The Entrepreneurial Spirit and Another Level

Deng Xiaoping understood something that Chinese leaders for before him didn’t – having no limit to individual wealth accumulation is a good means to ensure the rise of wealth for the masses. That is a wordy way to say that capitalism works.
Joe Nocera writes for the NY Times and he has three very good stories over the last month. Those are:

Seeing the Sights of Industrial China: 2 Factories, 2 Futures

China Tries to Solve Its Brand X Blues

Horatio Alger Multiplied by 1.3 Billion

Each of these stories are great because they hit on the spirit of the Chinese people, whether it is in trying conditions (the rising yuan) or in prosperous ones (successful CEOs). Each story also ties in with the other two, so reading all three is beneficial to get a true understanding of where the Chinese people aim to go.

While reading the articles I couldn’t help but think about India as well. Many people tie the two nations together because of their populations and growth. I tie them together because of their different approaches to the success they’ve experienced. For instance, China is really good at crafting and assembly of predesigned goods. India has a schooling approach where services are priority.

As each country grows their middle class what will change? I guess that China will attempt to improve their creativity output with learning programs. India will experience a challenge in governance – both politically and in commerce.

Earth innovation (Ei) and Thomas Friedman

Thomas Friedman is writing a book about energy and innovation. It is similar to the post I wrote on April 23rd, 2008 called Earth innovation (Ei). Here are some tidbits of what Thomas Friedman is writing about:

Three dimensions of transitions – global warming, global flattening, and global crowding:

  • The weather is getting strange.
  • Several billion new consumers and producers are reaching the marketplace everyday.
  • The rate of population increase is growing steeper and these are people who now are consumers and producers.

Energy resources are going from what was considered inexhaustible to exhaustible.
Climate problems are moving from a manageable state to an unmanageable state.
Energy is from geopolitical benign and biodiversity benign to toxic for both.

What does GeoGreen mean? Green was named by two parties that prevented it from scaling. The first is that a group kept the green community alive, but it was opposed to growth. Another group paired the term green with terms like tree hugging, liberal, girly, and unpatriotic – negative connotations. Without changing the term “green” then scale won’t happen. Without scale, it is just a hobby.

Between now and 2050, energy usage will double based on population growth and economic progression. If we do everything right, starting now, renewables will make up 30% and fossil fuels will make up 55%. If that is true about renewables, then it will be bigger than the current oil industry.

People ask Thomas Friedman what type of guy he is: ethanol? nuclear? solar? cellulose? Nope, he is an innovation guy. Why, because none of the energy solutions of today can scale at the rate we need. We need innovation to do so.

If you want to make the US more secure, innovative, competitive, efficient, and respected than seeking energy innovation (entrepreneurs).

This is a systems problem. If we don’t take a systems approach then you end up with suboptimal results. What is suboptimal? Doing something you shouldn’t be doing at all really well.

What is it for Thomas Friedman that we are trying to do? More sustainable energy productivity growth through fewer, cleaner, smarter, and cheaper electrons.

Have you ever heard of a green revolution without someone getting hurt? There is one rule – change or die.

Smart home – all your appliances day trade on the energy market creating a more efficient grid.

$3 Billion in venture capital last year was put toward energy innovation ($100 Billion was set aside for Dot Com ventures).

Energy innovation needs to find a means to change your life. Government might have to add the Total Cost of Ownership of energy use into the billing of consumers. These are CO2, troops in the Persian gulf, and so on. It must be a price signal to prompt commerce to scale this.

The latest energy bill (right before Christmas) threw out tax credits for wind and solar but kept them in for coal, oil, and gas. Germany has the tax incentives in for 20 years. The US isn’t ready to fund them for 2008.

The US’s premium solar company, First Solar, of Toledo OH just built their first factory in Germany where they do 80% of their business. A new factory is going up in Malaysia. Why? Because their own Senator voted against them and their aren’t a whole bunch of oil in Ohio. People wonder about blue collar jobs in the US.

Being Green is the next great project of the US. It is how we get our groove back.

Ei – Earth innovation

Yesterday I wrote about an accumulating big leap for innovation in the energy and green subject areas. Strangely, this is one of those occurrences that people pick up way before the media does. Just for the sake of taking a stab at it, I predict the momentum will begin in December of this year (2008). Why do I say that? For two reasons. First, oil prices will have spiked prior to the US summer, then recede slightly. This will prompt people to take a hard look at their habits and smart entrepreneurs will be there to offer advice. Second, the recessionary feel will have eased. The US will still not be growing at a fast clip, but the trouble times are past and early fall will be a time of economic renewal.

A result of this December rejuvenation is a new identity of the US. Currently the US clings to the label of financial expertise. Technology dominance is still prevalent, but it has taken a hit. Education is no where to be seen. And health care is both impressive and awful.

The new identity is Ei – Earth Innovation.

