The End of Chimerica — The End of the World?

Global Crisis Blog

The End of Chimerica — The End of the World?

By Shlomo Maital

  Niall Ferguson is a respected historian and economist at Harvard. Together with Moritz Schularick, Free University (Berlin), he has made a compelling and deeply troubling argument.  They show why the world economy is in deep trouble, what the solution is and — in my opinion — why the solution will not be adopted, until it is too late. [1]

        Here is a brief summary (perhaps, I admit, made more extreme) of their case:

1. “For the better part of the past decade, the world economy has been dominated by a world economic order that combined Chinese export-led development with US over-consumption.”  Under Presidents Reagan, Bush Sr., Clinton and Bush Jr., America lived beyond its means, buying cheap Chinese exports that stuffed the shelves of Wal-Mart, financed by borrowing from the Chinese (through Chinese purchase of US Treasury Bonds, over $2 trillion worth).  America enjoyed living beyond its means for nearly three decades. China loved it too, because export-led growth created jobs for hundreds of millions of Chinese migrating from farms in the West to factories in the East.  American capitalists made fortunes.  American workers were totally screwed.  America’s middle class lost its well-paying manufacturing jobs.

     Here is evidence for the last underlined sentences:  Fully  HALF  of the gain in family income, from 1993-2007, accrued to the top 1 % of income groups! [2]

 % of  total family income growth captured by top 1%  of income groups:1993-2007      50 %    

  (Clinton: 1993-2000     45 %;    Bush  2000-2007    65 % )                                           

2.  “In some ways China’s economic model in the decade 1998-2007 was similar to the one adopted by West Germany and Japan after World War II. Trade surpluses with the U.S. played a major role in propelling growth.”

    Japan and Germany too used undervalued currencies to propel exports.  But as they became wealthy, they realigned their currencies to realistic rates relative to the dollar. China refuses to do so. 

3.  “We conclude that Chimerica cannot persist for much longer in its present form. As in the 1970s, sizeable changes in exchange rates are needed to rebalance the world economy. A continuation of Chimerica at a time of dollar devaluation would give rise to new and dangerous distortions in the global economy.”

   The global conspiracy between America and China (“Chimerica”), for America to overconsume and China to oversave has now led to global crisis.  If China persists in keeping the yen-dollar rate frozen, and when (not if) the dollar drops, Chinese exports will become even more competitive relative to other currencies like the euro.  This would be disastrous.

 

    Conclusion:   The world is in deep trouble. A major fall in the dollar relative to other currencies (except the yuan/renminbi) is inevitable.  The question is only, when will it begin? And how massive will it be?   America will welcome it, because it is the only way America can hope to repay the massive dollar debt it owes to other nations. 

      If China and America do not cooperate to manage the dollar collapse, the world economy will be in huge trouble.

      China is led by shrewd leaders.  They may perceive that a collapse in the dollar is in their interest, ending forever American hegemony.  They may be willing to lose $600 b. (30 per cent of their $2 trillion dollar holdings) in return.   China may be believe it no longer depends on the world economy, having built a strong Asian ecosystem and having shifted to rising internal demand to replace some export demand. 

       I urge all readers to think very carefully about a scenario, in which the value of the dollar relative to other currencies drops by 30 per cent, and in which China continues to try to buy massive amounts of dollars to keep the yuan-dollar exchange rate at 7 RMB per dollar –   and ultimately, gives up, putting the dollar into free fall.

       With Americans used to overspending, and China stubbornly clinging to its undervalued currency,  there seems to be no other more hopeful scenario that is anchored in reality. 

  

 

 

---

[1] “The End of Chimerica”. Niall Ferguson and Moritz Schularick.  Harvard Business School Working Paper 10-037, Dec. 2009.

[2] “The Evolution of Top Incomes in the United States”,  Emmanuel Saez, Univ. of California, August 5, 2009.

Avatar and Titanic: Innovation 20,000 Leagues Under the Sea — James Cameron and Robert Ballard

By Shlomo Maital

Robert Ballard      

   James Cameron

This is the story of two innovators, light years apart in their endeavors, but closely linked by two things: the sea and Titanic, once the largest moving object on earth. James Cameron, who made the highest-revenue movie in history Titanic and Robert Ballard, who discovered the wreck of the Titanic on the ocean bottom, (as well as the wreck of the Bismarck) were recently featured on Sixty Minutes segments. Cameron is a movie director. Ballard is an undersea explorer. Here are the lessons their life and work teach us.

