What's a Résumé?

David Brooks complains that kids today, at least those coming out of elite colleges, are too perfect. A big part of his lecture to prospective employers is about their résumés and cover letters:

If you work in a white-collar sector that attracts highly educated job applicants, you’ve probably been flooded with résumés from people who are not so much human beings as perfect avatars of success....

When you read these résumés, you have two thoughts. First, this applicant is awesome. Second, there’s something completely flavorless here. This person has followed the cookie-cutter formula for what it means to be successful and you actually have no clue what the person is really like except for a high talent for social conformity....

Reward cover letter rebels. Job seeking is the second greatest arena of social pretense in modern life — after dating. But some people choose not to spin and exaggerate. They choose not to make each occasion seem more impressive than it really was. You want people who are radically straight, even with superiors.

I don't want to overstate the case, as traditional résumés and cover letters still play a role in a lot of hiring, but the trend is toward having an initial review of job applications performed not by a person but by a computer, and also toward LinkedIn, a site where employers and recruiters can look for people who may be interested in a position, see their experience, review endorsements, and look for connections who they might trust to give a candid appraisal of how the person is likely to perform on the job. And that's on top of the long-standing issue, "It's not what you know, it's who you know", with roughly 80% of jobs being obtained through connections.

As others have argued, one of the reasons why the graduates of elite colleges have résumés that are similar in documenting certain forms of high achievement is that the colleges have defined those classes of achievement as the path to admission. If colleges and employers change the criteria, applicants will conform to the new criteria.

Would you prefer that applicants have lower GPAs? Ask it, and those students will show up at your door. Do you want them to not have any global travel experience? Ask, and the next batch will assiduously avoid or hide it. If you control something incredibly valuable and name a price, don’t be surprised when those willing to pay show up at your door. Make “experienced a major life setback” a requirement for admission to Yale, and you can be sure that parents will get their kids hooked on meth so that their kids can explain how they struggled with and eventually overcame the problem. Businesses will set up summer meth camps to make it easy. The next David Brooks column will complain about applicants being uniformly perfect avatars of success in this newly defined way. “The I learned I lot from my meth habit” will become the new “I learned a lot from helping those people in Mozambique.”

Brooks also misses the primary reason why arbitrary criteria are used to distinguish between job applicants. Employers cannot interview everybody, so when swamped with applications they will find ways to narrow the applicant pool to a reasonable number of candidates. It may be that the criteria are in many ways arbitrary and unfair, that a job doesn't actually require a college degree or a high GPA to assure good performance, but if you're looking for a quick way to reduce a stack of applications setting a minimum education requirement or a minimum GPA is one way to do it, and may be better than the alternatives. Sure, that may mean that somebody who has overcome significant life obstacles is ruled out, even if he might be a perfect fit for the job, but how can you (or your keyword-scanning filter) identify such a candidate as a promising applicant from hundreds of other candidates applying for one job? Odds are, even if you were to look for it, that information won't even be present in the candidate's résumé or cover letter.

As Brooks has previously pointed out, there's another side to the coin -- the "perfect" résumé may indicate that the applicant is a good cultural match for a job. Now it may be true that getting some new blood, some different ideas, into a stiff and moneyed workplace could actually improve the workplace, that's not necessarily what employers want:

Smart high school students from rural Nebraska, small-town Ohio and urban Newark get to go to good universities. When they get there they often find a culture shock.

They’ve been raised in an atmosphere of social equality and now find themselves in a culture that emphasizes the relentless quest for distinction — to be more accomplished, more enlightened and more cutting edge. They may have been raised in a culture that emphasizes roots, but they go into a culture that emphasizes mobility — a multicultural cosmopolitanism that encourages you to go anywhere on your quest for self-fulfillment. They may have been raised among people who enter the rooms of the mighty with the nerves of a stranger, but they are now around people who enter the highest places with the confident sense they belong.

Back then, Brooks was describing this as the result of meritocracy, with students striving to distinguish themselves through their accomplishments. Now Brooks is arguing that the very same students are not distinguishing themselves, but are conforming to an arbitrary and often meaningless set of standards that may not mean much in the workplace. He may be correct about the standards, but it simply cannot be the case that the students are simultaneously distinguishing themselves and rendering themselves indistinguishable. As Brooks then noted, the brand name of the institution can be more important than the relative qualification of the graduate -- an arbitrary standard that Brooks does not touch in his new essay.

There's a message for employers within Brooks essay that is valuable, and I think it can be boiled down to this: Don't focus on arbitrary criteria instead of figuring out if you're hiring the right person. Particularly with college graduates, odds are you're hiring somebody who is going to grow into the job, who will have to do a lot of learning during his or her early years of employment to become a significant long-term asset to your company. If you focus on other factors, even those that seem objectively reasonable, you can end up with a highly qualified person who simply isn't a good fit with the job, the company, or both.

Law school graduates may appreciate this argument:

You could argue that you don’t actually want rich, full personalities for your company. You just want achievement drones who can perform specific tasks. I doubt that’s in your company’s long-term interests. But if you fear leaping out in this way, at least think of the effect you’re having on the deeper sensibilities of the next generation, the kind of souls you are incentivizing and thus fashioning, the legacy you will leave behind.

In many law firms, being able to document that you are an excellent drone is what gets you your first job, and large law firms require a constant inflow of new drones. You can worry about your soul if you make partner.

Rick Snyder's Missing "C"

Gov. Snyder believes that the state needs to make an effort to attract talented workers to Michigan:

"There are three 'Cs' that are critically important. Collaboration, creation and connection. Collaboration is about working with the private sector to say 'what are your needs today and tomorrow?' The second 'C' is about creating talent, that's the education sector, about giving people the tools to be successful. Finally, connecting those tools."

First and foremost, in terms of attracting and keeping talent, Snyder is missing the most important "C" - compensation. Instead he substitutes determining the needs of the private sector - which I expect translates roughly into, "Getting whatever workers we need for the lowest possible compensation," the opposite of what attracts and retains talented workers. He draws on Econ 101, picturing the job of government as changing the point at which the supply curve (workers) crosses the demand curve (what employers want) - but doesn't really explain what he would do to change the point at which the two lines intersect beyond mentioning a state-run jobs bulletin board. I'm no economist, but here's a nice refresher course on supply, demand and market equilibrium, and the importance of price in eliminating a market shortfall.

Snyder comments on the jobs board, "we have over 60,000 open jobs... and these are good jobs". Not that it's a scientific test, but here's what I just found on that board:

Asparagus Harvester
Todd Greiner Farms Packing, Llc

Job Code Number: 4015674

Job Description: Involves hand-harvesting the asparagus crop while riding a self-propelled personnel carrier. Employer needs 5-7 workers per group. Asparagus harvest will begin around May 1st, and will continue through approximately mid-to-late June. Hours vary between 45-55 hours per week (based on weather and other occurrences beyond employers control). Wages: Piece rate= $0.14 p/lb. for processing and $0.16 p/lb for fresh market. Employer guarantees Michigan minimum wage or $7.40 p/hr. Some licensed housing is available depending on group size. No bonus.

Here's the thing: I didn't go searching through the jobs board for the worst job listed at the worst pay.¹ That job was featured on the front page of the website, the very first job listing under the heading "Featured Jobs".

Other featured jobs include driving a truck for an apple orchard, working as a quality inspector (high school diploma or GED required) with no corresponding job listed through the opportunities section of the company's website, working contracts through a staffing company that sends workers to companies throughout the nation, working as a project manner for a technology company that has a broken job search function on its own website.... I ran a few searches, attempting to filter for the better jobs, but didn't see much that hinted at Michigan's future, let alone a large number of job openings that are unlikely to be filled if the employer is willing to pay the compensation the market demands.

Snyder came out of Gateway computers, so he should have a pretty good sense that even with the best "account management" or "collaboration", no government can save a company from itself. No doubt, Gateway could have used better talent in its later years - but in management, not on the assembly line. Snyder continued to serve on the Gateway board during its final decade of decline, prior to its acquisition by Acer, and briefly served as interim CEO during that period, so he should have a pretty good idea of what a poor job even talented, motivated managers and bean counters can do in terms of anticipating a company's future needs and turning around a declining company. When we talk about running government like a business I'm not sure what business we have in mind, but it's not Gateway.