What is Earth Innovation? It is a means of melding a particular human need with the general rhythm of the planet.

Happy Earth Day

Today is Earth Day. Earth Day, according to wikipedia has been celebrated on this day in the United States since 1970 and unofficially marks the beginning of environmental protest and attention. As energy prices rise, more and more attention is paid to reusable resources. Whether is it “going green” or simply using a mug instead of styrofoam.

I’ve noted before that as we sit here languishing in recessionary conditions what I think will pull us out is a big leap in energy innovation. But the leap isn’t centralized. What I mean by that is it isn’t something you can easily identify like the internet as the driver. The leap will come from all these little green associated efforts. When the US consumer has an option to do the right thing and do it economically, they do (Amazon is offering deals today). Some examples are more subtle than others, like checking out the newer compact fluorescent light bulbs the next time a bulb is blown and some examples are very apparent, like the increased sales of Hybrid vehicles. As each of these occurrences happens the leap gets higher and higher because of the economies of scale.

So enjoy the weather, thank Mother Nature, and participate in the little earthy efforts that don’t take much to do.

  • Use a mug and not a new cup for your coffee
  • Need new batteries, get rechargeables
  • Recycle and buy recycled
  • Start a small garden
  • Plant a tree
  • etc

Outsourcing Research

“the cost of producing a new scientific discovery is dropping around the world,” says Christopher T. Hill in the NY Times. Christopher is a professor of public policy and technology at George Mason University.

I’m the type that isn’t a fan of routine work. Doing something over and over again isn’t enticing to me. There are still many jobs where this is needed and people perform them. Manufacturing jobs tend to be this way. Another example of jobs where repetition is key is in the field of research.

I’ve recently read that there are three forms of logic – Deductive, Inductive, and Abductive. Deductive logic uses process of elimination to align a theory with an outcome. The theory must have a framework already established though. Inductive logic uses a vast amount of inferential data from experience or observation to draw strong resultant theory. Abductive logic happens when an unique situation arises – when no theory exists to match deductive or inductive data against.

As the NY Times article titled How Scientific Gains Abroad Pay Off in the U.S. points out, this can be the next level of outsourcing. As the population of China and India grows, so does the number of scientists. Perhaps they aren’t of the same quality of those in the US, that is fine. Why is it fine, because the scientists in the US can do the abductive logic and modal reasoning and the scientists in emerging markets can do the theory matching through inductive research and then deductive research. Both groups benefit.

But it makes me wonder about other areas where this relationship can blossom.

A Quick Review of Johnny Bunko (a manga story)

I have to admit, I’m a fan of Daniel Pink’s work. I have Free Agent Nation as well as an audio of a speech he gave a couple of years ago. So when I saw that he had a new book out titled The Adventures of Johnny Bunko: The Last Career Guide You’ll Ever Need I decided to investigate it.

The book is actually a summary of several ideas from Daniel Pink, but it is Manga. I’m not familiar with what Manga is so I looked it up on Wikipedia. It is literally translated to “whimsical pictures” and looks very much like a comic book. I guess in Japan this genre covers many different topics and audiences. I assume that in the US it is easy to overlook since it isn’t in our culture. I do have to applaud Mr. Pink for trying something cutting edge and involving a good artist like Rob Ten Pas. Mr. Pink’s readers really should be people graduating high school, in or finishing college, or those just breaking into the workforce, so something like this is worth the effort. It takes less than two hours to read.

The summary of the story is that Johnny has to work late for a job he doesn’t like. He gets hungry and goes to a Chinese establishment. While there he is persuaded to pick up some chop sticks – powerful chopsticks as it turns out. When he breaks them open a genie like character appears named Diana. She plays the role of explaining to Johnny what he needs to know for career success. Since there are six sets of chopsticks, there are six lessons. I will give you the first and the last, you have to read the book for the others:

  1. There is no plan
  2. .
  3. .
  4. .
  5. .
  6. Leave an imprint

All in all, I like the book. As I mentioned above, it is really for people graduating high school, in or finishing college, or those just breaking into the workforce. Perhaps the timing of the release is to coincide with high school graduations. I recommend picking it up and including it with a card when you are invited to a graduation event.

CPI Inflation Trend and the Cost of Milk

A March CNN poll shows 91% of the population is concerned with inflation. Why such a staggering high number? Because the Consumer Price Index or CPI is up. What is the CPI?  The CPI takes all price increases into consideration. Core inflation takes out energy prices and food prices because they change more rapidly and have more spikes and valleys. But here is a line I like from an article from Elizabeth Spiers called The Great Inflation Cover-Up “At what point does a consistent trend upward stop being “price volatility” and start being a material “trend upward”? and what if some of those trends – particularly in the energy sector – are irreversible?”