 1. Have a Dream, Pursue It Relentlessly. Cameron: “I’ve been working up to this for a long time. This is the film I always thought I wanted to make when I set down the path of being a filmmaker,” Cameron said. He wrote Avatar years ago, but had to wait for technology to catch up with his vision of blue people and alien worlds. “I’ve loved fantasy and science fiction since I was a kid. I’m an artist. I’m an illustrator. I’ve been drawing creatures, and characters, and robots and spaceships since I was in high school. I grew up landlocked. Seven hundred miles from the ocean. But the Jacques Cousteau specials, this was in the late 60s, brought the ocean into our living rooms and into my already inflamed imagination that loved, you know, exploration and fantasy. So I had a love affair with the ocean that began before I had actually even seen an ocean.” Ballard: For someone who has devoted his life to exploring the ocean, Ballard was born in an unlikely place: Kansas. As a young boy, he was inspired by the explorer, Captain Nemo, in Jules Vernes’ “20,000 Leagues Under the Sea.” Since then he has been on more than 120 undersea expeditions all over the world. What still excites Ballard most is making new discoveries and he’s done it time and time again. Ballard is 67 but is unstoppable. 60 Minutes asked him: “In all these years, is it the same passion now that inspires you?” He answers: “Oh yes, of course. Discovery is an unbelievable, unbelievable feeling,” Ballard said. “And it never loses its magic?” “No, because it always could beat the last one,” Ballard said. “People say, ‘What is your greatest discovery?’ And I say, ‘It’s the one I’m about to make.’”

2. Just Do It! Cameron: Growing up in Canada, his passions were movies, art and science. After the family moved to California in his late teens, he spent some aimless years, dropping out of junior college, and working as a machinist and a bus mechanic. “And then one day I just quit my job and started making, making a film, a short film,” Cameron said. “You once said: ‘I went from being a bum who liked to smoke dope and hang out by the river to this completely obsessed maniac.’ What was the turning point? What was the point at which you lost your mind?” 60 Minutes asked. “Or found it? I think, you know, I found my calling,” Cameron said. “And I think the moment you’re making a film, no matter how crude, no matter how small or cheap the film is, you’re a filmmaker.”

3. Break the Rules! Ballard: “By cheating. I basically didn’t do the search pattern the way they had done it. See the traditional approach to searching for something in darkness, cause you can’t see, is use a sonar. And you lower the sonar down, and you tow it back and forth, and you mow the lawn. And that’s what all three of them had done. And I went, ‘Well, clearly that’s not working.’” So Ballard used what he had just learned investigating the Navy subs: that when a vessel sinks, the wreckage is carried by the current, leaving a trail of debris like a comet. Applying that to the Titanic, he decided not to look for the ship itself. Instead he searched for the trail of debris that he estimated stretched over a mile, a much bigger target. Ballard also expanded the original search area. And instead of using the sonar to slowly comb every inch of the sea floor as the others had done, he used cameras on a remote controlled vehicle to hunt visually, spacing his search lines almost a mile apart. “So I was able to go through the box real quick. And sure enough, I picked up the trail, and as soon as I picked up the trail I knew exactly: go north. And I walked right into the Titanic,” he explained. Asked how the other experts could not worked that out before him, Ballard said, “They were in the box. They were in the, this is the way you do it. …I live outside the box. I’m always outside the box.”

4. Never Ask Others To Do What You Yourself Will Not Do!… Cameron: His 1989 film “The Abyss” is still remembered as one of the toughest movie shoots ever. Cameron filmed it in South Carolina, in a decommissioned nuclear power plant filled with ten million gallons of water. “We were underwater for ten weeks. Six days a week, eight to ten hours a day, submerged,” he remembered.

5. …But Demand the Very Best! Cameron: From The Abyss on through Titanic, Cameron got a reputation for driving cast and crew relentlessly – come hell or high water – to get the shot. It’s not for nothing that the letters on the cap in his office stand for: “Head – M*** F**** – In Charge.” “I’m not in this to phone it in or to do mediocre work. I tell everybody when we start a project, ‘You know, we’re going to the Super Bowl. Just understand that. You got to be ready. Don’t, as Martin Sheen said in ‘Apocalypse Now,’ you know, ‘Don’t get on the boat if you’re not ready to go all the way,’” Cameron said.

6. If You Need Money — Abandon Modesty. Ballard: He admits he is a showman and a self-promoter, but he says he has to be. “Because I have to raise money, I have to promote myself. I don’t want to say, ‘Well I’m not very good at this, give me a bunch of money.’ No, obviously I’m a salesman,” he explained. Cameron: Cameron famously declared himself “King of the World” when Titanic won 11 Oscars in 1998. Since then he has been immersed in a wildly ambitious and very expensive 3D science fiction fantasy that mixes real actors with computer generated creatures, the sum of which he believes will change the movie business forever. [The cost of Avatar is estimated at $400 m., including marketing and promotion].