It's also fair to ask, what can the state actually do in terms of boosting the education sector. Under Synder's tenure the primary "education" focus of the legislature has appeared to be, "How to weaken teacher's unions, reduce their compensation and benefits, and boost for-profit charter schools," which to me doesn't appear to reflect deep concern for the quality of public education. State colleges continue to feel a budget squeeze. If I look at his actions, the governor appears to share the philosophy of the state legislature. How will Michigan's present education policies create talent and, to the extent that it does, why would that talent want to stay in the state? Even if they can find a job on the job search board, many talented graduates going to do what Snyder did - chase the best job, even if it means moving to another state.

Snynder has not fully unveiled his plans, but he did say this:

“We have a number of action items that we’re still putting together and will be rolled out soon. Particularly we’re looking at working within regions at talent connection and making sure that skilled trades are an emphasis.”

That suggests to me that Snyder seeks Michigan's future as involving lower-paid factory jobs. That interpretation seems consistent with the actions of Snyder and the legislature, from its treatment of schools and teachers to the legislative shenanigans behind making Michigan a "right to work" state, but it's the sort of emphasis that seems likely to keep Michigan's most talented graduates looking for jobs in other states, and will keep the best-paying jobs in those other states.
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1. Before you accuse me of cherry picking, I'll note - that job is listed as well, and it also guarantees no more than minimum wage. If you want me to cherry pick, we need to move up to the type of salary John McCain once suggested.

Tax Idiocy on Capitol Hill

Why it only seems like yesterday that a Republican presidential nominee was lecturing us that it would be inappropriate to pay even a penny more in taxes than the government requires him to pay - that doing so would demonstrate that he was unqualified for the job of President. (And a little bit more recently, after he deliberately overpaid his taxes to avoid contradicting a prior claim about the percentage of his income he pays in federal income tax, that the electorate seemingly agreed with him.)

Now, the Senate Permanent Subcommittee on Investigations is concerned that Apple is paying only the taxes it's legally required to pay, and is taking full advantage of the massive loopholes that... yes... Congress wrote into the tax code, or at best has deliberately failed to close, to benefit companies like Apple (and individuals like Mitt Romney).

You know what Congress should do if it's concerned that corporations aren't paying enough tax? I'll give you a hint: It's not "Hold hearings to hear CEOs explain why their companies are not voluntarily paying more tax than the law requires....

Blue Collar Careers Aren't as Easy or Available as Some Assume

I recently had to replace our range, as the old one started to produce error messages and the "cheap" repair didn't resolve the problem. Due to the fact that the original owner of this house picked a downdraft, slide-in range, I went with the most recent model of the same range. My hope was that the new range could be installed in the same manner as the old - the ventilation unit itself that sits below the range hasn't been changed. Alas... the new range was wider than the old range (and we have granite countertops) and the amount of clearance beneath the range has been reduced. So... the vent has to be reconstructed to allow for a slightly different placement of the fan and to allow the power cord to clear the vent duct.

I initially called around to try to find a handyman to cut the granite about 1/2 inch so that the oven would slide into the opening. Of the ten or so contractors I called, less than half called back and only one was willing to do (or should I say, subcontract) the work. He didn't want to send the granite subcontractor along unless he came along and, although the granite contractor was willing to charge a $200 flat fee (I expect that was a marked up rate) he wanted to accompany the granite contractor and charge a fee for the trip out and an additional hourly fee. It became pretty clear during our conversation that it was a package deal - he was not going to send the granite guy out unless he got to tag along, and that his fees for supervising were apt to meet or exceed the fees of the guy doing the work.

I took care of the cut myself - I got a dry cut diamond blade for my circular saw, put on appropriate eye, ear and hand protection and a mask, and kicked up a lot of dust. If you're going to try this at home, don't. Or if you do, I suggest using a grinder with a 4" blade instead of a circular saw, for better control. Or maybe you'll be able to rent or borrow a wet saw. The biggest problem I faced was that the guide for the saw sat over the open space, so I had to keep the saw straight and even by holding it that way rather than simply resting the bottom of the saw on the countertop. A grinder would have allowed for greater visibility of the marked line, would have been easier to control (i.e. it's a lot lighter), and likely would have made for a cleaner cut. On the whole, I'll say "not bad for a first job", but not work I'm going to be showing off to my friends. Not that I would have pulled out the range to show off the cut had it turned out better, but you know what I mean. ;-)

I got the range installed and close to level without replacing the vent pipe, but the other day I decided to complete the job. So I pulled out the range, removed the fan, and then removed an aluminum plate the original installer had placed on the wall around the hole for the vent. What did I find? Basically, the original installer had taken a hammer and knocked away the drywall, initially opening the wall in front of a wall stud and drain pipe, and then opening up a large hole to the right of that opening where the vent was installed through the wall. He had pulled all of the insulation out of that space, and cut/hammered a somewhat irregular hole through the wood and brick to the outside. He then used a dryer vent on the outside of the house instead of a proper vent cover for the range. The only thing he did to "seal" his work was to install a caulk line around the dryer vent - which is a good thing, given that he only sank two screws out of the four that were supposed to hold the cover in place. Well, that explains the drafts we would sometimes feel coming out from under the range....

And then I came across this editorial, arguing that "we" dismiss blue collar professions, but that blue collar work can potentially provide better remuneration than a college degree. Let me state up front that I agree with the overall principle - that if you're a student who has significant aptitude and interest in learning a skilled trade, it's perfectly appropriate to consider a trade instead of college - or to not give college a second thought. But at the same time, the conceit of essays such as this tends to be that college is hard but that anybody can learn and perform a skilled trade. So first and foremost, it's important to note that a lot of people in the skilled trades have associates degrees and bachelor's degrees, or have completed training or certification programs. Many skilled trades are physically demanding, and some are quite dangerous. Also, particularly at the laborer level, there's a lot of competition for jobs, sometimes from people who are willing to work for less than minimum wage.

For all I know, the guy who "installed" the vent for my range was paid less than minimum wage, cash under the table. Or perhaps he was paid a hefty installation fee, and chose to shave a couple of hours off of the job by not finishing the job properly. Or perhaps he was paid a substantial hourly wage and took a long lunch. I have no way of knowing. But I will guarantee that the homeowner paid a premium price for the "work". Expanding the pool of available laborers is not a recipe for driving up both quality and wages. It seems more likely to drive wages down without actually creating new job opportunities. You know... like the situation the author is describing for college graduates.

And the math....

At a time when unemployment is at an all-time high and college tuition continues to climb, the old formula no longer upholds. Students emerge with their hard-earned degrees and the college loans to show for it, but for what returns? The majority do not land a six-figure banking job straight out of school. According to the Economic Policy Institute, wages for recent college graduates have not grown over the last decade, and actually dropped from 2007-11. In 2011, that average was just $16.81 per hour, a figure that barely makes a dent into student debt. The average wage for high school graduates is $9.45 per hour, a figure not much lower than that of a newly-minted university graduate, especially after you factor in tuition costs as well as the four years of being out of the workforce.

First, there was never an era in which the majority of college graduates would "land a six-figure banking job straight out of school". Second, $16.81 per hour is roughly $33,620 per year, and $9.45 is roughly $18,900 per year - and the college graduate likely also gets benefits such as paid vacation and health insurance. $9.45 is roughly 59% of $16.81. The author may not see the difference between those two figures as significant, but... I do.

Blue-collar professionals like electricians are enjoying 23% job growth this decade, according to the Bureau of Labor Statistics. They earn on average $52,910 a year, almost $10 more per hour than recent college grads, and the top 10% earn at least $82,680. Welding, light truck driving and plumbing are just some of the blue-collar fields with similar earning potential, and the vocational training required is a fraction of the cost of a college degree.

First, the fact that the average career electrician makes 10% more than a newly minted college graduate does not make for a strong case that the college graduate was foolish to pursue the degree. Also, you need to consider that union electricians earn considerably more than non-union electricians, roughly $14,000 per year more, and we know which way that trend is going. Further, work as an electrician is physically demanding work. And let's just say, the top 10% of wage earners among college graduates earn a lot more than $82,680. On the whole, plumbers earn a bit less than electricians - and let's not forget that the category includes pipefitters and steamfitters. (Talk to some of those guys about their work-related injuries.) Light truck driving pays roughly $13 per hour, without much of a career path. The "master welders make lots of money" argument isn't particularly new, never mind that a master welder has to work many years to reach that level and will have considerable knowledge of metallurgy, and never mind that you're dealing with high temperatures and molten metal, potentially toxic fumes, potentially explosive materials, and are sometimes performing that work in dangerous locations or cramped spaces. It's "blue collar" so "anybody can do it", right?

If financial freedom is your ultimate endgame, then going into business for yourself can increase earnings exponentially, a message Rich Dad, Poor Dad has been peddling since the beginning of this millennium.

