Everyone Deserves a Second Chance – Let’s Try to Help

By Shlomo Maital  

Deason

Doug Deason

    Doug Deason is a wealthy businessman, president of Deason Capital Services and a philanthropist, head of the Deason Foundation.  And he has a message.

    When he was 17,  in 1979,  he broke in to his neighbors’ home and threw a party, while they were out of town.  (Actually, their son had given him a key).  The party got out of hand. The police were called.  And Deason was charged with felony burglary.  Note that word: Felony.  A federal crime.  You get a year or more in jail, in a Federal pen. 

   If he were poor and black, his life would have basically ended.  With a criminal record, he certainly could not have started a business in investments, or perhaps in anything.  All he could have done was continued along the path of crime…   after a youthful stupid mistake that really harmed nobody. 

    And this is precisely what happens to a great many young people in the U.S.

     According to the U.S. Bureau of Justice Statistics (BJS), 2,266,800 adults were incarcerated in U.S. federal and state prisons, and county jails at year-end 2011 – about 0.94% of adults in the U.S. resident population. Additionally, 4,814,200 adults at year-end 2011 were on probation or on parole.  One percent of adult Americans are in jail.  A large proportion are African-Americans.  As many as 100 million people have some criminal record.

    Deason pleaded guilty to a misdemeanor (criminal trespass), paid a fine, served six months of probation – and then his conviction was expunged, erased.  He got a second chance.  And he made the most of it. 

    Deason is a Republican.  He and others are pushing for criminal justice reform.  “Years ago, I made a mistake and got a second chance.  Every American should be able to say the same thing,” he says. 

    Deason’s company has a policy of hiring nonviolent criminals.  He worked with the Texas State Legislature (not known as a bastion of liberal democracy) to pass a bipartisan “second chances” bill, that takes effect on Sept. 1.

    But I think there is another key point here.  You really cannot legislate second chances. It is up to us, the people, to offer second chances,    to forgive, and to help those who have made that one huge mistake and are paying for it forever.   Of course there are risks.  But when there is no second chance at a normal life,  the only option is a life of violence and crime.  Why in the world does America’s criminal justice system not understand that?

How Vic Firth Drummed Up Some Business

By Shlomo Maital

   Vic Firth

  Vic Firth died Sunday; he was 85 years old, lived a full life, and for an amazing 40 years was the principal timpanist of the Boston Symphony Orchestra.  I’m certain I’d seen him in action, during the 20 years I taught as summer adjunct at MIT.  He played for such great conductors as Bernstein, Koussevitsky, Leinsdorf and Ozawa.  Seiji Ozawa called him “the single greatest percussionist anywhere in the world.”

   The Boston Globe once called him “debonair, affable,intelligent and sometimes cheerfully profane.”  He once came up from the audience and played a drum solo, in Providence, RI, with  The Grateful Dead. (The Boston Symphony told him never to do that again. He didn’t).  And, by the way, he launched a company that bears his name, that turns out 12 million drumsticks and mallets annually, used by classical, jazz and rock drummers everywhere. 

   How did this happen?  Here is what the Global New York Times wrote:  “[he desired] sticks that were fleet, strong, perfectly straight, of even weight in the hands and able to produce the vast range of sounds he desired….Working in his garage, he whittled a prototype that had the lightness, versatility and equilibrium he desired, and engaged a wood turner to fabricate the sticks.  …  his students clamored for them [and] soon other drummers did too.  Vic Firth Inc. was born.”

   A great many startups are born, when creative people want some product that does not exist,  and take action to make it.   They do no market research, no surveys…just introspection.   Because, if like Vic Firth you want and need something and know exactly what you want, then other “percussionists” will want it too.   And you don’t necessarily need to be the world’s greatest drummer to make it happen.

    What would YOU like to have, that does not exist right now?  Can you make one?   If the answer is yes, and yes,  you have a great head start.  Go for it.     

Matteo Renzi Revives Italy

By Shlomo Maital

  Italy consumer confidence

    The attention of the business press has been almost entirely focused on the bad-news story of Greece.  While Greece suffers, almost un-noticed   Italian Prime Minister Matteo Renzi, who took over in 2014, has fulfilled his promise to revive the Italian economy.  He has cut public spending, slashed deficits, modernized the judicial system, and reformed the sluggish labor market. (All these reforms are equally vital in France – but Hollande is neither able nor willing to undertake any of them). 

      Renzi’s Jobs Act, passed March 1, ends the system that gave some employees ‘jobs for life’.   Companies that hire a previously unemployed worker in 2015 get a three-year grace period on social security contributions. This makes hiring much more worthwhile.   As a result,  consumer confidence in Italy is now, July 2015, at a 10 year high (the graph does not include the latest few months). 

      Car sales are up.  Youth unemployment is way down.  Demand for exports is strong.  And debt payments are falling sharply, from the present high level of 5 per cent of GDP to a targeted 1 per cent by 2020. 

     Renzi’s reforms now enable insurance companies and securitization companies to lend directly to businesses,  attracted by a tax break for firms that issue new equity.

      Renzi has cut corporate taxes by 6.5 billion euros, and imposed electoral reform for Italy’s lower house.  He is trying to slash the amount of pending litigation by half and reduce the length of trials from three years to one.

     Renzi is only 40 years old.  When appointed, he was 39, making him the youngest Prime Minister in Italy since 1861.   His reforms deserve far more attention.   (See The Financialist:  Italy’s Reform Agenda).   Few believed he could fulfill his promises when he took office. But he has.  Perhaps France could take a few lessons from Renzi. 

Euro Disney Pricing: Pure Mickey Mouse!