7. But Star or Not, Remember It is “We”, not “I”! Ballard: . “Science is a ‘we,’ not an ‘I.’ It truly is. I didn’t do anything. We did a lot of things. But in our system, in America, we have this star-based system. Star athletes, star news people, star politicians. And stars are ‘I.’ And the academic world is really, honestly a ‘we.’” “But you’re the star quarterback,” 60 Minutes said. “I’m the star. But it can get you in trouble in that world that doesn’t believe in that star-based system,” Ballard said. Cameron: Avatar is set on the moon Pandora, a fantasy Eden, which earthlings want to exploit. It’s a Shangri-la created entirely by computers. “You’re creating a world, every creature in it, every blade of grass, every tree, every cloud in the sky, every little reflection in the eyes of the characters,” Cameron explained. His state-of-the-art computer experts worked partly in New Zealand, partly on the 20th C. Fox lot where Marilyn Monroe once starred.

Hope for Innovators: You Do Not Need a Brain To be Inventive –The Case of the Einstein Octopus

 Hope for Innovators: You Do Not Need a Brain To be Inventive

The Case of the Einstein Octopus

By Shlomo Maital 

   A report on the BBC today captured headlines all over the world:

  An octopus and its coconut-carrying antics have surprised scientists.  Underwater footage reveals that the creatures scoop up halved coconut shells before scampering away with them so they can later use them as shelters.  Writing in the journal Current Biology, the team says it is the first example of tool use in octopuses.

    

   Tool use was once thought to be an exclusively human skill, but this behavior has now been observed in a growing list of primates, mammals and birds.   They do things which, normally, you’d only expect vertebrates to do.

 Vertebrates?   Do all vertebrates come up with inventive ways to adapt to their surroundings, breaking the rules and tradition???   Alas, all too few.   Witness Copenhagen — perhaps if the octopuses were gathering in Denmark, rather than world leaders, we might have a chance of reducing atmospheric carbon to survivable levels of 350 ppm, compared with 390 ppm at present.  But, regrettably, our leaders have two arms, rather than eight, and human brains (an hypothesis still to be proved) rather than those of octopuses.

   Apparently, the veined octopuses (Amphioctopus marginatus) used to use empty clam shells for their homes.    With a growing scarcity of clam shells, the clever octopuses (whose brains are very very tiny) have adapted to using half coconut shells discarded by humans.  The process through which this happened was probably fairly rapid, but nonetheless evolutionary.  These octopuses are tasty morsels for fish.  Only those smart enough to hide under coconut shells survive to reproduce, as Darwin explained.

Dr Mark Norman, head of science at Museum Victoria, Melbourne, and one of the authors of the paper, said: “It is amazing watching them excavate one of these shells. They probe their arms down to loosen the mud, then they rotate them out.”

After turning the shells so the open side faces upwards, the octopuses blow jets of mud out of the bowl before extending their arms around the shell – or if they have two halves, stacking them first, one inside the other – before stiffening their legs and tip-toeing away.

    If only humans could speak ‘octupese’ (the language of octupuses).  We could ask them, how can we solve the problem of growing acidity of the oceans, due to water absorbing concentrations of atmospheric carbon which become carbonic acid?  

    Count on them to have better answers than Obama, Brown, Ban Ki Moon or Sarkozy.

 

 

Lithium: Our Future is In The Hands of Bolivia

 Innovation Blog

Lithium: Our Future is In The Hands of Bolivia

By Shlomo Maital

    Meet Stan Whittingham.  He is one of the world’s greatest innovators.   Educated at Oxford University, he did a post-doc at Stanford, then stayed in America and worked for Exxon. While working there, in the 1970’s, he invented the lithium-ion battery.   Today he is a professor at State University of New York in Binghamton, NY. 

    Lithium-ion batteries are found in your laptop, cellphone, iPhone, and many other devices.  They have a number of major advantages over other types of batteries — to store 150 watt-hours of electricity, you need only 1 kg. of lithium-ion battery, while a 1  kg. NiMH (nickel-metal hydride) battery can store only 60-70 watt-hours, and a 1 kg. lead-acid battery (the kind you have in your car) stores only 25 watt-hours.  Lithium is the lightest metal of all.  Its current price is about $5.3 – $5.7 /  kg.

    Lithium-ion batteries are light;  hold their charge (losing only 5 per cent per month); they have no ‘memory effect’ (you do not have to completely discharge them before recharging); and they can handle hundreds of charge-recharge cycles.

          Lithium-ion batteries will play a key role in future electric cars, because of their light weight.  Demand for lithium will expand rapidly in the future as a result.   TRU Group projects demand for lithium will double by 2020, when 40 per cent of all batteries will be lithium-ion (mostly, in electric cars).  TRU predicts that production of electric cars will rise from 1 m. cars in 2010 to 4.5 million in 2020 !

