel’s post and in Deloitte’s work.
Stories that sneak up on us (China story of the day)
Here is one of them, coming to me in an email from the Sinocism China Newsletter, about the growing demands for democracy in Hong Kong:
Any public suggestion that the People’s Liberation Army might intervene here was politically unacceptable until very recently, but it is now raised as a possibility by some of Beijing’s advisers. “A showdown is getting more and more inevitable by the day, and some degree of violence is imminent,” said Lau Nai-keung, one of Beijing’s most prominent allies in Hong Kong. “If worst comes to worst, the P.L.A. will come out of its barracks.” Mr. Lau is one of the six Hong Kong members of the Basic Law Committee, a group under the National People’s Congress Standing Committee in Beijing that sets policies relating to Hong Kong’s mini-constitution, the Basic Law.
An associated NYT story is here. Uighur terrorism has been another story that has snuck up on us. How many more China stories will be sneaking up on us this year? Next?
China fashion markets in everything
Fashionistas no longer have to choose between looking stylish and protecting their lungs.
Next week, Beijing- and Hong Kong-based designer Nina Griffee, owner of face-painting and body art company Face Slap, will introduce a new line of outfits that incorporate face masks on the runway as part of a collection at Hong Kong Fashion Week.
Even the designer, who was born in England, admits that the eight outfits she’s created to launch the line – which look something like burkas for the space age – might not be everyone’s cup of tea. “There’s a fine line between fashion and costume,” she says. “I’m not entirely sure we made it completely into the fashion category.”
Though it isn’t the first time models will have appeared on stage wearing masks, it appears to be the first time the effect is so deliberate.
The outfits incorporate Vogmask pollution masks—already a choice among many of the pollution cognoscenti as the most stylish face coverings—attached by a zipper to shawls, dresses and ponchos. The zipper allows the wearer to remove the mask to dine, for instance, while retaining the high-fashion look.
There is more here, with good stylish photos too.
What I’ve been reading
1. Tom Doyle, Man on the Run: Paul McCartney in the 1970s. This book actually has some fresh material, plus you realize that John and Paul were even more obsessed with each other than we used to think.
2. Francisco Goldman, The Interior Circuit: A Mexico City Chronicle. Further evidence that politics is often the enemy of really good books, nonetheless this is still a moderately interesting treatment.
3. Elizabeth Pisani, Indonesia, Inc.: Exploring the Improbable Nation. Lots of emphasis on the islands. Pretty good, not great.
4. Hans Ulrich Obrist, ?Everything You Always Wanted to Know About Curating*?, a successful Swiss attempt at being clever and punchy.
5. Carl Wilson, editor, Let’s Talk About Love: Why Other People Have Such Bad Taste. Most of this volume concerns Céline Dion, or is that Celine Dion? Fascinating in parts, the subtitle should have been the title.
As part of an agreement with Bryan Caplan, I’ve also started an attempted reread of Catcher in the Rye, and hope to report back to you on that one…
Assorted links
1. Bryan Caplan on private sector vs. public sector workers: “Last month, I read most of the academic literature on this topic. The more I read, the more confused I became. As far as I could tell, researchers reached a clear answer: federal employees really are paid more than equivalent workers in the private sector.”
2. Slate on Srugim.
3. Megan on Hobby Lobby, on the mark. The current discussion of this issue is chockful of mood affiliation.
4. Why don’t we have more telecommuting? And Airbnb and the evolution of trust.
Comparative Advantage
Don Boudreaux’s Everyday Economics video on comparative advantage is one of the best introductions to comparative advantage that I know of in any format.
(The series is a product of MRU but I cannot take any credit for its creation.)
Will international trade as a share of global gdp go up or down?
The common presumption is that it will go up, but I find this question not so easy to answer. Let’s say this is over the next twenty years, will the technologies of easier cross-border trade really outrace the other progressing technologies in play? Here are a few forces suggesting the share of trade in gdp will go up:
1. More countries are attaining middle income status and higher levels of productivity. In a “balls and bins” approach to trade, there will be fewer zeros.