In other words, the author thinks its easy to start and market a business in the skilled trades, based upon the facile analysis of a guy who is really good at hawking books? Hey - the author of the editorial is a freelance writer. How's that exponential increase in earnings coming along?

But do these blue-collar jobs lead to fulfillment? It is certainly an argument I'm sympathetic to. We are told to do what we love; the money will assuredly follow.

I suspect that the author dropped a word or two, and intended to argue that she's concerned that blue collar jobs aren't fulfilling. Well, that's going to depend on the job and the individual performing the job. Also, there are plenty of white collar jobs that are nothing but a grind. If work could be presumed to be fulfilling, they would probably call it something else. Also, I'm not sure who is saying "Do what you love and the money will assuredly follow," but somebody needs to smack them upside the head with reality.

The author concludes,

In this tight job market, we cannot afford to ignore the reality that a college degree is becoming a luxury: one that no longer translates directly to success. It is time we shed our stigmas towards "menial" workers. The irony is that their salaries – and accompanying lifestyles – are anything but.

I'm not aware of any era in which a college degree has automatically translated into financial success, which appears to be the type of success the author is focused upon. Certainly there have been times in the past when college graduates had friendlier job markets and more predictable career paths. Yes, with the cost of college education and the changes of opportunity for college graduates, college (particularly at the tuition rates of private colleges) is increasingly a luxury. Those trends should neither be ignored or diminished, and somebody thinking about college truly should consider, "What else might I do with that time and money that could result in an acceptable career and income?" An approach that is far from novel? Get a job and work while completing your education, borrowing as little money as you possibly can on your path to a degree. If you click with your job, you may even find that you don't need the degree - and if you don't, you are preparing for a future in which you have better options - and work experience.

Technically speaking, we wouldn't shed our... let's say prejudices... against blue collar workers. Yes, some people do look down on blue collar work. I recall a conversation during law school when a classmate, who was moonlighting as a janitor, was instructed by another student that people shouldn't have to do "demeaning" work like being a janitor. (Janitors aren't all that important, you know, because floors and toilets can learn how to clean themselves.) Yes, let's respect that people who work hard for a living deserve respect for their effort, no matter what their job. To me, part of that is recognizing that some of the jobs that fall into the category of "blue collar" require a level of knowledge and sophistication that can meet or exceed that of a lot of jobs that require college degrees, while also requiring significant physical effort and presenting significant risk of injury. Yes, pretty much anybody could have pounded that hole in my kitchen wall, and hidden his lousy workmanship rather than completing the job properly, but that's not the ideal.

As for the conclusion that "[blue collar] salaries – and accompanying lifestyles – are anything but".... I suspect the author means to suggest that they're not insubstantial, as opposed to not menial. Yes, you can make a decent income in certain skilled trades, but those jobs are not immune to recessions, nor are they immune to anti-union efforts. I know a lot of college graduates, and a lot of people in the skilled trades. The former group has weathered the "great recession" without much visible impact. It's harder to find a job if you're unemployed, it's harder to find a new job if you want to change jobs, but on the whole they have kept their jobs and wages. The skilled tradespeople on the other hand... a builder who had to reinvent his business, bringing in significantly lower profits, when the new housing market collapsed in his area. A finish carpenter whose business collapsed, and who ended up losing his home to foreclosure (and he does really good work. A painting, tiling and drywalling team that can't earn a living wage, because they are consistently underbid for work by people who barely know how to hold a paintbrush. They would have done an immaculate job installing that vent, were they around at the time, but... it's not only private customers who want to pay the lowest bid. Try starting and maintaining a business in that environment.

The Federal Government is Not a Business

Matt Miller writes,

It’s hard to know which is stupider: the coming sequester cuts or the arguments being made to avoid them.

He later proposes,

Luckily, even though it looks like Democrats and Republicans have tied themselves into a political knot on the sequester, there’s still a way out. They can simultaneously re-enact a payroll tax cut equal to or greater than the sequester and call it a day.

Which makes it difficult to argue with his initial argument. No, in fairness Miller is engaging in a bit of hyperbole, proposing a "solution" that "would be so perfectly cockeyed, herky-jerky and devoid of anything resembling an economic 'strategy' that it would be a perfect fit for this moment." But given that he started out by treating political hyperbole as if it represented serious policy positions, a bit of turnaround seems fair.

Miller makes a significant mistake, though, when he confuses budget cutting in private industry with budget cutting in government. Sure, there's a simplistic "In a large organization, if you have full discretion to identify and eliminate waste, and to identify and fire the least productive workers, you can maintain or even improve efficiency while cutting expenditures." But that's usually not what happens in private industry, even though private industry is normally far less constrained than government when it comes to making cuts and firing workers.

When I worked as a management consultant as a younger man I was involved in a few cost-cutting efforts at large, admired companies. I knew of many more from colleagues. These were never happy exercises. Some people lost their jobs. But it was a truism that even well-run firms could cut 10 percent (and often far more) of their expenses with scant impact on the quality of their products or services, or on their “seed corn” for the future.

That’s just the way large organizations are. Over time, various accretions of people and activity take place during periods of growth. And that’s in the private sector, where competition and the profit motive act as continuous prods to efficiency (just think of how many firms went through much larger cuts during the Great Recession only to come back stronger). In government, the organizational tendency toward endless expansion is much greater.

Let's note first of all that a lot of the "management consulting" Miller describes is not acutally about identifying inefficiency, reporting it to the company that hired you as a consultant, and letting them act on your report. A substantial amount of that work involves being retained to provide cover for management decisions that have already been made. "Here's what we are going to do. Now go out, analyze our business, and 'objectively' report back to us that we need to make those changes." It's not unlike the rating agencies who rate garbage bonds as AAA because they don't want to lose the work - you do what you're paid to do.

But let's assume that Miller's employer was different from the norm, and all of its clients retained it to provide arm's length reports. "We don't care what you find - just find our inefficiencies and report back to us so that we can make our company more efficient." In such a scenario, Miller's team would spend a great many hours, billing substantial fees, to perform their investigation and analysis, and would provide detailed reports to support their recommendations to management. Does Miller believe that such an effort is being made in every single government agency that is going to be hit by the sequester? Agencies will have, for the most part, made an effort to prepare for the sequester, but under the circumstances we can expect that their preparations are going to be ad hoc, and colored by the hope that the sequester is avoided.

Note also that Miller speaks of "well-run firms" - as if that's the typical client of a management consulting firm brought in to legitimize budget cuts. Let's think for a moment about how various "well-run firms" have managed to save that 10% over the past few decades. Hewlett Packard cut its R&D budget and went from being a well-run firm that led in product design and quality to... pretty average for the industry. Seriously, though, a well-run company might identify factories that could be closed or consolidated, jobs that could be outsourced, product lines that could be eliminated - or marketed more effectively. How much of that does Miller believes applies to the federal government?

If you read on, the answer appears to be "All that, and more!" Yes, let's think about those firms that were "strengthened" by the Great Recession - like G.M. and Chrysler. Heck, AIG isn't doing too badly these days, either. So maybe the solution is a government bailout of the government? Or a managed bankruptcy that allows the government to shut down the least productive states, just as G.M. shed product lines and dealerships. "Sorry, New Mexico, West Virginia, Mississippi, Alabama - we've been subsidizing you too long. And Hawaii, Alabama, Alaska, Montana, South Carolina and Maine - you had better shape up fast!" Maybe we could deport the least productive 10% of the population? We'll be smaller, but stronger, right?

It's important to recall, also, that the sequester is all about numbers, not about efficiencies, and does nothing to create efficiencies between agencies or to overcome politics. A management consultant might say to the government, "You know, you could create a lot of efficiency, reduce staff and cost, and ease the regulatory burden for business if you merged the SEC and the CFTC." I would respond, "I can't disagree, but that is not likely to happen before they start having snowball fights in Hades." The sequester is apt to put pressure on a lot of the wrong places. Miller complains that the government will somehow find a way to maintain all vital functions, such that it's wrong for the President to suggest that any vital functions are threatened, but that's an article of faith. Miller is looking at the government in toto, but not every government agency is presently well-staffed or well-funded relative to its mission.

