Slow Progress....Faster Regress

Two interesting stories today that show manufacturers paying attention to the use and disposal of their products.
Agreement on Cell Phone Chargers in E.U... “Old chargers currently generate several thousands of tons of waste a year,” said Guenther Verheugen, the E.U. commissioner for enterprise and industry. On Monday, the European Commission, the European Union executive, said that it had reached a voluntary agreement with some of the biggest names in the electronics industry to introduce a common charger for cell phones that fits all models. Chargers had become a problem because “almost every household has a collection of chargers that have become superfluous over time” and because “old chargers currently generate several thousands of tons of waste a year,” said Guenther Verheugen, the E.U. commissioner for enterprise and industry. New phones configured to use the standardized chargers should be available in 2010 and they would work on the basis of “micro-USB connector” technology, Mr. Verheugen said, adding that he expected that technology to become a global standard and to spread to other consumer electronics like computers and cameras in coming years. The new technology could mean chargers would eventually be sold separately from new phones. Supporters of the initiative suggested that it could save consumers money as well as help cut waste...

A Green Way to Dump Low-Tech Electronics... This month, Edward Reilly, 35, finally let go of the television he had owned since his college days. Although the Mitsubishi set was technologically outdated, it had sat for years in Mr. Reilly’s home in Portland, Me., because he did not know what else to do with it, given the environmental hazards involved in discarding it. “It’s pretty well known that if it gets into the landfill, it gets into the groundwater,” he said. “Its chemicals pollute.” But the day after the nationwide conversion to digital television signals took effect on June 12, Mr. Reilly decided to take advantage of a new wave of laws in Maine and elsewhere that require television and computer manufacturers to recycle their products free of charge. He dropped off his television at an electronic waste collection site near his home and, he said, immediately gained “peace of mind.” Over the course of that day, 700 other Portland residents did the same. Since 2004, 18 states and New York City have approved laws that make manufacturers responsible for recycling electronics, and similar statutes were introduced in 13 other states this year. The laws are intended to prevent a torrent of toxic and outdated electronic equipment — television sets, computers, monitors, printers, fax machines — from ending up in landfills where they can leach chemicals into groundwater and potentially pose a danger to public health. The Environmental Protection Agency estimates 99.1 million televisions sit unused in closets and basements across the country. Consumer response to recycling has been enormous in states where the laws have taken effect. Collection points in Washington State, for example, have been swamped by people like Babs Smith, 55, who recently drove to RE-PC, a designated electronics collection and repurposing center on the southern edge of Seattle. Ms. Smith’s Subaru Outback was stuffed with three aged computer towers that had languished in her basement after being gutted by her teenage sons, who removed choice bits to build their own souped-up computers. “It’s what geeks do,” she said. Since January, Washington State residents and small businesses have been allowed to drop off their televisions, computers and computer monitors free of charge to one of 200 collection points around the state. They have responded by dumping more than 15 million pounds of electronic waste, according to state collection data. If disposal continues at this rate, it will amount to more than five pounds for every man, woman and child per year...

The question is - when will the industry really use the "re-use" methodology and "make products modular so that only some parts may need to be changed or upgraded? Many appliances including ovens are discarded because of a few malfunctioning components, or because the owners are tired of its looks. Freshening up, without an wholesale plastic or metal uplift, is what is needed.

NOT 'financial' engineering

From NYT...
"General Electric will build a research center that could bring more than 1,100 jobs to Michigan, the company announced Friday. The center, called the Advanced Manufacturing and Software Technology Center, will be about 25 miles outside Detroit in Van Buren Township. G.E.’s plan is to hire engineers and scientists in the region who have been put out of work by the shrinkage in the auto industry. G.E. said that it would invest about $100 million to build the site and that it would benefit from more than $60 million in state incentives over 12 years. “We’ve found the state of Michigan to be aggressive and a good partner,” G.E.’s chief executive, Jeffrey R. Immelt, said at a news conference with Governor Jennifer Granholm in Birmingham, Mich. “We view this as a long-term commitment. We’ve looked at this downturn as a way to launch more investment faster.” The center will include renewable energy components like wind turbines, said Mr. Immelt, who is on President Obama’s board of economic advisers. G.E. is the biggest United States maker of wind turbines. Existing space on the site will be used to develop software and health care information technology, G.E. said..."

Given the incentives GE is not putting much at risk, but it is a good start. This project will need engineers- the mechanical, chemical and electrical kind, not the financial ones who brought a lot of grief to GE.

Twitter and Facebook

Twitter apparently is developing options for twitterers to make their tweets "private" - i.e. available only to their followers. OTOH, Facebook, which so far kept a user's status messages and other posts private, will now make them public, by default, if the user's profile is public. The user can change the preference to private. Looking at the posts on Facebook, one can see why the country is struggling- so many people wasting so much time posting absolutely inane stuff...

Debit or Cash?

Anyone going through the checkout lines at stores has observed that more people are paying with cash compared to the situation two years ago, when "charge it" was the mantra. Further, more people are also using debit cards now. There is an article on NPR.com about the use of debit cards and the assumption that these cards have the same consumer safety protection as those of the credit cards.
It is such a challenge to protect one's hard earned money..

"Steel"ing for a Long Grind

Nucor is one of the better run companies in the USA, over the years. Specializing in hot rolled steel and other steel products produced using mini-mills, it has established itself as the most efficient steel producer in the country.

Recently, its CEO Daniel R. DiMicco, gave his frank assessment of the U.S. market conditions at the American Metal Market's Steel Survival Strategies conference. It is an excellent read. Some points that he makes: (excerpted from the AP report)

• He dismissed recent price increases as nothing more than a bump from falling inventories and suggested steel makers face as many as six more years in the doldrums.
  
• "We are in for a prolonged and slow recovery. Make no mistake about it. You best be prepared for it if you're going to be a survivor."
• "Green shoots? You don't know if those green shoots are poison ivy or corn," DiMicco said.
  
• "This will be the longest jobless recovery in U.S. history ... the granddaddy of all jobless recoveries. I'm afraid we are 'plateaued' out."
• Given the long-term nature of a global economic crisis, one that DiMicco said has left the U.S. with a real jobless rate of about 16 percent, steel makers must address the core problem of overcapacity.
  