2. The internet makes it easier to trade across borders and also more people are learning the global language of English.
3. Social and commercial networks are increasingly global rather than local or national. I think this is the most important positive force.
4. Natural resources are becoming a higher share of gdp, and trade in those resources is especially imperative, given the materials-intensive nature of most emerging economies.
Here are a few forces suggesting the share of trade will go down:
5. Services will be a higher proportion of gdp and services are harder to trade, for both economic reasons and for legal, protectionist reasons.
6. China’s economy will become less resource-intensive. More generally the amazing global rise of China will not continue at its previous pace.
7. There already has been a lot of wage equalization across borders, and that limits future gains from additional cross-border trade. Even though average Chinese wages remain low, actually setting up an export-feasible enterprise in China today cannot be done without paying a pretty severe wage bill.
8. Robots and smart software lower the returns to investing in and trading with lower-wage nations. Put the plant in Texas.
9. The next twenty years may not be as peaceful as the last twenty years.
When you add this all up, globalization as a trend may well have peaked over the last twenty years.
Very good sentences
If savings for cross-sectional out-of-pocket nursing home expense risk were held in the form of vehicles, it is large enough to account for the entire stock of transportation equipment in the United States.
That prize goes to Karen A. Kopecky and Tatyana Koreshkova. That paper was just published in American Economic Journal: Macroeconomics as well.
Assorted links
1. New Chinese mega-city of 130 million? Ho-hum.
2. “Uncle Sam Wants You — Unless You’re 71% of Youths.”
3. Robots are blossoming in China.
4. The new dispute over Janet Yellen has nothing to do with nominal gdp. I call it The Culture that is Georgetown.
5. If gun control is popular, why don’t more Congressmen support it?
6. My 2007 discussion of Thomas Piketty, sort of. And Piketty in R Markdown, and the code is here.
Lee Ohanian on the real wage premium for public sector workers
For the case of the public sector, the probability of involuntary separation is just 1.3 percent, which is one-third as high as the probability in the private sector case. I then calculate the difference in compensation between the public sector (low unemployment case) and the private sector, such that a worker would be indifferent between working in either sector. I find that workers would be willing to work for about 10 percent less compensation in the public sector, given the additional benefit of much higher job security. This estimate is conservative in terms of considering today’s labor market, as average unemployment duration today is much higher than its historical average.
This analysis suggests the possibility that public sector compensation may be significantly higher than competitive levels. Moreover, the fact that public sector workers are only about one-third as likely to voluntarily leave their job as private sector workers is consistent with the conclusion that average public sector compensation rates are in excess of competitive levels, indicating that there are relatively few external employment opportunities that dominate public sector workers’ jobs. The fact that average public compensation is higher than average private sector compensation suggests that public sector worker compensation may be well above competitive levels and indicates that public sector wages could be reduced without significantly impacting public sector employment. For example, I’ve calculated the impact of a 5 percent wage reduction for all public employees in California, a state with one of the most severe fiscal crises in the country. A 5 percent wage cut would reduce state spending by $1.33 billion, which would reduce California’s 2011 state budget deficit by nearly 15 percent.
There is more here, interesting throughout. There is further relevant information here. Here is the news on today’s Supreme Court decision on public sector unions: “Supreme Court drastically curtails public sector unions.”
The Great Portuguese factor price equalization reset
Portugal may have 15 percent unemployment, but that does not mean that Reiter Affiliated Companies, an American fruit producer, can find local people to pick berries on its 76-hectare farm here.
Last year, the company, also known as RAC, began a nationwide recruitment campaign and hired 40 Portuguese. Half quit after the first day. By the end of the week, not a single one was left.
“They wanted a job, but this wasn’t what they were looking for, because it was basically too hard for too little money,” said Arnulfo Murillo, the farm’s production manager. “Farming here isn’t harder than in America, but the big difference is that being unemployed in the U.S. is a lot harder and in no way an attractive alternative.”