Miller complains "When independent or Democratic business people in high-tax states such as New York or California hear the president say the feds can’t possibly endure a 5 percent cut but instead need to hike effective top marginal tax rates beyond the mid-50s level to which Washington’s last fiscal deal just raised them, it turns what should be a winning economic showdown for the president into one that leaves influential constituencies wondering if Obama 'gets it.'" Surely Miller does not believe that Obama's tax reforms raised Mitt Romney's effective tax rate to @55%. Or that of California billionaire Warren Buffett. Or that of New York billionaire Michael Bloomberg. I suspect that if you were to show Miller's example to one of those "independent or Democratic business people" they would "get it" - they would tell you that Miller is looking for the most exceptional cases, pointing to them due to their high state and local taxes, to try to confuse his readers about the magnitude of the federal tax increases and into believing that their situation is representative of the nation as a whole. (Assuming they don't chuckle and explain that their "tax guy" is better than Miller thinks.)

If Miller believes that we can easily and harmlessly cut 5% of government spending, without affecting the core missions of the federal government, I think a much better article would be one in which he outlines those achievable budget cuts. Put that "management consulting" experience to good use....

When the Business Community Wants Something Done....

Congress jumps.

Gridlock, partisanship... it all melts away.

12/17/2012 - Introduced in House
12/18/2012 - Passed/agreed to in House: On motion to suspend the rules and pass the bill Agreed to by voice vote.
12/20/2012 - Passed/agreed to in Senate: Passed Senate without amendment by Unanimous Consent.

(Be careful with your privacy settings on Facebook, Amazon, Netflix, Hulu, and the like, lest your video viewing habits be shared with the world.)

Romney's Leadership is About Calculation, Not Experimentation

On the whole, I think Ross Douthat's column on Romney offers a decent summary of the dilemma of electing the man:

If there was a persistent and persuasive theme in his convention address, and in Ann Romney’s as well, it didn’t have anything to do with deficits or taxes or Medicare reform or foreign policy. It was the promise of hard work — work on behalf of “you and your family,” work in pursuit of “jobs, lots of jobs,” work that would “solve the problems that others say can’t be solved” and “fix what others say is beyond repair.”

One can hear in this rhetoric a kind of right-of-center rhyme to Roosevelt’s campaign promise of “bold, persistent experimentation,” his exhortation to “above all, try something,” without necessarily specifying what that something might be.

This parallel is not necessarily an advertisement for Romney. Liberal nostalgia notwithstanding, Roosevelt flailed as often as he flourished, and boldness and experimentation untempered by principle and modesty have been responsible for many more recent presidential failures as well.

But if you’re looking for a best-case scenario for a Romney presidency, you have to hope that his Mr. Fix-It impulses will work out for the best — and that rather than being a model of moderation or a paragon of purity, he’ll be a president who tries, and tries, and ultimately gets things right.

There's no "not necessarily" about it. Although Douthat attempts to emphasize Romney's "CEO" credentials, his criticism of Hoover's failures neglects to mention that Hoover, also, had been a phenomenally successful businessman before becoming President. An orphan at age 9, by 1914 Hoover's fortune is estimated at $4 million - roughly the equivalent of a $90 million fortune today.

Further, in the wake of Nixon's "secret plan" to end the war in Vietnam, the nation has not been very trusting that secret plans exist, let alone that they will work. Asking us to assume first that Romney has a "secret plan" to fix the economy, completely at odds with what he's actually stating that he will do if elected, is bad enough. Asking us to believe we should vote for a candidate upon another layer of assumption (our having first assumed that the plan exists) that the "secret plan" will work? Our nation tends to have a poor memory of history, but I hope not that poor.

Another point of contrast is that, although Douthat apparently sees it as a point for attack ("Roosevelt flailed as often as he flourished"), that was in essence what FDR promised ("bold, persistent experimentation"). If you want to see that in the business world, look at the late Steve Jobs, a man whose flaws have now been extensively picked over, but who also demonstrated a fantastic ability to foster innovation. His mistakes prior to his ouster from Apple were big enough to make his ouster understandable. He took over Pixar with the intention of making computers to movie-makers and, when he realized that his plan would not work, he ended up making movies. He took huge risks when he returned to a floundering Apple, throwing out it's old OS in favor of the UNIX-based OS he had developed at NeXT. He made many mistakes, and ushered in many failed products and ventures. I wouldn't have wanted him to be President but I respect his ability to bounce back from failure, to learn from his mistakes, and to change his business plans when his assumptions proved incorrect.

Mitt Romney, on the other hand, was all about due diligence. That can be a great thing in a money man - analyze the deal, crunch the numbers, and figure out what deals will be profitable before proceeding. If you do it poorly, you end up with a fiasco like the AOL-Time Warner merger or Daimler-Chrysler. If you do it well, you make a ton of money. By all appearances, Mitt Romney was an excellent money man. But that type of work is about avoiding risk - finding the "sure thing". It's about as far from "bold, persistent experimentation" as you can get. There's also some humility in arguing that experimentation is necessary, as it implies that you know you don't have all the answers. Romney takes the opposite approach, implying that he does have all the answers but doesn't care to tell us what they are.

I'm also reminded of President Obama's candidacy, four years ago, when people were arguing that they weren't sure what he stood for. A few commentators, such as Daniel Larison, shouted from the sidelines, "Look at his records. Look at his words. It's no secret what he stands for or how he'll govern." With Romney we're asked not to look at his records or his words, to assume that anything in his past history that is inconsistent with our own beliefs was a sham and that he'll somehow be everything to everyone when elected.

Either way we can apply Obama's borrowed phrase, "The audacity of hope", to the voters who project their own ideals onto the candidate. But while you actually could figure out roughly where Obama stood from his record and statements, you can make no safe assumption about Romney. Even Douthat, trying to build his case, speaks in terms of the odds - what's "likely" - and states his hope for how Romney will govern, but while making what seem to be reasonable comments about Romney's character ("play-it-safe strategy"; "studied vagueness and generic Republican rhetoric; if elected his primary motivator will "be in making his first term a success" - which, translated from politician-speak means his number one priority will be getting reelected) he's really falling back on hope.

Note that the language Douthat asks us to fall back upon to reassure us about Romney,

[T]he promise of hard work — work on behalf of “you and your family,” work in pursuit of “jobs, lots of jobs,” work that would “solve the problems that others say can’t be solved” and “fix what others say is beyond repair.”

is nothing but a series of platitudes. When did we last have a presidential candidate who did not promise all of that?¹ Douthat argues, "One can hear in this rhetoric a kind of right-of-center rhyme" and implied promise to offer FDR-style "bold, persistent experimentation", but only if one wants to. If one looks at the actual words, they're hollow, tired and meaningless. And when you look at the few specifics, such as the promise to "create" over the next four years pretty much the exact number of jobs the economy is already projected to create², it's actually discouraging.

Douthat's projection onto Romney of characteristics inconsistent with anything in his record, the personality of a Mr. Fix-it who tries until he gets things right, as opposed to a careful, deliberate man who got where he is (up to the point that shifts within his party made so many of his past achievements and political positions a liability) through careful planning and the studied avoidance of mistakes.

Douthat's comments remind me of Shimon Peres's assessment of Obama:

Obama is an honest man. He's made some stupid mistakes in the Middle East, but he's learned, and he's a serious man. Before Obama, the American military establishment had no plans, no preparations for Iran; now they do.

That is to say, if Douthat wants a person who studies problems, plans for contingencies, takes chances when necessary, and adapts his approach and policies based upon the outcomes produced, the guy in the White House appears to be his man. The numbers guy he's instead backing has a very different style of management, which is not necessarily a bad thing, but suggests that he will be anything but the type of leader for whom Douthat pines. A Romney presidency is likely to be a studied exercise in mistake avoidance. Not a President "who tries, and tries, and ultimately gets things right", but one who studies and number crunches in order to try to avoid mistakes, and who appears to follow the unfortunate tendency of many business and political leaders to take credit for anything good that happens under his watch while attributing any mistake or failure to other people or to factors outside of his control.

Douthat falls back on a rhetorical tool with which I've become a bit bored, essentially "liberals think this, conservatives think that, they're both wrong." Douthat argues that "On the left, it’s an article of faith that the Republican nominee is effectively a hostage to the [extreme right]". He's confusing the political strategy of Obama's reelection team with what people actually believe. Pretty much everybody I've spoken with on the left agrees with Douthat's sentiment that Romney does little but tell people "roughly what they want to hear", and that you can't draw any inferences from his demagoguery. Their tendency is to assume that his past centrism and ability to work with the Massachusetts Democratic Party better reflects his beliefs than his present rhetoric - the same type of projection Douthat displays, but from a different angle.