It is heartening to see a CEO being realistic with the macro assessment.

"Scorching Hot"

I arrived at Delhi this morning and the air temperature was over 100 degrees F. Locals have told me that there has been no significant rainfall this year and even for them this is a warm oven. Lot of concrete, lot of construction,...consequences do follow.

The "moral" values...

Ensign, Sanford, Gingrich....against Clinton

The Republicans went crazy against President Clinton and spent many millions of dollars investigating him. They did get the 2000 election. As it turns out, some of the complaining folks have a few skeletons in their closet...

In Defense of Food- Michael Pollan and Monica Seles

In the upcoming fall term, I intend to use the book ''In Defense of Food: An Eater's Manifesto" by Michael Pollan as one of the readings for my course on Sustainable Living. Mr. Pollan does an excellent job of analyzing the food business and the limitations of the scientific method. Breaking food into components, creating just the components and assuming that consuming the components in pill form recreates the benefits of the whole food is a serious limitation of scientific study.

In today's NYT Ms. Tara Parker-Pope covers the book “The End of Overeating: Taking Control of the Insatiable American Appetite” (Rodale) by Dr. David A. Kessler, the former FDA chief who served two presidents and battled Congress and Big Tobacco. She writes "..During his time at the Food and Drug Administration, Dr. Kessler maintained a high profile, streamlining the agency, pushing for faster approval of drugs and overseeing the creation of the standardized nutrition label on food packaging. But Dr. Kessler is perhaps best known for his efforts to investigate and regulate the tobacco industry, and his accusation that cigarette makers intentionally manipulated nicotinecontent to make their products more addictive. In “The End of Overeating,” Dr. Kessler finds some similarities in the food industry, which has combined and created foods in a way that taps into our brain circuitry and stimulates our desire for more.When it comes to stimulating our brains, Dr. Kessler noted, individual ingredients aren’t particularly potent. But by combining fats, sugar and salt in innumerable ways, food makers have essentially tapped into the brain’s reward system, creating a feedback loop that stimulates our desire to eat and leaves us wanting more and more even when we’re full. Dr. Kessler isn’t convinced that food makers fully understand the neuroscience of the forces they have unleashed, but food companies certainly understand human behavior, taste preferences and desire. In fact, he offers descriptions of how restaurants and food makers manipulate ingredients to reach the aptly named “bliss point.” Foods that contain too little or too much sugar, fat or salt are either bland or overwhelming. But food scientists work hard to reach the precise point at which we derive the greatest pleasure from fat, sugar and salt. The result is that chain restaurants like Chili’s cook up “hyper-palatable food that requires little chewing and goes down easily,” he notes. And Dr. Kessler reports that the Snickers bar, for instance, is “extraordinarily well engineered.” As we chew it, the sugar dissolves, the fat melts and the caramel traps the peanuts so the entire combination of flavors is blissfully experienced in the mouth at the same time. Foods rich in sugar and fat are relatively recent arrivals on the food landscape, Dr. Kessler noted. But today, foods are more than just a combination of ingredients. They are highly complex creations, loaded up with layer upon layer of stimulating tastes that result in a multisensory experience for the brain. Food companies “design food for irresistibility,” Dr. Kessler noted. “It’s been part of their business plans.”..."
The NYT also has an interview with Ms. Monica Seles, the former tennis great, where she discusses her binge eating and how she learnt to cope with it.

Shorter attention spans mean longer recovery times

On the one hand, recent reports on unemployment show that quite a few states have "achieved" double digit numbers. At the same time, search for talent at a "cheaper" price continues. In addition to "who you know" what you know matters too. This is where the other hand comes in. An article in the NYT today deals with "Blackberretiquette." Alex Wiliiams, in the piece "Mind Your BlackBerry or Mind Your Manners" writes that "It is routine for Washington officials to bow heads silently around a conference table — not praying — while others are speaking, said Philippe Reines, a senior adviser to Secretary of State Hillary Rodham Clinton. Although BlackBerrys are banned in certain areas of the State Department headquarters for security reasons, their use is epidemic where they are allowed. “You’ll have half the participants BlackBerrying each other as a submeeting, with a running commentary on the primary meeting,” Mr. Reines said. “BlackBerrys have become like cartoon thought bubbles.” Some professionals admitted that they occasionally sent mocking commentary about the proceedings, but most insisted that they used smartphones for legitimate reasons: responding to deadline requests, plumbing the Web for data to illuminate an issue under discussion or simply taking notes. Still, the practice retains the potential to annoy. Joel I. Klein, the New York City schools chancellor, has gained such a reputation for checking his BlackBerry during public meetings that some parents joke that they might as well send him an e-mail message. Few companies have formal policies about smartphone use in meetings, according to Nancy Flynn, the executive director of the ePolicy Institute, a consulting group in Columbus, Ohio. Ms. Flynn tells clients to encourage employees to turn off all devices. “People mistakenly think that tapping is not as distracting as talking,” she said. “In fact, it can be every bit as much if not more distracting. And it’s pretty insulting to the speaker.”..."
Students use their "DumbPhones" even in the classroom- one can hear the annoying tapping. If the students and workers have no control of their behavior and give in to the urge of the present rather than focusing on the future, why would anyone want to hire them? One can hear similar people in other countries who have the same addictions, but at a much lower price.

Getting rid of the Blackberry addiction, and focusing on learning and listening...would be a small start for getting the country back on track.