      However,    half of the world’s lithium is found in Bolivia, in its Uniyuni salt flates.  There is an estimated 5.4 m. tons of lithium in the ground there.  Annual world consumption is about 105,000 tons — so Bolivia has more than a 50-year supply (at present consumption rates), or 25 years at rates predicted for 2020. At current prices Bolivia’s lithium treasure is worth over $25 b.  This is 50 per cent more than Bolivia’s annual GDP of $16.7 b. !  Bolivia’s President, Eva Morales, is determined that Bolivia will develop its own lithium treasure and keep the resulting wealth for Bolivia’s people, rather than ship the ore out elsewhere.  This is reasonable — except, Bolivia lacks the capital and know-how to do so — to develop the complex mining and refining facilities that are needed, costing many billions of dollars.

   According to Reuters:   “Some far-sighted companies are already attempting to secure the rights to mine lithium in Bolivia’s Uyuni salt flats,” said Carl Firman, an analyst at Virtual Metals, adding that the metal is mined as a by-product in clays, brines, salts or hard rock.

“This will be fraught by political complexities, as Bolivia will not simply allow its lithium to be mined and exported elsewhere for downstream processing and fabrication,” he added.

       Economists predict that scarcity of lithium would generate rising prices that lead to desperate research to find an alternative.   Will Bolivia plays its cards smartly, cooperating with global companies with core competency in mining lithium?  Or will it stubbornly insist on going it alone,  creating an R&D race to find a different battery technology?

    Andy Keates, who heads mobile battery technology for Intel,  says lithium-ion technology is getting old.  He notes that new directions, involving new chemistries, are: rechargeable zinc-alkaline ,  silver-zinc, and fuel cells (when batteries cannot be recharged).    He thinks lithium-ion batteries will continue to improve by 7 per cent annually.  

   

The Innovators’ 20 Commandments

 

Innovation Blog

The Innovators’ 20 Commandments

By Shlomo Maital                                

     

  This is adapted from something on the wall of my doctor’s office (annual checkup; please don’t skip yours).  No-one in the office remembered where it came from.

   The REAL Ten Commandments contain five do’s and five don’ts.   The Innovators’ 20 Commandments are all do’s.  Innovators always think positively.

 

1.  Make friends with freedom and uncertainty.

2. Give money away, now! The money will follow.

3. Listen to old people.

4. Celebrate every gorgeous moment.

5.  Stay loose; learn to watch snails.

6.  Look forward to dreams.

7.  Refuse to be responsible.

8.  Do it for love.

9.  Become yourself.

10.  Have wild imaginings and perfect calm.

11. Draw on the walls.

12.  Open up, dive in, be free.

13.  Get wet

14.  Write love letters

15.  Entertain your inner child.

16.  Refuse to “act responsibly”.

17.  Post signs that say “Yes!” all over your house.

18.  Drive away fear.

19.  Cultivate moods.

20.  Recognize your main deep passion and pursue it, no matter what.

How Ada Yonath Deciphered the Ribosome and Won the Nobel Prize:

 Innovation Blog

How Ada Yonath Deciphered the Ribosome and Won the Nobel Prize:  Lessons for Innovators

By Shlomo Maital

     Prof. Ada Yonath,  a scientist at Israel’s Weizman Institute, in Rehovoth, is the fourth woman to win the Nobel Prize for Chemistry.  She joins Madame Curie, Curie’s daughter, and Dorothy Hodgkins.

   Yonath deciphered the structure of the ribosome.   How? And why does it matter?  What can innovators learn from her discovery? 

    Here is an edited transcript of the short interview that appears on the Nobel Prize website, following the phone call that told her she had won the prize.

—————-

Interviewer:  Your prize was awarded for your work in discovering the crystalline structure of the ribosome.  What is a ribosome? What did you discover?

Yonath:   The ribosome is a machine [inside the human cell].  It gets instructions from the genetic code, and operates chemically in order to produce its product:  Proteins.  During their work, ribosomes work very fast, very well, very accurately.   During their work, they have to “proofread” the results (check that the protein they produced is precisely right), and to protect the protein until it  is capable of protecting itself.  Think about a baby kangaroo,  in its mother’s pouch for weeks before it emerges into the world. Likewise, the protein made by the ribosome first goes into a “pocket”,  or tunnel, and only then into the world.   Like the baby kangaroo, the newly born protein progresses, until it emerges from its ‘pouch’.

Interviewer:  You are the fourth woman to win the Nobel Prize for Chemistry.  Your predecessors were: Marie Curie; her daughter;  Dorothy Hodgkins; and now you.   What gave you the courage to try?