Douthat tells us that the political right "may be misreading the import of the Ryan pick" and that the pick also benefits Romney by "transforming a spokesman for conservatism into a salesman for the Romney White House’s agenda". Douthat drinks a bit of the Kool-Aid, arguing that the selection of Ryan is "no doubt a sign that Romney intends to pursue at least some of Ryan’s entitlement reform proposals once in office" - there are reasons to believe that Romney will propose "entitlement reform", but the selection of Ryan isn't one of them. I'm also not seeing the conservatives Douthat describes, any significant population that has become convinced that Romney will tackle entitlements in a serious way. On the contrary, the pick seems to be waking a lot of people up to the fact that Ryan's reform proposals aren't either serious or economically sound. If you want a balanced budget, Ryan's not your man.³

I had a discussion with a conservative friend a few months back in which I expressed discontent with Romney's mendacity and his game of "hide-the-ball" on his beliefs and policy positions, and that if Romney were honest about his beliefs he might reveal a man who was qualified for the Presidency. It was my friend who responded skeptically. I don't have much patience for phonies, but he has next to none. We both agreed on this: If Romney were honest about his beliefs, no matter what they were, it would diminish his chance to become President. Politically speaking, he's better of being a screen upon which we can project our hopes. President Obama was happy enough to allow people to project their hopes onto him, but at least with Obama you could figure out where he stood if you chose to pay attention. With Romney, except with regard to how he managed Bain, you simply cannot know.
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1. I did a quick search and came up with a gem from Dick Cheney in 2004,

Because of the Bush tax cuts, nearly 5 million Americans no longer pay any federal income taxes at all. Families bear a lighter burden, because we doubled the child credit and [decreased] the marriage penalty.

Then a point of pride; now a basis to accuse those very same people of being moochers. Cheney also argued, "To create more jobs, we will work hard to make America an even better place to do business."

2. I've previously poked fun at Romney's secret jobs plan.

3. I remain convinced that the Ryan pick was much more about sending a message to big donors, "We're not going to touch your taxes, even if it means big deficits."

Bitter Pills from Steve Jobs

Steve Jobs' comments to President Obama have been getting a lot of attention, and most of it seems to be critical. I have to say that if Steve Jobs was half as good at taking blunt criticism from others as he was at giving blunt criticism to others, it's no small wonder he was a good business executive. I also have to say that if I were meeting with somebody like Steve Jobs for ideas on how to improve the nation's economy, I would want to hear his actual opinions, not sugar-coated, eager to please, "everything's coming up roses" nonsense. If you want to know what it would take for Apple to open up a manufacturing plant in the United States, it's helpful to know that the CEO perceives a shortage of people with adequate education to oversee workers, and an educational system that is turning out people who are unprepared to be the workers at the plants he would open. His proposed solutions may have been simplistic, and more reflective of his reported propensity to divide people into two camps (the worthy, who will produce ideas and generate wealth, and everybody else) than of viable reforms, but at least you know where he's coming from.

One of the interesting things about major companies is that they have a lot of opportunity to open factories in relatively undesirable locations, with the locals rolling out the welcome mats and competing to offer the most generous incentives. But as the area in which you want to open a plant or put up a large building or warehouse store becomes more desirable, as a general rule, the offers diminish and the obstacles grow. I'm reminded of a Michigan community which had zoned a large tract of land as "light industrial" in the hope of attracting an industrial park, only to have it sit empty. A major retailer made noises about opening a location there - cheap land, close enough to major roads and population centers to be viable. A local store owner who, having spent decades pulling profits out of his store and putting nothing back in, fought tooth and nail to prevent the rezoning and, when it passed, litigated the issue. By the time the dust settled the land was rezoned, but the big box merchant had moved on. In China? The government was behind the redevelopment plan, so it would have happened. (And if the government wasn't behind it, odds are a 'consultant' could have found a way to bribe convince local officials to change their minds.)

Whatever Jobs thought about environmental regulations, I suspect that his objection was more to the inefficiency of local government and the ability of a local business or citizens group to tie things up for years. I suspect he was speaking from comparative experience opening Apple stores in the U.S. versus other nations. And I suspect he was thinking specifically of why the A6 chip was not going to be manufactured in the United States. For somebody in high tech, a six month delay in opening a chip factory may as well be a lifetime. For somebody in consumer electronics, a relatively small increase in production costs can mean the difference between profit and loss.

Jobs was reportedly 'infuriated' by President Obama's "focus on the reasons that things can't get done". That's what you might expect from a man who didn't have to accept excuses from those under him - "If you can't get it done, I'll put somebody else in charge." That's not even the way most industry works, though, and it's certainly not the way our form of government works.

Would I want to reinvent the country in a way that would have pleased Steve Jobs? From what I've been hearing, no, I would not. I believe China would be better off adopting some of our regulations than we would be in adopting their system of... what's the word for a totalitarian state led by a corrupt oligarchy that will treat you like a king if they expect to profit? There's no easy way to avoid problems and delays in rezoning, development and redevelopment that don't trample somebody's toes, and we know how Steve Jobs reacted when it was his own toes that were being trampled.

What's Going On With Netflix

I read today that I probably have an email, buried somewhere in my inbox, telling me that Netflix is cutting itself in half.

For those of you just catching up, Netflix CEO Reed Hastings sent out an email early this morning announcing that the DVD and Internet Streaming services in the Netflix plan would be split off into two separate companies. Netflix will now be all streaming, while DVD’s will be delivered via a new company called Qwikster.

(The changes are scheduled to occur on April 1? Whose idea was that?)

Okay... So I subscribed to Netflix to get DVD's, they added on a streaming service "whether I wanted it or not," revised their pricing to make it less appealing (IMHO) to continue to get DVD's, and are now telling me that if I want what I purchased from them to begin with I will have to do so through the new company? To me, this smacks of a company telling consumers, "Don't worry about what you think you want - we know what you really want." No, you actually don't.

Across the Internet, I see that all's not well at Netflix. Their stock market valuation is half of it was at its July peak, and they're expecting to lose about a million subscribers over the short term. I suspect that the change has a lot to do with their vision of a future in which streaming dominates the market, and that they perceive their continued DVD offerings as complicating their anticipated business model, both in their pricing model and in their efforts to obtain content.

Right now, I don't find the streamable content on Netflix to be particularly compelling, but they have quite a few kids' TV shows and movies such that there's always something that can entertain my daughter in a pinch. I occasionally scan through their streaming options, including the films available in my queue, and typically find that the most compelling content is either stuff I've seen or falls into the broad category of, "That looks interesting... Maybe I'll watch it some other day."

What do I expect from the "new" Netflix? I expect that they'll offer a basic streamed subscription and premium streamed content. I expect that they'll offer pay per view choices that, unlike their DVD service, will be able to offer movies for viewing the same day they're available through other pay per view providers. Why spin off the DVD side? Because you don't really want to have your customers see in their queue that a movie will be available starting in three weeks, at which time they will have a "long wait" before it is mailed to them, if you're going to be offering the same movie by instant streaming for $3.99.

I expect that the past - once Netflix's entire business model - is being pushed into the new company for two reasons: First, all of Netflix's existing customers will be subscribers to the new all-streaming service and, second, the company sees the DVD business as part of the past. Spin it off and let it turn into a boutique-level service on somebody else's watch.

Lessons for CEO's Who Want to be Liked

Will Wilkinson has noticed that life isn't fair... for billionaire CEO's who aren't named Steve Jobs.

As I was watching my social media streams froth with praise for the man in the black turtleneck, it occurred to me that, as lovely as I find Apple's gizmos, Mr Jobs's wealth, like that of other billionaire barons of the information age, was built in no small part upon an intellectual-property regime that I and many others believe to retard progress while concentrating massive rewards upon a privileged few, generating unfair and unproductive inequality.... I endorse [the] point that charity very often does rather less to improve quality of life than selling people ever better products at ever lower prices. But this line of reasoning hasn't convinced very many of us that, say, Charles and David Koch's vast wealth is proof of their successful service to humankind.

There are some obvious retorts:

First, people don't detest Charles and David Koch, or direct wild anti-Semitic conspiracy theories against George Soros, because they're rich, because they ran companies, or for any reason other than how they're trying to use their fortunes to influence legislators and elections. If you could retroactively change the recipients of their contributions, such that the Koch brothers gave to Soros' causes and vice versa, the effect would be to flip the sentiments of those who love and hate them.

Second, while charitable contributions might help a corporation or CEO deal with public relations problems, or even to rehabilitate their public image, for the most part people neither know nor care about a particular corporation's charitable activities. You're more likely to get a strong reaction to corporate "charity work" if it is revealed that what corporation is portraying as charity turns out to be a thinly veiled measure to expand its markets and market share, to advance its lobbying goals, or some other form of self-interested behavior.