An "in-debt"ed education

There's a thought-provoking article from AP on Yahoo- "Budget crisis forces deep cuts at Calif. schools - Calif. budget crisis forces schools to slash programs, fire teachers, expand class sizes" by Terence Chea. The piece leads off by saying that "California's historic budget crisis threatens to devastate a public education system that was once considered a national model but now ranks near the bottom in school funding and academic achievement. Deep budget cuts are forcing California school districts to lay off thousands of teachers, expand class sizes, close schools, eliminate bus service, cancel summer school programs, and possibly shorten the academic year. Without a strong economic recovery, which few experts predict, the reduced school funding could last for years, shortchanging millions of students, driving away residents and businesses, and darkening California's economic future. "California used to lead the nation in education," U.S. Education Secretary Arne Duncan said during a recent visit to San Francisco. "Honestly, I think California has lost its way, and I think the long-term consequences of that are very troubling." The budget cuts will be especially painful for struggling schools such as Richmond High School, where more than half of its 1,700 students are English learners and three-quarters are considered poor. The East Bay area school has failed to meet academic standards set by the federal No Child Left Behind Act for more than four years.Now Richmond High stands to lose 10 percent of its 80 teachers. Electives such as French and woodshop will be scrapped. Some classes will expand to more than 40 students. And many special education and English-language students will be placed in mainstream classes..."

In Naperville, our real estate taxes have gone up quite a bit, despite home values declining by 30% or more over the past couple of years. School districts have spent money very generously, while the federal government and many state governments have run up debt. Many facilities are duplicated across schools that are closely located. Nice gym facilities, arts classes and the fun extra or co-curricular stuff, are luxuries.

Hopefully frugality will stay with us for a while- memories can be short.

Heart transplant for car makers, no transplant for Nortel

Nortel, once one of the really big dogs in telecommunications, is being broken up into pieces in bankruptcy. There were hopes that it could emerge from bnakruptcy but according to AP/Yahoo, "Nokia Siemens Networks agreed to buy some wireless operations of Canada's Nortel Networks Corp. in a $650 million deal as the more than century-old Nortel announced it is looking for buyers for the rest of its assets.The Finnish-German joint venture said Saturday it had agreed to buy the CDMA and LTE wireless technology assets of Nortel, a former telecommunications equipment powerhouse that sought bankruptcy protection in January and now plans to liquidate its business..."

On the other hand, Chicago Tribune reports that "Car shoppers could take advantage of government incentives worth up to $4,500 this summer to send their old gas guzzler to the scrap heap in favor of a more fuel-efficient new vehicle. President Barack Obama is expected to sign into law the "cash for clunkers" program, which was approved by the Senate on Thursday. A clunker is an old, worn out car. For owners of low gas mileage vehicles, the plan could give them a reason to visit their local car dealer during an economic downturn..."
Yet another Obama way to redirect tax payer money to specific industries and firms, some of which may never recover, rather than spending it on education and directing youngsters to the "sustainable" jobs of tomorrow.

The Priceless Job of Pricing

When I teach an Introductory Marketing Course, I emphasize the difficulty in establishing Pricing, one of the 4 Ps. Pricing is one key factor that can make a difference between making and losing money. Gross margin is what allows a firm to pay for the engineers and the marketers, after the senior managers grab the money bags first and take their loot.
The airlines are facing challenging times- capacity can only be added or removed in chunks, fixed costs are high, and fuel costs are variable. If the one-way cost of traveling from Chicago to NY by car, at $0.55 per mile (as allowed by the IRS) is $550, a one-way flight between the cities should cost at least that much. This does not even include the value of the time saved by flying.
The question is- what will be the demand if the airline prices a round-trip between ORD and EWR at $1000 for coach travel? What should be the price/ capacity point that will make the airline industry money?

The airlines, however, are going at the problem in a way that's sure to antagonize customers- pricing their product based on supply of seats or competition, and then harassing the customers with a slew of charges and fees. Charges for second bags, checking in at the airport, for aisle seats, etc. are the new normal. Now, airline execs are talking about charging for the use of lavatory- the term for these charges is "ancillary revenue"- yield management is old news. Quite soon, one will have to pay extra for water, sugar and cream for coffee which is also an extra-charge item. Want to stretch your legs near the galley? That's extra.

Airlines' bagggage related fees..

Airline travel should not be the great hassle that it has become. Airlines should be flying smaller fuel efficient jets, the aircraft makers should be charging less, and the airline execs should be taking a lot less money- significantly lower operating expenses should make for better pricing and capacity utilization. Lot of perks associated with flying have to go- these are not available in other businesses. Pilots have to start making a lot less. Making customers miserable is never a good idea for any business.

Reforming Values- Ethical Values

In my marketing and business courses, I discuss ethical behavior with students and point out that a marketer can be ethical and can provide a valuable product and can make a reasonable profit. The key word is "reasonable." The capitalist model of maximizing shareholder profits is flawed fundamentally because it encourages marketers and others to go for unreasonable profits, often through unethical means.
Some more examples were in evidence in today's news reports...

• According to the NYT, "Medtronic said on Wednesday that it had paid nearly $800,000 over an eight-year period to a former military surgeon who has been accused by the Army of falsifying a medical journal study involving one of the company’s products. The surgeon, Dr. Timothy R. Kuklo, claimed in the study that the use of a Medtronic bone growth product called Infuse had proved highly beneficial in treating leg injuries suffered by American soldiers in Iraq. The British medical journal that published the article retracted it this year after an internal Army investigation found that Dr. Kuklo had forged the names of four other doctors on the study and had cited data that did not match military records. Other doctors at Walter Reed Army Medical Center, where Dr. Kuklo worked until August 2006, said that he had also overstated the benefits of the Medtronic product..."
• NYT also reports that "When President Obama arrives at the Mandarin Oriental hotel for a Democratic fund-raising reception on Thursday night, the new White House rules of political purity will be in order: No lobbyists allowed. But at the same downtown hotel on Friday morning, registered lobbyists have not only been invited to attend a Democratic issues conference, but they are asked to come with a $5,000 check in their pockets or purses if they want to stay in good favor with the party’s House and Senate re-election committees. The practicality of Mr. Obama’s pledge to change the ways of Washington is colliding once more with the reality of how money, influence and governance interact here. He declared again and again while campaigning last year that he would “not take a dime” from lobbyists or political action committees. To follow through with that promise, Mr. Obama is simply leaving the room. The intersection of money and politics is still bustling. Not only are representatives and senators already fully engaged in their next campaigns, the administration is vigorously pushing its priorities of health care, energy and financial regulation, creating a heady appetite for contributors and benefactors alike. In the first five months of his administration, the president has only occasionally injected himself into the business of fund-raising. But the Democratic fund-raisers on Thursday night and Friday morning show how the party is trying to allow Mr. Obama to keep his word in turning away money from special interests without leaving itself at a financial disadvantage to the Republicans. The White House said the president would only attend the Thursday night event at the Mandarin Oriental — expected to raise $3 million — if federal lobbyists were not on hand. That is already the rule at the Democratic National Committee, but not for the House and Senate re-election committees. So for one night only, Democratic leaders in Congress agreed to keep lobbyists away, but by Friday morning those rules go away. Robert Gibbs, the White House press secretary, dismissed a suggestion Thursday that the rules were a sleight of hand. He said no lobbyists would be on hand when Mr. Obama addressed the donors, which is what he promised during the presidential race..."
• WSJ reports that "Some executives at banks propped up by government aid have retained a coveted perk: personal use of the company jet. Flight records show numerous occasions when banks receiving federal money have flown their planes to destinations near resorts or executives' vacation homes, including spots in Europe, Mexico, the Caribbean, south Florida and Aspen, Colo. In some cases, it's clear that bank executives were traveling for personal reasons; for other flights, many of which were over weekends or holidays, the passengers and purpose couldn't be established..."