Core inflation gets the press because it is what the Federal government uses. But the spikes and valleys I mentioned before are leveling off and becoming inclines that average a higher rate of increase than in the past. Why this is important is similar to a piece I wrote a couple of days ago called Change Blindness. When you go to the grocery store to buy milk, you have an idea in your head of how much it should cost. You are looking for that cost. When it shows up not looking like what you expected you are rattled and you take notice. A result is that you stop buying other goods because you need milk. But isn’t just milk going up, so if gas. And gas is worse than milk because so many industries rely on shipping. So when shipping costs go up, so does everything else.

The economy is obviously down and jobs are tight but those employed aren’t getting raises at the rate that is keeping up with these cost increases. The middle class in the US is getting poorer.

Willpower

In yesterday’s post I talked about how the brain can only take in so much information at a time and because of that it generalizes what it sees at times, depending on priority. Today I’m going to talk a little about the brain’s ability to self regulate.

Willpower is a great under appreciated talent. What is interesting about it is the balancing act. If you tighten your belt in one area you tend to loosen it in another. For more information you can see Sandra Aamodt and Sam Wang Op-Ed piece on April 2nd, 2008 in the NY Times called Tighten Your Belt, Strengthen Your Mind.” The examples it details is how someone when restricting their spending will then over eat. Here are some excerpts I like from the article:

The good news, however, is that practice increases willpower capacity, so that in the long run, buying less now may improve our ability to achieve future goals — like losing those 10 pounds we gained when we weren’t out shopping.

Other activities that deplete willpower include resisting food or drink, suppressing emotional responses, restraining aggressive or sexual impulses, taking exams and trying to impress someone. Task persistence is also reduced when people are stressed or tired from exertion or lack of sleep.

People who stick to an exercise program for two months report reducing their impulsive spending, junk food intake, alcohol use and smoking

No one knows why willpower can grow with practice but it must reflect some biological change in the brain.

Whatever the explanation, consistently doing any activity that requires self-control seems to increase willpower — and the ability to resist impulses and delay gratification is highly associated with success in life.

So as we get closer to the stimulus package you can see that the US Federal government wants people to open back up their wallets. They don’t want an increase in shopping avoidance willpower, regardless of if people can really afford it. As consumer spending goes so goes the economy. Maybe it is just as simple as cash flow on the balance sheet.

Blind to Change

“… change blindness: the frequent inability of our visual system to detect alterations to something staring us straight in the face.”

This line is taken from an article on April 1st, 2008 by Natalie Angier in the NY Times called Blind to Change, Even as It Stares Us in the Face. The article’s focus is mainly on how the brain sees the world. Ellsworth Kelly’s “Study for Colors for a Large Wall” is a perfect example. When an audience was exposed to the painting everyone absorbed the piece of art. But when the piece was taken away and the audience was asked to view another slightly modified version of it, the audience couldn’t be sure what was different. It as if the audience took it in as a whole, but the specifics were less memorable. The brain takes steps to prioritize the amount of information coming. Here are two sections from the article that encompass what the brain does:

The mechanisms that succeed in seizing our sightline fall into two basic classes: bottom up and top down. Bottom-up attentiveness originates with the stimulus, with something in our visual field that is the optical equivalent of a shout: a wildly waving hand, a bright red object against a green field. Bottom-up stimuli seem to head straight for the brainstem and are almost impossible to ignore, said Nancy Kanwisher, a vision researcher at M.I.T., and thus they are popular in Internet ads.

Top-down attentiveness, by comparison, is a volitional act, the decision by the viewer that an item, even in the absence of flapping parts or strobe lights, is nonetheless a sight to behold. When you are looking for a specific object — say, your black suitcase on a moving baggage carousel occupied largely by black suitcases — you apply a top-down approach, the bouncing searchlights configured to specific parameters, like a smallish, scuffed black suitcase with one broken wheel. Volitional attentiveness is much trickier to study than is a simple response to a stimulus…

I see a parallel to the US economy. The average US citizen probably believes that either the Federal Reserve or those in Congress, or both act in a manner consistent with the second item above. They have an idea before hand of what things should look like and they focus on it to make it happen. Unfortunately, what seems to happen is the first item – they need a red flag to rise before noticing a problem. The US economy in 2007 had several clues popping up that if someone was looking for would have possibly changed the situation we are currently in. Here are a few: oil prices rising, borrowing up, long term unemployment up, middle class wage increases leveling off, and consumer buying had shifted from steaks to hamburger. I’m not advocating something that could resemble overreacting to any of these clues, but there should be small adjustments planned for when any of these items falters in the early stages. That doesn’t happen. Instead we get stimulus packages that help, but don’t do much in the long term.

Executive Pay Comparison for 2007

The NY Times has a special report running currently regarding executive compensation. I will comment more on it next week. There is an outstanding comparison tool that is accompanying it. You can find the tool by selecting this link to it: Executive Pay: The Bottom Line for Those at the Top

The top 200 companies are listed with executive compensation available and broken down. What is most useful is the direct correlation to stock price performance.