Third, few pay attention to the CEO's of the world. Most people don't know or care who runs any given company. When does that change? When there's a scandal or problem that results in media attention. Why does Steve Jobs get good press, while peole like Ken Lay, Jeffrey Skilling, Conrad Black, Bernie Ebbers, Dennis Kozlowski, and Bernie Madoff get bad press? In no small part because Jobs hasn't looted his company, committed massive financial fraud or other crimes, and ended up being criminal prosecuted, convicted and/or jailed.

Wilkinson also forgets how the public perception of Jobs has changed over the years. Jobs wasn't a nationally beloved figure when he was forced out of Apple, and both he and his company were viewed with skepticism when he returned. For that matter, Wilkinson forgets how the public perception of Bill Gates has changed over the years. Gates received considerable praise and acclaim during the rise of Microsoft, and even through the era when, under his leadership, Microsoft stopped innovating in favor of producing products that mirrored the functionality of other people's innovations, then using anti-competitive tactics such as bundling in order to crush their competitors in the marketplace. Although the Bill and Melinda Gates Foundation has helped establish Gates as a philanthropist, and it does appear that Gates wants the public to appreciate his genius, it's never been clear to me that Gates has <em>personally</em> cared whether the perception is that he's a benevolent genius or an evil genius. As a family man, though, he had to start thinking about the impact of his reputation on his family and, frankly, you or I would feel the pinch from a $100 donation far more significantly than Gates has felt the pinch of his $billion+ contributions.

The number one lesson for CEO's is probably to stay out of the public eye. Run your company adequately, avoid major scandals, and retire with your billions. But let's say that you are running a large company, look at Steve Jobs and turn green with envy. What can you do?

1. Start By Doing Your Job

When you look at your stock market valuation and say, "My job as CEO is to bring new value to this company," do your thoughts immediately turn to, "So how do I rent-seek from local, state and the federal government, get massive subsidies, talk up my stock to investment houses, leverage any monopolistic advantage my company enjoys, and otherwise game the system," or do your thoughts turn to, "How do I innovate, create new products and services, improve existing products and services, and increase value to the consumer?" With due respect to the modern idea that a CEO's primary job is to pimp the stock, the public will like you better if you build wealth through innovation.

Don't play the "whocouldaknowed" game. "Whocouldaknowed that if we neglected quality for twenty years, we would go from being the world's number one manufacturer to being bankrupt?" "Whocouldaknowed that 10-20% annual inflation in housing values reflected a bubble?" Since you ask, when that question is applied to your industry, you could have known. Unless we're talking earthquakes and tsunamis, in which case it's your job to be prepared, it's your job to know. You don't think you're paid enough to understand your industry and the competition? C'mon.

2. Present Yourself in a Positive Manner

Don't wait for the press to come to you. You need to go to the press, on your terms. Work with public relations professionals to create buzz and excitement about your company, its products and services. Even when creating that buzz, try to under-promise. Then when you step before the cameras to unveil the genius of yourself and your company, do your best to over-deliver.

If you deliberately take actions that you know are going to alienate millions of people, stop and think about whether you're going to be happy only being liked by some percentage of the remaining population. If the answer is "no," consider putting off your actions until after you leave your company, or finding a different means to your desired end.

3. Perhaps You Need an Alter-Ego

Let's face it. If you're a successful CEO you're probably not the nicest, warmest person in the world. You may be a world-class jerk. That's not the face you want to show to the public. Look for an archetype that works for your industry. Kindly grandfather, cool uncle, something that will resonate with the public. That's the face you need to consistently present to the public. You can't do the cool uncle with wire rimmed glasses and a black turtleneck who doesn't visit very often but, when he does, always brings the coolest presents - that's been done. But you get the concept, right?

4. Perhaps You Need... A Funny Suit, or Clown Make-Up?

Perhaps due you your appearance, personality, industry, or other factors you need to take the alter ego thing a step further. You can't make a silk purse of of a sow's ear - or maybe you tried to convince your customers that you in fact had created "sow's ear silk" and that's why you have a public relations problem. Perhaps you want to benefit your company by having a Steve Jobs-type public perception of the corporation's leadership and, despite being a warm, telegenic person, you recognize that your tenure won't be long enough for the company to truly benefit from making you its public face.

Quickly: Who is the CEO of KFC? Who is the CEO of McDonalds? Who is the CEO of Wendy's? The average consumer is probably thinking, "Colonel Sanders, Ronald McDonald and Dave Thomas," never mind that two are deceased and the third is a fiction. Dave Thomas didn't become the public face of the company until a number of years after he resigned from leading the company. Harland Sanders was never in the military and didn't start wearing his trademark outfit until he was 55. If you can create an effective fictional face for the company, even if it's a fictionalized version of "you", you may find that your public image persists far beyond your tenure with your company.

5. Don't Claim Accidental Successes as Great Personal Achievements

You're the CEO and are stepping forward as the public face of your company, so you get to claim credit for your company's work. But if your company has not done anything noteworthy, an increase in profits due to government subsidies, war, natural disasters, and the like isn't something the public is apt to see as a great accomplishment. Ask yourself, do you actually contribute anything to your company? You may tell yourself that nobody else can do your job, but the odds are overwhelming that it's not true - and even if it's true right now, it won't remain true. Had somebody other than you been CEO of the company, what would be different? If the answer is "nothing", you're nothing special.

6. Be Special

If you want the world to think that you're special, prove that you are special. Let's take a look at Steve Jobs: He started a computer company out of a garage that helped bring about the era of the personal computer, spearheaded the development of a GUI-based operating system that led to a transformation in the way people interact with technology, when forced out of his company started NeXT and acquired Pixar, sticking with the former until he returned to Apple and (in the face of considerable skepticism) rolled the technology into a next-generation operating system and sticking with the latter through its transition from an unsuccessful computer hardware company to a highly successful animation studio, then produced innovations in the manner in which people buy music, in the music player, and ultimately in the cellular phone and tablet computer technology, with the rest of the market playing catch-up and producing copycat devices. You... did what, again?

7. Stop Letting the Bean Counters Define Your Business Model

Steve Jobs has a wonderful list of successes, but he also has a long list of expensive failures, both in terms of product releases and business decisions. Apple gave up market share with the Apple II because he didn't want to market it to small businesses, but the Apple III was a colossal failure. Outsourcing the development of key portions of its GUI OS to Microsoft, without a non-compete? Major fail. Apple computers were bigger and boxier than a lot of competing products because of a fixation on design - with a well-designed computer having no need for a fan. Do you recall the first Apple "portable" computer? The Lisa. The Newton. Not bouncing back from the Newton and letting other companies create then dominate the PDA market. But when you look back on a lot of Apple's discontinued products or failures - those that occurred under Jobs, not those attributable to John Sculley - you often see the kernel of what is to come. Cutting edge stuff that's hitting the market too early, or at too high of a price point, but which ultimately becomes commonplace.

Do you want to lead your company into making the mistakes of a Sculley, focusing on limiting the experimentation and innovation of somebody like Jobs and ultimately forcing him out of the company? Do you want to be like Bill Hewlett and David Packard, whose investment in HP Labs made the company an innovated and market leader, or a Carly Fiorina who presided over what appears to be an era of outsourcing, R&D cuts and reduced quality control in the name of short-term profits? Do you want to be like Dell, so focused on cost-accouting and increase margins that you don't even realize that you're giving away the core of your business? Maybe your company can't afford to make mistakes on the same scale as Steve Jobs, but don't expect to be as famous or to have successes on the same scale if you eschew quality and innovation in favor of risk-avoidance and short-term profit.

8. Recognize When It's Time to Give Up

Sad to say, some industries and industry practices simply aren't compatible with your having a great public image as CEO. For example, if your company makes its fortune by chopping the tops off of mountains to extract coal, leaving behind a poisoned, scarred landscape, odds are you're better off keeping your head down. "That's not fair", you say? "Steve Jobs hasn't made much noise about it, but under his leadership Apple has taken advantage of tax breaks, funneled revenues through overseas shell companies to avoid taxes, used cheap labor in Chinese factories, and appears to have concerned himself with environmental issues only to the extent that there's a P.R. advantage"? Who said life was fair?

The Hiring Is Happening.... Overseas

BusinessWeek offers an analysis of "Why the Private Sector Still Isn't Hiring", claiming,

"I'm not going to bet on the economy," says Merchant, 47, Hope Global's CEO since 1999. "I'm not putting in people believing it's going to happen. It's got to happen first." Meantime, she's "taking care of the people who are here" by restoring a 5 percent pay cut and benefits such as paid holidays.