Obama does a Cheney

During the pre-election period, Obama worked hard to reassure Americans that he would not take away their guns. According to the NYT, "During an East Room interview with John Harwood for CNBC and The New York Times on Tuesday, a giant fly orbited Mr. Obama’s head. “I got the sucker,” the president boasted after fatally slapping the critter on the back of his hand. That scene became an instant YouTube sensation — and resulted in a complaint from the People for the Ethical Treatment of Animals..."
Why did Obama have to slap and kill the fly? The flies are harmless, they don't sting, and often go away. At least he did not torture the fly.

Kudos to IRS, Brick bats to Obama

There were some issues with one of my past tax returns. I called IRS to clear things up. The agent who answered was very nice and professional, and she took care of my concerns easily and to my satisfaction. Even though I had to wait for a few minutes to get the person, I had a very pleasant experience. Thanks- tax dollars at productive work.

Obama is trying to please everybody, and making speeches and policies that appear to display his "I am an average Joe" persona rather than substance. Ms. Maureen Dowd, in her usual erudite and biting form, writes that "...But often, when the cameras are rolling, Mr. Obama puts his organic tea aside and makes a show of heading for the nearest greasy spoon. He boosted the business of Ray’s Hell Burger in Arlington, Va., after he took Joe Biden there in a monster motorcade for lunch and ordered a cheeseburger with Dijon mustard (a spicy detail that amused Republicans). When Brian Williams did his day-at-the-White House special two weeks ago, the president took the anchor to a Five Guys burger joint. He ordered himself a cheeseburger and fries and, in an extravagant attempt to prove his meaty regular guydom, brought back $80 worth of burgers and fries in a greasy bag for White House staffers. (After a tour of the Sphinx in Egypt, the president evoked his love of red meat again, saying “Five Guys was good. This is better.”) Michelle sometimes takes her staff on impromptu lunch trips to Five Guys or other burger and barbeque spots. Mr. Obama ostentatiously treats himself to fries and burgers to beef up his average-Joe image (even though he’s anything but). Yet maybe when Charlie Gibson and Diane Sawyer come next week to broadcast a special on health care from inside the White House, the president should forgo the photo-op of the grease-stained bovine bag and take the TV stars out for what he really wants and America really needs: some steamed fish with a side of snap peas."

Focusing on the Bottom (line) before Shaping the Top (line)

In the article "Post Office Looks to Scale Back" the WSJ reports that "...Faced with wide losses and a long slide in mail volume, the agency is considering eliminating Saturday deliveries and closing more post offices. The challenge will be getting consumers, unions and lawmakers, who have fought even small changes in mail delivery, to go along with the plan... The volume of first-class mail, the Postal Service's most-lucrative business, has been eroded by the migration of bill payments and individual correspondence to the Internet. The economic downturn has exacerbated the financial woes by hitting catalogs and other direct-marketing mailings. The Postal Service reported a nearly $2 billion loss for the second quarter ended March 31, with mail volume down nearly 15% from the year before. Postal officials predict it will handle about 180 billion pieces of mail this fiscal year, down by 32 billion pieces two years earlier..."
In the NYT article "Fares are Low, but Airlines Are Trying to End That" Mr. Sharkey writes that "Just over the horizon are fare increases, more capacity cuts and even various kinds of consolidation, including quasi-mergers between airlines on certain highly competitive international markets. These developing relationships, which allow partners to work closely to consolidate routes and fix fares, depend on exemptions from antitrust regulations. Delta and Air France-KLM, seeking to merge various routes between the United States and Europe, have received tentative approval from regulatory authorities in the United States, and are seeking approval from the European Union...The advantage to an airline is that “you’re not flying wing-to-wing across the Atlantic” with a competitor, Willie Walsh, the British Airways chief executive, told me recently. “You can offer a much better schedule, spread it out during the day and manage the capacity.” But the advantage to the passenger is nil, according to competitors like Richard Branson, the president of Virgin Atlantic, which competes aggressively on the United States-to-London routes. Mr. Branson said that the proposed new partnership between British Airways and American would “encourage even less competition by allowing dominant carriers to increase their stranglehold by setting prices together” and by coordinating schedules between the United States and London Heathrow Airport."
***
The point that being struck home is that revenues are falling for these (and other) firms, and there is no significant pricing power. However, none of these articles talks about dramatically lowering operating expenses. A "salary and other expense" cut of 25% or so across the board will reduce the operating expenses and enable these carriers to turn a profit. But all employees need to understand that a significant wage cut is the only way out, as charging higher prices only continues the death spiral with lower usage followed by more capacity reductions. Flying, or chatting non-stop on a cell phone should be viewed as a luxury, not as a basic need.