Yonath:   A serious bicycle accident.    I had a brain concussion, a serious one.   I had some free time while recovering and I read a lot.  I read a study that showed that polar bears’ cells pack their ribosomes  regularly, periodically, on the membranes of the cells, when they hibernate for the winter. I asked myself, why do they do this? 

     The logical explanation:  At the end of the winter, when they awake, bears need lots of active ribosomes.    By packing them closely, the ribosomes are preserved and are ready to function when the bears wake up in Spring from hibernating.  This is the way they preserve active ribosomes, by this close packing.   I read this and I thought, maybe this is the way to for solve the structure of the ribosome.     This gave me the idea that ribosomes can be packed in an orderly way, so that one can determine their structure [by X-ray crystallography].  This was not believed at that time.   I used ribosomes from very robust bacteria, ones that survived the harsh conditions of the Dead Sea, under very active conditions, and I took advantage of research done before me at the Weizman Institute on how to preserve their activity, and their integrity, while they crystallize.   [The method Yonath developed is known as cryo bio-crystallography.  It is now the standard method used by structural biologists]. 

   When people ask me, how did I discover the structure of ribosomes, I say, because of a brain concussion, a blow to the head.  This is technically true — but it is not the whole story. 

Interviewer: Did you ever doubt you would succeed?

Yonath:   I doubted all the time,  the research was extremely difficult.    The insight I had with the Bears was just one small step.  Afterwards, there were lots of problems. At one point I described what I am trying to do in this way:  we are climbing mountains in order to reach the summit; these mountains are like Everest, very  difficult to climb; when you get to the top,  you find there is another mountain behind it to be climbed afterward, an even higher one… and so on.

 ———————————

 Yonath’s research will likely have world-changing impact.  According to Wikipedia:

       Yonath elucidated the modes of action of over twenty different antibiotics targeting the ribosome, illuminated mechanisms of drug resistance and synergism, deciphered the structural basis for antibiotic selectivity and showed how it plays a key role in clinical usefulness and therapeutic effectiveness, thus paving the way for structure-based drug design (i.e. designing molecules that heal, rather than use trial-and-error on thousands of compounds, hoping to find one that works). 

       Yonath’s life story holds the key to understanding her dogged persistence and fiercely-independent thinking, in the face of huge skepticism (in a male-dominated profession). She was born in the Geula neighborhood in Jerusalem, then and now a slum, living in a tiny apartment.  Yonath’s parents were extremely poor; her father, a rabbi, ran a failing grocery store. Her parents sent her to elementary school in a better neighborhood to make sure she had a good education.  Later she went to a top (and expensive) high school, and gave math lessons to help pay the tuition.

    In her career:    ”I was the village fool for many years,” she told the Jerusalem Post. “It didn’t bother me at all. I had doubts of course. At first, I wasn’t sure that it would work. I had a lot of luck. For quite a while, I didn’t receive a higher academic status. I didn’t feel any discrimination against me as a woman scientist, but I hadn’t produced a lot of science journal articles. The Weizmann Institute showed me respect and didn’t require many administrative tasks, so I was quite independent. I did what I wanted.”

    The result was a Nobel Prize and a breakthrough discovery that one day will save many many lives. 

   ====================================================

       POSTSCRIPT:  Break the Rules!

    Innovation is (intelligently) breaking the rules, this Blog has noted countless times.  In her Nobel speech on behalf of  all the participants (she was chosen to speak for them all) at the gala Nobel banquet, before 1,300 participants,  Ada Yonath broke the rules: the strictest one.  Do not NOT use your talk to say ‘thank you’, the Nobel organizers cautioned, wisely seeking to avoid the inane boring speeches actors make at, for instance, the Oscar ceremonies.  

   “I’m known as someone who carries out orders,” she said, meaning the precise opposite.  “I want to warmly thank my loyal driver, Nisse.” (The crowd laughed).  “Without him I would be lost in Stockholm, a wonderful (though dark) city.  As a result, without Nisse, I would have missed most of the exciting events during this magical week.”  (Loud applause).”   Does this suggest a key innovation principle:  Share the glory with those who help you, including the lowliest!  According to her colleagues and students at the Weizman Institute — Yonath does.

     She continued: “ …Isaac Bashevis Singer [who won the Nobel Prize for Literature in 1978] said in his Nobel speech, ‘people ask me why I write in a dead language, Yiddish’.  Well,  in my case too, people used the word ‘dead’ –   when I spoke of my plans to determine the structure of the ribosome, top scientists said, ‘why?  …ribosomes are already ‘dead’ and we know all we need to know about them!’.  ['Dead', because until Yonath, to study ribosomes, you had to kill them].   ‘You will be dead before you succeed,’  these scientists said.   Well, happily, ribosomes are alive and kicking …and so am I!”  