Merchant's attitude mirrors those of CEOs across the country. They want to make sure the economy is growing robustly before they commit to new hiring. Yet the economy won't achieve liftoff unless consumer demand picks up, and that won't happen until unemployment falls.

The article continues by discussing what it means for Hope Global to "not be hiring":

Hope's advantage is its ability to shift production to low-cost countries when price is a big issue. It does that now with the SUV cargo nets. Workers at the Rhode Island plant, who earn more than $11 per hour, produce the basic material, then send that to a plant in Leon, Mexico, where workers making about $3 an hour hand-weave the finishing touches. The nets are then sold to auto parts suppliers.

If Merchant hires this year, it will be largely at Hope Global's plants abroad. She added 20 workers in Mexico in December. If the economy picks up, she hopes to open a plant in Shanghai to make knitted steel that's used to reinforce the rubber seals of car doors and trunk.

In other words, her company is hiring - just not in the U.S. - and contrary to the article's thesis a strong rebound of the U.S. economy won't cause it to hire domestically but instead it will open a new plant in China.

That approach is far from a surprise in this era of globalization. She can produce products with a much higher margin in her foreign factories, and hopes to sell those products in the domestic market. If she's lucky, her products will find growth markets overseas, and she will be able to generate significant profits for her company even if the U.S. market remains stagnant. Her company may be small, but large companies think the same way. If their biggest opportunities for expansion and higher margin sales lie overseas, odds are that's where they'll do most of their hiring and expansion.

Facebook's Value

Given that I've commented on the movie, The Social Network, and peripherally on Facebook, I may as well share my thoughts on the value of the company. (I'll concede up front, the company is worth vastly more than these thoughts.)

Facebook's present reported revenues and earnings easily justify a seven figure valuation. As Fred Wilson pointed out a couple of years ago, if Facebook were to significantly scale back its staff and operations it would likely be able to show both an impressive profit and continue to grow. Expenditure beyond the minimum has since helped Facebook continue to expand its subscriber base, come up with new ways to generate revenue and cement its status as the dominant social network. The others seem fairly categorized as niche players and has-beens. (No offense, MySpace; you're a respectable site but it's "innovate or die" time.)

The gargantuan infrastructure investment made by companies like Google and Facebook also help them secure their position against startups. By the time a startup is ready to ramp itself up to be a possible competitor, they can either come up with investors willing to pay tens or hundreds of millions of dollars to carry them to the next level, or they can put themselves on the market. If they sit and think about what to do next, somebody else will eat their lunch. Bloglines was a really cool service when it first came out; now it's toast, with Google's Blogsearch having offered a better interface and superior functionality, and Facebook and Twitter reducing the number of people who rely on rss feeds as opposed to their "Wall" or Twitter feed for the latest buzz. In an early scene in The Social Network, Zuckerberg posts to his LiveJournal blog... and I realized that it's been years since I even gave that once dominant site a second thought.

That said, there's a ceiling on how many active users Facebook can accumulate, and a lower ceiling on how many active users will actually return value for the company. That is to say, there are only so many people in the world and not all of them are viable targets for advertising. Back in the early days of the Internet a lot of attention was given to how many "eyeballs" a site generated, with the assumption that any given set of eyeballs was of approximately equal value. We now know better. And while it's true that Facebook has become for a huge number of people their doorway to the Internet, and many never leave its confines, the same was true of AOL. Surely, Facebook has examined and learned from AOL's collapse, but you can only learn so much. Recall also that AOL's fantastic market valuation was premised upon the potential of its huge subscriber base, but they had no actual or even theoretical business plan that would have justified their valuation if broken down to a per-subscriber figure.

Facebook also reminds me of YouTube, by all means a dominant video site and a great brand, but a site that even with Google behind it has difficulty demonstrating its value. When I look at the technology Google has developed around YouTube, and the lessons it learned when high demand for certain videos almost brought down its network, I can say that it wasn't as bad an investment as many suggest. It helped prepare Google for a high bandwidth future and for its inevitable entry into commercial streamed video, as well as providing an impetus to improve its voice recognition technologies (among others). But had YouTube not found Google as a suitor, or had it been purchased by a company with lesser resources, it likely would have collapsed under its own weight. Would AOL have been able to carry those losses had its bid prevailed - and would AOL still be around as an independent company had it tried? Would Microsoft have been willing to perpetuate YouTube, or would it have simply merged it into its own video service?

Google's CEO recently expressed that he wants Facebook to share its data - and that there are other ways of getting the data if Facebook won't share. The biggest advantage YouTube has is that pretty much "everybody" who is online has a Facebook account. Its competitors are eager to take that advantage away. I don't think Google is particularly concerned with building a Facebook killer or with the competition offered by Facebook in its present form, but perhaps that's another lesson of YouTube - keep FaceBook in its place, groom it as a partner, and operate from a policy of containment. Let them figure out how to improve their low returns per member and per pageview while you focus on operations that offer a significantly greater return - and partner with them so as to become both a needed revenue stream and to keep them from developing competing products within those areas of profit.

When I hear a ten figure valuation for Facebook I think, sure, that's realistic given its position, revenues, and barriers to entry. As the valuation creeps toward or into the eleven figure range, though, I admit skepticism. (Others are less skeptical, but they seem to assume that Facebook's business will grow in a vacuum. As Google demonstrated with Google Buzz, it can expect that its competitors will act aggressively to create competing social networks, and with its acquisition of SocialDeck, they will also act aggressively to both control and to be able to offer on their own sites some of Facebook's more compelling content.)

Corporate Welfare is Better Than Corporate Bailouts?

I've commented before on Thomas Friedman's fetishism toward China. Alas, we live in a short-sighted democracy while they live in a far-sighted dictatorship. You know the drill. Back in 2005, Friedman includes Ireland on his short list of countries we needed to be concerned about. Wow, only five years ago he saw Ireland as a challenger to the U.S. as a destination for "premier U.S. companies, such as Intel and Apple, [when] building their newest factories, and even research facilities". Today, Friedman's argument remains the same - it's just that he's quietly dropped Ireland from his list of challengers to U.S. supremacy.

We are the United States of Deferred Maintenance. China is the People’s Republic of Deferred Gratification. They save, invest and build. We spend, borrow and patch.

And this contrast is playing out in the worst way — just slowly enough so the crisis never seems acute enough to take urgent action. But, eventually, infrastructure, education and innovation policies matter. Businesses prefer to invest with the Jetsons more than the Flintstones, which brings me to the subject of this column.

Let's see... The Flintstones... Six original seasons, numerous spin-offs, TV movies and specials, a few live action movies, and Fred and his gang are still sufficiently famous to sell cereal. The Jetsons, a space-age repackaging of the Flintstones. Only 24 original episodes followed by an unsuccessful attempt at a revival in the mid-80's and a much smaller set of movies and specials. Sure, it was a bon mot, but the joke would work better if The Flintsones weren't, in actuality, the better investment.

One of the things you have to consider when discussing a totalitarian state is that the government has a vested interest in making itself look better. As commenter CWD is apt to note, it turns out that back during the Cold War the USSR wasn't very honest about its productivity and capacity. Yet today, people like Friedman would have us take China at its word. A nation that continues to grind down dissent, censor, and stifle the spread of information should be taken at its word, right? And it says that it is building great infrastructure that will carry it into the future? Let's not worry that we're being sold a bridge in Shanghai. Concrete reinforced with... is that styrofoam? And garbage?

China is literally insisting, "The bridge is safe". But perhaps it's a better metaphor for the choices companies are making than "The Flintstones vs. The Jetsons". How much trust do you have in that bridge? How much faith do you have that it's an isolated mistake? Like putting DEG in toothpaste, melamine in pet food, or using lead paint in children's toys. "Danger, Will Robinson." Maybe Friedman has confused The Jetsons with Lost in Space.

I won't deny the significant element of truth behind Friedman's concern. The United States has not been good about investing in its infrastructure and preparing for its future. China has been building and expanding an educational system that it believes will help it advance in the future, while the U.S. K-12 system focuses largely on the lowest common denominator and its colleges are financially squeezed. But even as he glides around Shanghai in a hired car, the driver of which is no doubt instructed "Don't let the American see the bridge made out of garbage", Friedman misses the fact that China has a lot of problems of its own. It is willing to effectively throw away a generation of workers to man the sweatshops that churn out cheap goods for foreign companies and, while it does cherry pick students it believes will excel academically or athletically for specialized education and training, it's not so clear that you get the same benefit from a scientist whose career was chosen for him by the state as you do with a scientist who was personally drawn to the subject, even if he gets A's on all of his exams. There actually are benefits to living in a free society.