Business built on Values

Today I met an entrepreneur BrS who is running a successful small business. He had hired one of my top students as a summer intern. He expressed an interest in investigating opportunities in India and the possibility of opening an office there and I met him today to share my experiences on this topic. Mr. BrS told me about his philosophy and how he runs his business. He wants a small collegial atmosphere in his office, and tries to get his employees involved in brainstorming solutions to problems. He has limited his business growth because he does not want to sacrifice his values. Even in dealing with people in India he insisted that employees there should be treated as equal to the people here and with respect. He wants to grow slowly, but wants to make sure he gets the right people. I told him that securing the human capital or good employees is the really challenging part. It was a pleasure to talk to a business owner who starts with values and a vision of the workplace he wants to create- where HE would like to work.

High Def meets Low Set

This is the weekend where the TV broadcast channels are cutting over to high def. Maureen Dowd, who has an excellent biting style, wrote an entertaining Op-Ed in the NYT- Pixilated Over Pixels, wherein she talks about high-def eye glasses, high def make-up and other entertaining high-def inventions.

In the same NYT, however, Barbara Ehrenreich writes in her piece titled "Too Poor to Make the News" that "The recession of the ’80s transformed the working class into the working poor, as manufacturing jobs fled to the third world, forcing American workers into the low-paying service and retail sector. The current recession is knocking the working poor down another notch — from low-wage employment and inadequate housing toward erratic employment and no housing at all. Comfortable people have long imagined that American poverty is far more luxurious than the third world variety, but the difference is rapidly narrowing. Maybe “the economy,” as depicted on CNBC, will revive again, restoring the kinds of jobs that sustained the working poor, however inadequately, before the recession. Chances are, though, that they still won’t pay enough to live on, at least not at any level of safety and dignity. In fact, hourly wage growth, which had been running at about 4 percent a year, has undergone what the Economic Policy Institute calls a “dramatic collapse” in the last six months alone. In good times and grim ones, the misery at the bottom just keeps piling up, like a bad debt that will eventually come due."

It's partly a question of priorities. Someone carrying an iPhone and complaining about not finding a job does not evoke much compassion. For decades, really smart, hardworking young people in the so called "developing" or "underdeveloped" countries have had to struggle mightily to make ends meet, while the laziest of the people in the developed world had better standard of living. My father was a good example of one who had a Master's degree, worked extraordinarily hard, sacrificed a lot, and did not accumulate much assets when he died. He led a hard life while plenty of others with less effort made a lot more money and enjoyed more luxuries. No one called it an ethical problem then. As this writer has mentioned before, the current problem is not due to a credit crisis, but due to an ethics crisis. There is something lacking in the "liberal education" model that is prevalent at Harvard and at many other schools including my own- an opportunity for the students discuss ethics, equality, and social justice deeply.

When Education is a Meritocracy, not a Democracy

Writing entrance exams to get into College is an experience in meritocracy. In India, there is the (in)famous JEE for entrance into the IITs. Today there was an article in the NYT about the entrance exam for Chinese Universities.
"The Chinese test is in some ways like the American SAT, except that it lasts more than twice as long. The nine-hour test is offered just once a year and is the sole determinant for admission to virtually all Chinese colleges and universities. About three in five students make the cut. Families pull out all the stops to optimize their children’s scores. In Sichuan Province in southwestern China, students studied in a hospital, hooked up to oxygen containers, in hopes of improving their concentration. Some girls take contraceptives so they will not get their periods during the exam. Some well-off parents dangle the promise of fabulous rewards for offspring whose scores get them into a top-ranked university: parties, 100,000 renminbi in cash, or about $14,600, or better. “My father even promised me, if I get into a college like Nankai University in Tianjin, ‘I’ll give you a prize, an Audi,’ ” said Chen Qiong, a 17-year-old girl taking the exam in Beijing. Outside the exam sites, parents keep vigil for hours, as anxious as husbands waiting for their wives to give birth. A tardy arrival is disastrous. One student who arrived four minutes late in 2007 was turned away, even though she and her mother knelt before the exam proctor, begging for leniency. Cheating is increasingly sophisticated. One group of parents last year outfitted their children with tiny earpieces, persuaded a teacher to fax them the questions and then transmitted the answers by cellphone. Another father equipped a student with a miniscanner and had nine teachers on standby to provide the answers. In all, 2,645 cheaters were caught last year."

Personalized Facebook URLs- going up against Twitter

Tonight Facebook is going to offer vanity personalized URLs. Apparently this is a big land grab event. A Dell employee wrote in a blog that Dell has exceeded $3 million in sales attributed to Twitter. Of course Twitter has not got any of the money. Both Facebook and Twitter rely on stickiness- making it attractive, almost compulsive for the user to stay on the site for more time. We shall see who eventually gets to keep face and who gets tweeted out.

An Academic Day

Today was one of my "First Year Student Advising" days, where I meet with fresh-men and women and guide them in selecting courses for their first term in College. I had five students today, and all were planning to major in some aspect of Business. We met over lunch, and during the introductions I asked the students to say what they do for fun, or what their fun activity was. The usual answers include some sports activities, but the most popular one is "hanging out with friends." For the first time in my five years here, a student Kathryn said "I like academics and studying is fun for me." For a professor, it is like listening to a Bach Concerto. Even though I have had some great students graduate and leave, students like Kathryn will be excellent advisees the next few years.

Pay cuts and Job Cuts...