   Yonath sat next to the King,  Gustav XVI, and said the conversation was fascinating; the King is knowledgeable about science and technological innovation. 

Deficit Panic: Let’s Hope History DOES Repeat Itself

Global Crisis Blog

Deficit Panic:  Let’s Hope History DOES Repeat Itself

By Shlomo Maital

Dec. 12/2009

 A Nov. 30 headline in Britain’s   Daily Telegraph reads:

        Morgan Stanley fears UK sovereign debt crisis in 2010

  “Britain risks becoming the first country in the G10 bloc of major economies to risk capital

flight and a full-blown debt crisis over coming months,” according to a client note by Morgan Stanley. 

   Capital flight from Britain?  Want a real nightmare?  How about capital flight from America?  Britain’s debt-to-GDP ratio is growing the fastest, but America’s is much larger, soaring to over 100 per cent by 2013,  a level that triggers IMF alarm bells for countries far less crucial that America.

   There is good reason to panic about levels of government debt in America, UK, Japan and the EU. 

   But history also shows there is a solution.

   Bill Clinton was elected President of the United States in Nov. 1992.  He inherited enormous budget deficits from his predecessor, George Bush Sr.  Together with his key economic advisor Larry Summers, Clinton fashioned a package of measures aimed at slashing the deficit, and getting government borrowing under control. 

    The Deficit Reduction Act:     ¨ created 36 percent and 39.6 income tax rates for individuals.  (28% was the maximum rate up to then). ¨ created a 35 percent income tax rate for corporations.  ¨ the cap on Medicare taxes was repealed. ¨ transportation fuels taxes were raised by 4.3 cents per gallon. ¨ the taxable portion of Social Security benefits was raised.  ¨ the phase-out of the personal exemption and limit on itemized deductions were permanently extended.

Many of these measures were tremendously unpopular politically, especially Medicare, Social Security and income tax. 

   The bill very nearly failed.   It was a ’squeaker’.  According to Wikipedia:

   “Ultimately every Republican in Congress voted against the bill, as did a number of Democrats.

¨ Vice President Al Gore broke a tie in the Senate on both the Senate bill and the conference report.   The House bill passed 219-213.

¨ The House passed the conference report on Thursday, August 5, 1993, by a vote of 218 to 216 (217 Democrats and 1 independent (Sanders (VT-I)) voting in favor; 41 Democrats and 175 Republicans voting against), and

¨ the Senate passed the conference report on the last day before their month’s vacation, on Friday, August 6, 1993, by a vote of 51 to 50 (50 Democrats plus Vice President Gore voting in favor, 6 Democrats (Lautenberg (D-NJ), Bryan (D-NV), Nunn (D-GA), Johnston (D-LA), Boren (D-OK), and Shelby (D-AL) now (R-AL)) and 44 Republicans voting against).

  President Clinton signed the bill on August 10, 1993.

 Strong economic growth, which both helped (and was helped by) the deficit reduction act, led to booming tax revenues that eliminated America’s federal budget deficit within four years.  From a deficit of $300 b. in 1993 (one fourth the size of today’s US budget deficit!),  the deficit was zero by late 1997, and by the time Clinton left office (with George W. Bush narrowly defeating Al Gore, who had played a key role in getting the deficit reduction legislation through Congress), the deficit had become $300 b. — but a surplus! 

   (See Figure).

   deficits

    Under Bush, the deficit again soared (because of massive irresponsible tax cuts) to $500 b. within three years. 

   Can Obama follow Clinton’s lead?  Can he slash the deficits, reduce America’s borrowing, and save the dollar form collapse, while sending more troops (and money!) to Afghanistan?    

       Remember — Obama’s chief economic advisor is the same Larry Summers that helped shape Clinton’s plan. 

    Let us hope history DOES repeat itself. If it does not,  the world is in trouble.

Reinventing Ireland: How to Build an Innovation Ecosystem:

Innovation Blog

Reinventing Ireland:  How to Build an Innovation Ecosystem

By Shlomo Maital

Dec. 10/2009

  Consider Ireland.  Once Europe’s poorest nation, in 1988, Ireland reinvented itself.  Driven by a powerful vision that united government, labor and industry, Ireland attracted multinational companies to build factories, attracted by an educated English-speaking labor force, low tax rates and Ireland’s strategic membership in the European Single Market.  Ireland went rapidly from one of Europe’s poorest nations to its fastest-growing one. 