Instead, the farm has imported a third of its labor force all the way from Thailand — 160 of 450 employees — a more expensive alternative, but one that has filled its ranks.
Please note people, this is not (mainly) a post about immigration, which is only one possible channel for factor price equalization. The full story is here.
*The Social Order of the Underworld*
The author of this new and excellent book is David Skarbek and the subtitle is How Prison Gangs Govern the American Penal System. It carries rave blurbs from Thomas Schelling and also Philip Keefer. My favorite section was the discussion of how the rate of gang formation in prisons depends on how the prisons are governed (start at p.65). For instance when prison officials cannot reliably protect prison inhabitants, gang membership is especially likely. Gangs rarely operate in UK prisons and when they are do they are usually far less powerful. Some observers believe that indeterminate sentences increase inmate frustration and stimulate gang formation within prisons. Female prisoners in many states, such as California, also do not have gangs in the traditional sense, although they may form into “small families.” Gangs are also more likely in large prisons with many inmates than in small prisons.
A very interesting book, which should be read by anyone with an interest in this topic.
Blackwater in Iraq, and the loyalties of the American Embassy
Everyone else is covering this, still it seems worthy of mention in this space too:
Just weeks before Blackwater guards fatally shot 17 civilians at Baghdad’s Nisour Square in 2007, the State Department began investigating the security contractor’s operations in Iraq. But the inquiry was abandoned after Blackwater’s top manager there issued a threat: “that he could kill” the government’s chief investigator and “no one could or would do anything about it as we were in Iraq,” according to department reports.
American Embassy officials in Baghdad sided with Blackwater rather than the State Department investigators as a dispute over the probe escalated in August 2007, the previously undisclosed documents show.
The full story is here, and also it seems the U.S. government is trying to put that reporter in jail for his work. And here is my 2007 column on Blackwater: “Private contractors may not respect virtue for its own sake, but like most businesses, they will respect the wishes of their most powerful customers, in this case governments. What is wrong with Blackwater may, most of all, mirror what is wrong with Uncle Sam.”
Addendum: The documents by the way are here. Check out p.6, it reads to me a bit less threatening, and more commentary on the chaos of Iraq, than some accounts are making it out to be.
Should we care that Facebook is manipulating us?
Facebook manipulated the emotions of hundreds of thousands of its users, and found that they would pass on happy or sad emotions, it has said. The experiment, for which researchers did not gain specific consent, has provoked criticism from users with privacy and ethical concerns.
For one week in 2012, Facebook skewed nearly 700,000 users’ news feeds to either be happier or sadder than normal. The experiment found that after the experiment was over users’ tended to post positive or negative comments according to the skew that was given to their newsfeed.
The research has provoked distress because of the manipulation involved.
Clearly plenty of ads try to manipulative us with positive emotions, and without telling us. There are also plenty of sad songs, or for that matter sad movies and sad advertisements, again running an agenda for their own manipulative purposes. Is the problem with Facebook its market power? Or is the the sheer and unavoidable transparency of the notion that Facebook is inducing us to pass along similar emotions to our network of contacts, thus making us manipulators too, and in a way which is hard to us to avoid thinking about? What would Robin Hanson say?
Note by the way that “The effect the study documents is very small, as little as one-tenth of a percent of an observed change.” How much that eventually dwindles, explodes, or dampens out in the longer run I would say is still not known to us. My intuition however is that we see a lot of longer-run dampening and also intertemporal substitution of emotions, meaning this is pretty close to a non-event.
The initial link is here. The underlying study is here. Other readings on the topic are here.
I hope you’re not too sad about this post [smiley face]!
Assorted links
2. Why has the Chinese rate of suicide plummeted so rapidly?
3. A guy from Hong Kong objects to Singapore.
4. Is the most rapidly-growing city in America a retirement village? They have rules on how long your children can visit for, and “Golf-cart accidents have killed more people than criminals…”