The WSJ reports that "More Firms Cut Pay to Save Jobs -Possible Casualties Range From Workers' 401(k)s to Importance of Unemployment Rate." According to the article, "Pay cuts, rather than layoffs, have emerged as an alternative way for many companies to reduce labor costs as demand slumps during the recession. If enough companies use pay cuts to avoid layoffs in the future, then the unemployment rate may no longer give a true reading on how workers are faring. Employees, who have relied on pay raises to increase spending and boost their 401(k) contributions, would no longer be able to count on more cash in their paychecks over time. Even Social Security benefits down the road could be less than anticipated if annual salaries zig and zag every year. Cuts in compensation are "more widespread now than in past recessions," said John Challenger, chief executive of outplacement firm Challenger, Gray & Christmas Inc., which tracks employment trends. Last week, Challenger reported that more than half of human-resource executives surveyed in May said their companies had instituted salary cuts or freezes in an effort to cut costs. That was up from 27% in the same survey in January. The Bureau of Labor Statistics' employment report Friday showed that average hourly pay for production workers rose only 0.1% in May for the second month in a row. Yearly growth has slowed to 3.1% -- the weakest since 2005. With unemployment heading toward double digits by year's end, it appears many workers will have few choices -- or bargaining power -- but to continue to accept the lower salaries. David Levy of the Levy Economic Forecasting Center said the distress in finance, autos, retailing and other industries is exerting downward pressure on compensation. He expects unemployment to rise to double digits, and "pay rates may eventually cease rising altogether," he said. Besides large companies announcing pay cuts, state and local governments also are trimming wages or forcing workers to take unpaid furloughs. Federal Reserve officials are keeping a close eye on developments in wages. Continued downward pressure on wages could lead to further declines in inflation, which in turn would give Fed officials an incentive to keep interest rates low for a longer period of time. But there is a division within the Fed on whether slack in the labor market will translate into downward inflation pressure. Some inflation hawks believe the Fed has pumped so much money into the financial system that inflation pressures could build, even with high jobless rates. Nominal wage growth didn't turn negative in the 1973-75 or 1981-82 recessions. But both severe downturns occurred during times of high inflation. As a result, companies were able to cut their real labor costs by awarding raises that were lower than the prevailing inflation rate. In 1981, for instance, nominal pay rose 7.2%, but inflation soared 10.3%. Pay cuts are likely to spread further until unemployment stops rising and workers' position strengthens. The jobless peak isn't expected until 2010, meaning layoffs will be the norm for at least another year. Some employees are fighting pay reductions. Members of the Boston Newspaper Guild at the Boston Globe voted Monday to reject $10 million in concessions. New York Times Co., which owns the Globe, had said it would try to impose deeper cuts or close the Boston paper if the union didn't accept the deal on the table. (Please see related article.) Many companies oppose pay cuts as much as the rank-and-file do. Pay cuts are often demoralizing, and low morale can cut into productivity, which is a backdoor way of raising costs. "
Rather sad commentary on human-human interactions- instead of lifting people up, the discussion is about cutting people off.

Change- A Mirage of President Obama

Obama campaigned on a pledge of Change. So far, the only change has been that he has changed his tune.
He has backtracked on releasing the pictures related to the treatment of prisoners in prisons.

Now, the WSJ reports, in an article titled "Salaries Safe, Bonuses Hit - Obama Drops Tough Plan on Bank Compensation; 10 Lenders Repay Bailout Cash" that "the Obama administration is dropping its plan to cap salaries at firms receiving government bailout money, leaving them subject to congressionally imposed limits on bonuses, according to people familiar with the matter."

Yet another good report from the WSJ, titled "Finance Reforms Pared Back - White House to Preserve Regulators but Seek Tougher Rules; Avoiding a Political Battle" reveals that "the Obama administration is backing away from seeking a major reduction in the number of agencies overseeing financial markets, people familiar with the matter say, suggesting that the current alphabet-soup of regulators will remain mostly intact. Administration officials had suggested they might push for major regulatory consolidation in the wake of the financial crisis. But now they expect to call for most existing agencies to have broader powers to limit risk-taking by financial institutions, say the people familiar with the planning."

That is the problem...taking politically expedient decisions rather than the ethical ones.

Buying healthcare using debt...an unhealthy formula

According to AP, President Barack Obama on Tuesday proposed budget rules that would allow Congress to borrow tens of billions of dollars and put the nation deeper in debt to jump-start the administration's emerging health care overhaul.

It appears we are beyond the point where further debt makes any psychological or real difference to decision makers. As long as someone is willing to finance the debt, why not? This seems to be the prevailing logic.

Cut, Cut, Cut

The current economic downturn is quite global in its impact. A friend of mine India, who works for one of the leading IT firms, told me that employees there are forgoing bonuses and also taking some pay cuts, in order to keep their jobs. She said people are willing to share the pain because times are tough and they don't want to see their colleagues and friends lose jobs.
In the U.S., it is the 'me' first and 'couldn't care less what happens to others' mentality that permeates the management structure. Unemployment will continue to go up for a while.

Even educational institutions, supposed to be counter-cyclical, are facing strong headwinds. Quite a few colleges and Universities are forgoing raises and cutting benefits to faculty and staff.

Sweet Tweets

Interesting words rhyme with Twitter, and perhaps shed some light on this service..

Bitter
Critter
Jitter
Litter
Quitter
S(h)itter

Interesting signs

Found a lot of traffic at a local Jo-Ann Fabrics , Dollar Tree and Big Lots stores. A reflection on recession.

It is tough...

Interesting data in the following article...
The key point that is not mentioned is that these are all "estimates" by the DOL, using several fudged numbers...

Meltdown 101: Unemployment by the numbers

MISERY LOVES COMPANY

14.5 million: People unemployed in May 2009, the most ever in records dating to 1948

12.1 million: People unemployed in December 1982, the record before the current downturn

9.4 percent: Unemployment rate in May 2009

10.8 percent: Unemployment rate in December 1982, the highest since World War II

August 1983: Last time the unemployment rate was higher than the current level

___

WHERE THE JOBS ARE

44,000: Number of jobs added in May in education and health services, one of only two broad job categories — out of seven — where the number of jobs went up

3,000: Number of jobs added in leisure and hospitality, the other category to add jobs

___

GETTING BETTER (SORT OF)

59,000: Construction jobs lost in May

117,000: Average monthly loss of construction jobs in the previous six months

7,000: Temporary jobs lost in May

73,000: Average monthly loss of temp jobs in the previous six months

___

JOBLESS FOR MONTHS

3.95 million: The number of people unemployed for 27 weeks or longer

1.32 million: The number unemployed for that long in December 2007, when the recession began

___

UNDEREMPLOYED

9.1 million: Number of part-time workers who would have preferred full-time work last month

2.2 million: People without jobs who wanted to work, were available and had looked in the last 12 months, but had not looked in the last month.