    But the 2007-9 global crisis hit Ireland hard.  The economy contracted, and unemployment soared.  Now, like other countries, Ireland again is working to reinvent itself — to build a new growth engine to replace the old worn-out one.  I believe they will succeed.  I believe that other countries should carefully study Ireland’s approach, given their past record of success.

    Ireland’s two top universities, University College (Dublin) and Trinity College (Dublin) began a joint project, known as the Innovation Alliance, to work with government, business and venture capitalists.  The aim?  “To develop a world-class ecosystem for innovation that will drive enterprise, development and the creation of sustainable high-value jobs”.  

    The core of this ecosystem is a plan to link angel investors, venture funds, service providers and entrepreneurial mentors, that can help translate a novel idea into successful job-creating businesses.  [1]   Spearheading the effort is Burton Lee, a key member of the Irish Government task force whose mandate is to design the new system.  “There is nowhere in Europe where all the elements of (such an) ecosystem are really functioning”, he notes.  

    Ireland has great universities and top scholars.  Lee’s plan is to “turn Ph.D.’s into savvier businessmen and women.”   I am sure he is aware of MIT Professor Edward Roberts’ finding, that other things equal, a Ph.D. seriously reduces the chances of success for an entrepreneur (in America), compared with an entrepreneur with an M.Sc.  (Ph.D.’s, trained for perfection, take far too long to get to market). 

       I believe Ireland’s approach is validated by a new book, written by Harvard Business School Professor Josh Lerner,  Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed—and What to Do about It.   Lerner’s key point:  government can play and often has played a key role in creating and stimulating entrepreneurial ecosystems, in Israel, Singapore — and even Silicon Valley,  but more often, inept government policies have utterly failed.    ”Particularly during the early years, the government played a critical role in shaping Silicon Valley,  especially spending and funding from the U.S. Department of Defense,”  Lerner notes.

       In the post-global crisis era,  the rules of the game have changed radically.  The most important rule change:  Governments today must be part of the solution, rather than be regarded as part of the problem.  It is governments that will lead the effort to redefine and reshape innovative ecosystems.  Countries that recognize this fastest, like Ireland, will reinvent themselves better and faster.   

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[1] See:  Yasmine Ryan, “Banking on a Ph.D. ‘ecosystem’ to help the economy bloom”,  IHT, Dec. 2, 2009, page 11 (www.iht.com).

‘KURZARBEIT’: German Bureaucrats as World-Class Innovators

Innovation Blog

‘KURZARBEIT’: German Bureaucrats as World-Class Innovators

By Shlomo Maital

Dec. 9/2009

    As leaders and experts pronounce the end of the global recession worldwide, an army of workers who have lost their jobs and may never regain them are bitter and angry.  In America,  the rate of unemployment fell slightly in November to 10 per cent, but the number of long-term unemployed rose by 293,000 to 5.9 million, and the economy lost jobs for the 23^rd straight month.  In the 30-member OECD (Organization for Economic Cooperation and Development), the average rate of unemployment is 8.5 per cent.  In Spain, it is a staggering 19 per cent, and the I.M.F. says it will reach 20 per cent in 2010.

    Jobs continue to lag behind the economy. The reason is simple.  Businesses reacted to the global downturn by shedding workers and boosting productivity.  As the global economy recovers, those productivity gains mean it is not necessary or profitable to resume hiring.   The same workers can produce more stuff.  Why hire more of them?  In America,  in Q3 2009,  non-farm labor productivity rose by a startling 8 per cent (annualized)  — more than half coming from a sharp fall in hours worked. 

   What can nations do to mitigate the bad news — unemployment — that stems directly from good news — higher productivity growth? 

      A surprising source came up with a plan that works — German bureaucrats.  This nation of 80 million is not renowned for creative thinking.  Yet its plan, known as kurzarbeit (shortened work hours), has succeeded.  In this plan, workers whose hours have been cut due to the recession have their pay supplemented by the government.  In the plan,  companies avoid firing workers and instead slash their hours by half;   government supplements these workers’ salaries up to 2/3 of their former level, and more important, pays all the social benefits.   That way, companies save half their wage bill, workers keep their jobs and income, and continue spending, bolstering the economy.  Germany’s unemployment rate is 7.7 per cent, well below the OECD average and far below America’s 10 per cent.   Some 1.4 million workers have benefited, and a recent report states that half a million jobs were saved.

    The cost of the plan:  a modest 5.1 b. euros a year.  Compare that with America’s $ 1.2 trillion fiscal stimulus plan, that funneled $180 b. to bail out AIG alone, and which had very little impact on jobs.  President Obama is now desperately searching for ways to create jobs. 

     The kurzarbeit  plan is vital for Germany, because as the world’s largest exporter (now tied with China), Germany’s economy is built on mid-sized industrial companies with skilled experienced labor.  Dump that labor, in a recession, and you may not get it back in the upturn. 