Friedman also misses the point when he parrots the complaint of Intel's CEO,

A new semiconductor factory at world scale built from scratch is about $4.5 billion — in the United States. If I build that factory in almost any other country in the world, where they have significant incentive programs, I could save $1 billion,” because of all the tax breaks these governments throw in.

When the promise of a new plant is on the line, U.S. states scramble to give tax breaks and incentives to companies like Intel, arguably well past the point of fiscal sanity. It's understandable why the CEO of a corporation wants to not only continue to enjoy that "competitive" environment, but also to demand a $billion or so in additional incentives, but be real. State and local governments don't have the money, and if they did they would be guilty of the "spend, borrow and patch" approach Friedman just criticized.

Not surprisingly, the last factory Intel built from scratch was in China. “That comes online in October,” he said. “And it wasn’t because the labor costs are lower. Yeah, the construction costs were a little bit lower, but the cost of operating when you look at it after tax was substantially lower and you have local market access.”

So an up-front subsidy, virtually no tax on the operating plant... is there anything else on the CEO wish list?

With the generous research and development tax credits and lower corporate taxes they receive, Intel’s chief competitors in South Korea basically have “zero cost of money,” said Otellini.

Free money.... Why isn't this plan sounding like it's sustainable. (How's Ireland doing these days, again?) Seriously... when it was union states versus "right to work" states, we were told that the solution was to undermine the unions. Then it was "right to work" states versus Mexico. Now it's Mexico versus India and China. "Titans of industry" like Intel's Otellini will inevitably chase the lowest cost plants and labor. Sometimes, when a profitable, multi-billion dollar company comes to you and says, "To stay competitive in the future you must give us $1 billion up front for building our plant, freedom from business and property taxes once our plant is built, interest-free loans to pay for construction and operation, and don't even get me started on environmental regulations," the proper response is, "Enjoy building your new plant in China."

Even after hearing Intel's, "I want a free lunch - and I want to eat your lunch as well" position statement on its future construction plans, Friedman remains credulous, quoting Otellini, "'Something has to pay for' everything government is doing today". The key point being, that "somebody" is not going to be Intel or Otellini. Friedman writes,

We had to do the bailouts, the buy-ups and the jobs bills to stop the bleeding. But now we need to focus on the policies that spawn new firms and keep our best at the top.

Perhaps the $billion or two that Otellini would demand to build a U.S. plant could be better invested in infrastructure improvements, education and encouraging start-ups. Because, you know what? There's always going to be somebody who's willing to offer Intel a better deal for its new plant, and it doesn't actually serve us or help us build a sustainable future to participate in that type of race to the bottom.

Don't Save The Dealerships

There's an old joke that, had Congress followed its present practices at the time, we would still have (heavily subsidized) local blacksmith shops.

Faced with a sharply reduced market for new automobiles, and creaky, oversized dealer networks that are protected by state franchise laws, one of the key benefits Chrysler and GM sought through their bankruptcies was to reduce the size of their dealer networks. In my opinion the deal was too protective of dealerships. Don't get me wrong - I like the dealership where I last purchased a vehicle (as much as one can like a car dealership), and I like the service I receive at the dealerships where we get our cars serviced. There's value to the brand, and (if they're doing their job) to having the manufacturer protect its brand by requiring certain levels of quality and consistency in the level of service provided by authorized dealers and service centers. But a huge part of the current customer-dealer encounter - most notably picking out (settling for) a vehicle from the lot, negotiating price (and wondering if you were given a reasonable deal) - are relics of an era gone by.

There's no reason why a customer should not be able to customize a vehicle online. In fact, before you get to the dealership and find out that the configuration and color you want aren't "on the lot", pretty much every manufacturer lets you "build your own car" online. Why, as a matter of course, can't you order that car through the manufacturer's website, or get competitive bids from dealers within a specified geographic range? We tolerate what amounts to bad customer service in the sale of new vehicles because we're used to it, but can you imagine a new business that tried to impose a similar model?

Congress, in the manner of the aforementioned joke, wants to take us backwards:

The bankruptcy cleared the way for GM and Chrysler to eliminate more than 2,000 dealerships, with GM estimating that it would save $2 million per shuttered outlet. But on Thursday, the House passed a measure, attached to a must-pass spending bill, that largely undoes this vital reform. Headed for likely passage in the Senate and unavoidable signing by the president, the bill lets dealers threatened with closure take GM and Chrysler to arbitration on terms considerably more favorable to dealers than the companies had previously been willing to accept. The result will be hundreds of time-consuming cases - or demands by dealers that the companies pay them to go away. Either way, the taxpayers, who own most of GM and much of Chrysler, will bear the cost.

I have a great deal of sympathy for dealers who were running profitable enterprises (even if more from the sale of used cars and service than the sale of new cars) who are losing their franchises. Just as I have sympathy for the guy who profitably sold buggies before horseless carriages put him(and the village blacksmith) out of business.

Keep in mind also what this same Congress would do if this were workers asking for job protections - "Don't let GM close our plant. Don't let GM cut our hours." That would be quickly dismissed as interfering with the business strategies and profitability of a corporation. With due respect for Congress's greater sympathy for corporate subsidies (or perhaps it's the greater efficacy... or deeper pockets of corporate lobbyists), this is another side of the same coin.

Put Steve Jobs In Charge of Everything!

A few months ago, that was a favorite solution for certain pundits - e.g., "We need a Steve Jobs for the auto industry". Today, after raising some valid points about the financial crisis:

We're still in the Neville Chamberlain phase when it comes to the economic crisis. The government is talking about sacrifice and solutions, but it hasn't yet made the tough decisions that will put the economy back together. Economist David Smick had it right in The Post this week when he said the administration had a three-pronged strategy: delay, delay and delay. The administration announces a rescue package but doesn't deliver details; it promises budget discipline but saves the hard decisions for later.

Ignatius suggests that the problem is that we don't have enough "business leaders with experience managing large organizations in crisis" in government. I'm sure it's as easy as stopping by the House cafeteria....

I'd like a Steve Jobs for the Commerce Department, and a Steve Jobs for Treasury, and a Steve Jobs for State, please. And a side of freedom fries!

Order up!

I'm kidding, of course. You can't buy freedom fries there any more.

Seriously, though, if we had wonderful examples of "business leaders with experience managing large organizations in crisis", do you know where I would put them right now? In business. To run faltering financial firms and banks, the faltering auto industry, one of many faltering retailers, faltering real estate and construction businesses.... There's lots of opportunity for these magic men. But oddly, there don't appear to be many of them.

I'm willing to hear Ignatius identify some of the people he proposes as becoming the magic men of government. But you know, he doesn't even name Steve Jobs. He instead suggests we need the equivalent of "Winston Churchill arrived as the avenging angel" - but last I checked, Churchill was a politician.

I would also like to hear Ignatius explain why he believes that "business experience" is better for people who run government agencies than, say, government experience. Why he would deem the CEO of AIG more competent to run government than the administrators who have bailed out his company? Where does he stand on somebody like Robert Rubin - why not mention Obama's receiving advice from a guy who was "good enough" to get compensation reaching into the hundreds of millions from Citigroup - isn't he a glorious example of somebody with the business creds to lead a financial industry turnaround? What of the dynamic duo of "businessmen", G.W. Bush and Dick Cheney, who led the country into this hole - Ignatius still perceives a glorious return from their "business experience"?

Let's say we put, say, Jamie Dimon in charge of the financial industry bailout - among the industry giants, he's arguably the financial industry CEO who did the best job in the years leading up to this crisis. What solution does Ignatius imagine that Dimon would serve up?

Really - if I'm to accept that there's a line-up of skilled business leaders, ready to take charge and quickly fix everything that's wrong with government, can we have at least one name? Can we hear about at least one strategy change that they would implement?

Obama administration officials are understandably nervous about taking a leap in the dark - imposing emergency financial measures that could mean bankruptcy and nationalization for big automakers and giant banks. I hope they will find more creative, market-oriented approaches that break up the giants rather than patch them together under government ownership.

No, I guess we're left hoping for a miracle man with a miracle cure.

Ignatius highlights a big part of the problem - nobody knows what will or will not work, and there's serious concern that proposed cures at best throw good money after bad or may make things worse. But there are no business leaders sitting quietly on the sidelines, ready and able to bring about a miracle cure but for the politicians who are leading the government.