16.4 percent: Unemployment rate if you include involuntary part-time workers and those without jobs who hadn't looked for work in 12 months — the highest in records dating to 1994

___

MAY UNEMPLOYMENT RATE BY GROUP

9.8 percent: Adult men

7.5 percent: Adult women

11 percent: Female heads of households

6.7 percent: Asians

8.6 percent: Whites

12.7 percent: Hispanics

14.9 percent: Blacks

22.7 percent: Teenagers

Unethical Business Leaders + Crooked Political System <=> Teaching Ethics

Our school is in the process of revising its General Education Curriculum. One aspect of the new proposal is Value Development. Most schools, including the big ones like Harvard and Duke have been focusing on Ethics and offering/mandating courses in this area, especially for business students.
An article in the NYT sheds some data on our business and political leaders, and leads one to question these efforts. In "Tax Break for Profits Went Awry" Mr. Norris writes"It was called the “Homeland Investment Act,” and was sold to Congress as a way to spur investment in America, building plants, increasing research and development and creating jobs. It gave international companies a large one-time tax break on overseas profits, but only if the money was used for specified investments in the United States.The law specifically said the money could not be used to raise dividends or to repurchase shares. Now the most detailed analysis of what actually happened — using confidential government data as well as corporate reports — has estimated what happened to the $299 billion companies brought back from foreign subsidiaries. About 92 percent of it went to shareholders, mostly in the form of increased share buybacks and the rest through increased dividends. There is no evidence that companies that took advantage of the tax break — which enabled them to bring home, or repatriate, overseas profits while paying a tax rate far below the normal rate — used the money as Congress expected. “Repatriations did not lead to an increase in domestic investment, employment or R.& D., even for the firms that lobbied for the tax holiday stating these intentions,” concluded the study by three economists, including a former official of the Bush administration who took part in the discussions leading to enactment of the plan in 2004..."

I had written about this act a few years ago, and how it was a straight-forward message from the Bush administration to the business leaders to cheat the tax-payers...just one of the many gifts the previous administration showered on corporations. Unfortunately all those unethical acts have resulted in a massive crisis. The authors of the study make one point that might be erroneous. They state that "“Although the H.I.A. does not appear to have spurred the domestic investment and employment of firms that used the tax holiday to repatriate earnings from abroad, it may still have benefited the U.S. economy in other ways. The tax holiday encouraged U.S. multinationals to repatriate roughly $300 billion of foreign earnings and pay most of these earnings to shareholders. Presumably these shareholders either reinvested these funds or used them for consumption. Either of these activities could have an effect on U.S. growth, investment and employment.” The problem is that part of the consumption (especially with leverage) could have contributed to the current crisis, thus having a negative effect on the long-term GDP. There is no information on how the share repurchases have actually benefitted the overall economy, neither is there information on how shareholders have used any dividends received through this HIA.

Two Tweets is one too many, for half of Tweeters....

From Reuters...

"A tiny fraction of those who use the fast-growing social network phenomenon Twitter generate nearly all the content, a Harvard study shows. The Harvard study examined public entries of a randomly selected group of 300,000 Twitter users... The researchers studied in May the content created in the lifetime of the users' Twitter accounts. It found that 10 percent of Twitter users generated more than 90 percent of the content, said Mikolaj Jan Piskorski, who led the research. More than half of all Twitter users post messages on the site less than once every 74 days.The median number of lifetime "tweets" per user is just one, according the research..."

The conclusion is that Twitter is currently being used as a one-to-many communication, with many people following a few.

A Rewarding Pursuit - Looking back at Spring 2009

The Spring 2009 semester has ended, and it is time to compile the good, the bad and the ugly for the term.

Notes of Appreciation

• Prof. Gopal, Thank you so much for having me apply for this scholarship, I really appreciate it and am so excited! Thank you for always looking out for me. KC.
• Thanks again for last night I had a good time. I also would like to thank you for all your guidance over the past four years, it has been very enjoyable. KVL.
• Thank you for all you have done. ZJ.
  
• I believe that the three courses I took from you, BUS-271 Intro to Global Business (Spring 2006), BUS-230 Principles of Marketing (Fall 2006), and BUS-375 International Marketing Management (Fall 2008) have helped me develop a solid foundation for my graduate studies in the international business field...Thank you for your time and consideration, along with all the hard work and investments you have made in my education! NB.
  
• Thank you for everything this semester. I really enjoyed your class. It was one of my favorites. LB.
• I had hoped to tell you in person, but I have decided that I will not be returning to Elmhurst next year. I thank you for everything that has gone so well this semester. CB.
• Thanks for class, I got a lot out of it.BM.
• I just wanted to say thank you for all your help! I went for an interview today for an internship with XYZ and got it! I appreciate everything you have helped me with! MF.
• Thank you for a great semester! CB.
• I really enjoyed your class and think you are a very good professor. CB.
• Thank you again for the recommendation and encouragement. JB.
• I just wanted to send a short Thank You for your time, advice and suggestions for our capstone project, as I know your schedule was very busy. PO.
• I just wanted to say thank you for meeting with us today. It meant so much to know that you truly care about the experiences from the trip. HW.
• Thank you for letting me know and thank you for all your help with everything over the past two years. It's been a pleasure to be your student and advisee. MS.
• I didn't have to tell anyone else this but I know (from experience) that you are willing to sacrifice a lot for your students...CV.
• You are one of their favorite instructors. They NEVER complained about your class...(a Mom)
• Thank you again, it means the world to me. AC.
  
• I certainly have been thinking a lot about Elmhurst College these days, particularly about giving back. I certainly enjoyed speaking at your class last fall, and have always had a passion to empower others with knowledge. CJ.
  

Merkel and Bernanke- Straight Talk versus Straight-Faced Deception

High praise has to be given to Angela Merkel, Germany’s chancellor, who suggested on Tuesday that "Unconventional monetary policies being pursued by the world’s main central banks could aggravate rather than ease the economic crisis."