     Will it work for other countries, like America?

     Probably not.   In order to save industrial jobs, you have to have them in the first place. America shipped its industrial jobs to Asia in the 1980’s and 1990’s.  Getting them back, a vital goal, will be a thousand times harder than it was giving them away to China.   

Creating Radical Change With Baby Steps: 10 Incremental Innovations Create a Revolution

Innovation Blog

Creating Radical Change With Baby Steps:  10 Incremental Innovations Create a Revolution    –     Case Study: Singapore’s Schools

By Shlomo Maital

Dec. 6/2009

 Singapore schoolchildren  

Innovators love sweeping radical inventions that change the world.  But sometimes, radical change occurs only through patient, plodding incremental improvements, many of them, that together add up to a revolution. 

      In the West, addicted to instant gratification (see my blog, “Marshmallow”, Nov. 27),  baby steps are too slow.   We search for a magic bullet.  But, usually there are none.  In the East, in Asia, with far longer time perspective, slow incremental changes are de rigeur, compulsory. And they create force-multiplying change.

      Here is an account of how Singapore used incremental change to build a world-leading school system, written by Lars Qvortrup (Dean of a leading Danish School of Education) and supplied to me by my friend Bilahari Kausikan,  First Permanent Secretary of Singapore’s Foreign Affairs Ministry.    Qvortrup notes that Singapore ranks #1 in the world in quality of education (according to IMD’s World Competitiveness rankings), and is consistently in the top five countries in the world in reading, math and science. 

   Qvortrup recently made a best-practices benchmarking visit to Singapore schools.  Here is what he learned.

1.   Vision:  “Singapore decided in 1997 its future was to be a knowledge society” (a slogan many countries, incuding Israel, mouth, but few implement).  “They focused on innovation, creativity and entrepreneurship.”  These core goals remain the central focus, within a highly disciplined system that measures performance through results and tests.

2.  School is work.  ”School is a workplace, where it is expected each student will do his or her utmost”.   Pupils stand up when the teacher enters, and say, “Good morning sir (madam)”.  The teacher says, “Are we ready?”.  The children answer, Yes!”

 3.  Class management.  “What works?”,  “why does it work in one context but not another?” are questions constantly repeated.  Teaching has a clear structure:  “problem, analysis, method, solution.  Work is done collectively.  “Class sizes are very high,  30-40 students per class.”  All classrooms have a projector, “so that teaching can be supported by PowerPoint”. 

4.  Sport and health:  Many children arrive as early as 7 a.m., and have fun,  play ball, and do “wushu”, a Chinese gymnastics program; for the overweight, there is jogging between 7:30 and 8 a.m.  St. Margaret School has a huge cafeteria, with five different cuisines, and low prices, because food venders are private small businesses.  

5.  Testing:  As early as 2^nd grade, a test is implemented, and 30-40 students are put into a special class, where they are stimulated in different ways and encouraged to develop their abilities.  A comprehensive exam given at the end of primary school (end of 6^th grade) provide feedback for teachers, and comparison between schools.

6.  Physical facilities:  Schools are big and perfectly maintained.  Averaging 1,000-1,500 students, classrooms are bright, well-maintained, well-designed and spacious.  Quality and cleanliness support respect for education.

7.  Teachers’ work is organized uniquely.  Primary teaching ends at 1:30 pm.  Children then go to after-school programs.  Teachers do not go home.  They each have a laptop computer and a desk (and very small office).  They work until 5 or 6 pm.   The principal sends the last teachers home at 6:30 pm.

8.  Parents are involved — and kept out.   There are Saturday workshops for parents, where math and science are reviewed, so parents can understand the teaching principles and help their children with homework.  But the boundary between home and school is clear. “Now you are in school”, children understand. 

9.  Teaching is prestigious.  All Singapore teachers study for five years at the National Institute of Education (NIE).  Instruction is research-based.  There are ten times as many applicants as there are student openings.  “Teachers are well-educated and have professional pride.”

10.  Talented teachers:  “All teachers in Singapore have a right to 100 hours of continuing education a year — a right they are expected to utilize”.  Commonly, 50 hours are used for professional development and subject-area specialization, and the other 50, for common, educational development.

     What works well in Singapore may not work well elsewhere.  But the main lesson from the above is clear and simple.  Education is about schools and teachers.  Make each excellent, in a hundred different pragmatic ways, and accept nothing but excellence.  Reject excuses (such as, no budget, bureaucracy, poor teacher education, bulging classes, crumbling schools).   Keeping making changes until excellence is achieved, and then reinforce it by redoubling innovation.  And always, every day, benchmark best practices, within your own country and abroad.