Her surprisingly strong attack on the US Federal Reserve, the Bank of England and the European Central Bank was remarkable coming from a leader who had so far scrupulously adhered to her country’s tradition of never commenting on monetary policy. “What other central banks have been doing must be reversed. I am very sceptical about the extent of the Fed’s actions and the way the Bank of England has carved its own little line in Europe,” she told a conference in Berlin. “Even the European Central Bank has somewhat bowed to international pressure with its purchase of covered bonds.” She added: “We must return to independent and sensible monetary policies, otherwise we will be back to where we are now in 10 years’ time.” (FT.com)
It takes guts for a leader to come out and speak plainly and express concern, as Madam Merkel did.

On the other hand, Mr. Bernanke warned about fiscal deficits and said that large deficit-funded actions to fight the crisis were “necessary and appropriate”. But he said “near-term challenges must not be allowed to hinder timely consideration of the steps needed to address fiscal imbalances”.Warning of the risk of a future debt trap, he said: “We cannot allow ourselves to be in a situation where the debt continues to rise. That means more and more interest payments, which swell the deficit, which leads to an unsustainable situation.” This from the mastermind of the bailouts who printed money with abandon and ran a reckless monetary policy for years. After using the Fed funds to buy Treasury offerings, he has the gall to tell Congress to cut spending.

No wonder there is a lot more pain ahead.

Graduating Summa Cum Laude into the Econmic Nadir

These are crazy times. The President and his team are patting themselves on the back and sounding very enthusiastic when they have spent more than $50 billion of public money in leading two automakers to bankruptcy. The U.S. stock market is hitting a high for the year and the world equity markets are zooming forward, while the unemployment rates are still moving up. One of my advisees, a highly talented young man who graduated Summa cum Laude with a double major and who had an excellent internship last year, is having a difficult time finding a job. The WSJ ran two interesting articles on the job front today-

In "What Won't You Do for a Job?" Ms. Lublin writes-"...As the downturn persists, U.S. employers flooded with résumés increasingly insist that job hunters jump through unusual hoops. An investment bank ordered an experienced female marketer to come dressed in fancy evening wear suitable for entertaining wealthy clients. Certain businesses force contenders to interview each other and tout their rival's prowess. Others demand protracted unpaid tryouts. "Job seekers frequently face a process that makes the Spanish Inquisition seem tame" because management sees the sour economy as a golden opportunity "for upgrading talent," says Jennifer Berman, a Chicago human-resources consultant. Anyone craving employment these days "should expect just about anything," says Tom Carter, president of LeaderFinder Consulting Inc., a New York executive recruiter. He recently began requiring prospects to ace a role-playing exercise before recommending them to clients..."

In "The New Trouble on the Line" Ms. Needleman write that " For years, the phone interview was a preliminary step that allowed an employer to give a candidate the once-over and schedule an in-person interview. But these days, many recruiters are using the phone interview to pose the kinds of in-depth questions previously reserved for finalists. What's more, job hunters say the bar for getting to the next level has been raised much higher, catching many of them off-guard... In a recent first interview for a senior marketing job, Robyn Cobb was grilled by a hiring manager for an hour and a half on topics ranging from her work history and marketing philosophy to her knowledge of the company and its industry. "I thought it was never going to end," says the 45-year-old Ms. Cobb, who lives in Alpharetta, Ga., and was laid off in December from a midsize communications firm. Until recently, candidates could often breeze through most phone interviews in 10 minutes or less by answering a few softball questions. Little preparation was necessary, and most people could expect to be invited for a "real" interview before hanging up. These days, job hunters are finding that they need to reserve an hour or more for a phone interview. They may be asked to discuss their full work history, including the exact dates of their experience in various business areas. They may also be expected to cite examples and exact stats that illustrate their strengths and offer details on how they would handle the position. During a call earlier this year about a director-of-Internet-marketing job, Jaclyn Agy of Wheat Ridge, Colo., says she was asked to describe about 10 different marketing initiatives she's worked on, plus provide metrics resulting from each.. Employers say they've raised the phone-interview stakes in part because they're attracting more candidates who meet their basic qualifications. They're digging deep to identify the best ones, and in some cases adding second-round rigor to phone screens as one way to accomplish that. "You can be pickier," says Joyce A. Foster, vice president of human resources at Hilex Poly Co. LLC in Hartsville, S.C. Salaried job openings at the company's 10 U.S. locations have been attracting up to three times as many qualified applicants -- including more candidates with experience in Hilex's niche, plastic film and bag manufacturing and recycling -- than during more robust economic times, she says. "... when it comes to candidates who were laid off, recruiters for the New York-based asset-management firm want to know the circumstances behind what happened. "Was this person a high-performance, talented individual who was let go because of the economics of the business," he says, "or an average employee let go in the first round" of layoffs? For many firms, evaluating candidates over the phone also serves as a way to save on recruiting costs... "When a candidate comes in to meet the hiring manager, recruiters have already gone through every detail to make sure they're a fit," says Mr. Cousens..."

Clinton had the Internet bubble, and Bush/Greenspan created the finance+ real estate bubble..both distorted the macro picture by creating high employment. The rising tide lifted all folks, including people with relatively poor skills. The question now is- what is going to take the place of these bubbles? The "green" economy is still in its infancy, and anyone who has traveled abroad knows that other parts of the world are ahead of the U.S. in this area. There is no one area that is growing massively, and most areas are retrenching. Without employment, the situation looks dire. The country and its people should start investing in the youth of the country and provide more money to not-for-profit organizations as a way to move forward. The for-profit firms have proved adept only at enriching the managers, in good times and in bad.

Patent-ly wrong?

In one of my classes recently, students debated the pros and cons of intellectual property rights, including patents and copyrights. There is significant data to reject the primary hypothesis for these protections- that innovation would die in its absence. Linux is one good example.

Today, NYT reported that "The Supreme Court agreed on Monday to decide what sorts of business methods might be patented, an issue with the potential to reshape significant parts of the economy. “This is the most important patent case in 50 years, in particular because there is so much damage and so much good the court could do,” said John F. Duffy, a law professor at George Washington University who submitted a brief in the appeals court in support of neither side..."

If business processes are patented, then one can say sayonara to learning about best practices and getting better with continuous process improvement. Toyota has become a giant through business processes like lean. One hopes that process improvements like these are not patented but shared.