By Shlomo Maital

Mickey Mouse

If you’re a manager or entrepreneur, here is a 100% certain proven way to get into hot water. Take the advice of economists. I should know – I am one of them.

   EuroDisney is a good example. According to basic microeconomic theory, if you can segment markets with different prices, then you set prices inversely to the price sensitivity (or, elasticity) of demand. Low sensitivity? High price. High sensitivity?   Low price.

   Many Europeans buy Disney packages on-line. That means that Disney can charge people from different countries, different prices, because the Internet knows where you are.   And of course, that’s just what Disney does. Disneyland Paris practices “geo-blocking” (Global New York Times, July 30, p. 18). “For an identical stay, the Euro Disney website often offers higher prices on German computers than on French ones.”   Euro Disney had 14 million visitors last year with prepackaged prices. This year? Geo-blocking.

   So what’s wrong with price discrimination, if you’re a monopoly and can get away with it?   For one, it is not legal. The European Commission says national borders are supposed to be erased, and prices should be the same for all.

   But worse than that —   discriminatory pricing causes major resentment. Imagine that you bring your family from Berlin to Disney Paris, and find that your neighbor, on the merry-go-round, from Paris, paid half what you did.   I know – it happens all the time on airplanes. Nearly everyone on the plane has paid a different price, from very high to very low.  

   Disney could say: If we charged one price, we’d have fewer customers, and would have to charge EVERYone much more to recover our costs.   But this is pure Mickey Mouse!

   When economic theory and profit maximization collide with basic fairness and empathy for customers, paying high prices,   empathy should win. In the long run, it is simply good business. Beware of what economists advise. It is based on math, not on people.

 The New Pricing Model:  “Name Your Price.  Really!”

By Shlomo Maital

PWYP

   Harvard Business School’s Working Knowledge has an interesting piece by Michael Blanding, about research by marketing assistant professor Shelle M. Santana.   Santana studied “pay what you wish” (PWYP) pricing.  

   PWYP?   According to economists, it makes no sense.  If you can pay, say, one cent, or nothing, why of course that’s what everybody will do. 

   Yet another case where economic theory misleads.

   “Research shows,” notes Blanding, “that when people are able to set their own prices, almost everyone pays something – and sometimes well over the suggested price.”  Santana says she was interested in the broad variance of prices people pay, under PWYP, and who pays a little, and who pays a lot, and when.

    She found that by controlling the environment and context, she can influence what buyers are willing to pay.

    Some examples of PWYP?   Radiohead’s In Rainbows album has ‘name your price’ downloads.  Dallas Theater Center has Pay What You Can nights to attract new patrons.  Boston Pedicab has an ‘open fare’ system.  Panera Bread has four nonprofit Panera locations with PWYP (I wrote a blog about one, some time ago).

    In one experiment Santana and a colleague designed a PWYP promotion  for a pack of gum at a student café at NYU.   At one scenario, their sign showed a pair of hands shaking, and read “It’s Your Turn to Set the Price Today”.  At a second, the sign showed a group of hands in a circle, that read: “Because We’re Partners, It’s Your Turn to Set the Price Today.” 

    Guess which sign got the highest price?  Of course – the second sign got an average price of 69 cents, compared with 57 cents for the first.  That’s a 21 per cent difference.

     Why?  Creating a communal norm…  pro-group, rather than just pro-self.  Moreover, customers are willing to pay more, often much more, when a portion of the proceeds is donated to charity – something many companies discovered long ago.

Harvard Business School Working Knowledge, 22 July 2015.  “Research and Ideas”

Internet of Things (IoT):  It’s Not Hype

By Shlomo Maital   

  internet of things

  If you’re like me, you may be skeptical of the term “Internet of Things”.  I am so tired of hearing about refrigerators that know how to order milk.  This is not a compelling value proposition.  But after reading a new McKinsey Global Institute report,  I am a lot less skeptical.*  Here is a summary.

    Definition:  “The Internet of Things:  sensors and actuators connected by networks to computing systems, to monitor and manage the health and actions of connected objects and machines, including people, animals and the natural world.”

    “The Internet of Things has the potential to dramatically improve health outcomes, particularly in the treatment of chronic diseases such as diabetes that now take an enormous human and economic toll….      Technology suppliers are ramping up IoT businesses and creating strategies to help customers   design, implement, and operate complex systems – and working to fill the gap between the ability to collect data from the physical world and the capacity to capture and analyze it in a timely way.”

    “We estimate that the Internet of Things has a total potential economic impact of $3.9 trillion to $11.1 trillion per year in 2025.  (At the top end, the value of IoT impact would be equivalent to 11 per cent of the world economy, or $99.5 trillion in 2025.”)      

    “By viewing IoT applications through the lens of “settings”  we capture a broader set of effects..  a settings lens helps capture all sources of value – we identified nine settings where IoT creates value:   Human (devices attached to or inside the body); Home (where people live); Retail environments; Offices; Factories; Worksites; Vehicles; Cities; Outside.  “

    “ Capturing [the potential of IoT] will require innovation in IoT technologies and business models, and investment in new cpaabilities and talent.”

  So:  Innovator!  Can you think of ways that connecting things digitally brings real value to people?  Which of YOUR things would you like to see connected?  Start with a setting; proceed to thinking of the sensors you need; and continue by thinking about how you would use the sensors’ data to create value.   This is a future industry waiting to be invented.                  

*  McKinsey Global Institute.  The Internet of Things: Mapping the value beyond the hype. 2015.

What Goes Up Comes Down:  China’s Stock Market Decline

By Shlomo Maital 

 China stockmarket fall

             Between mid-March and early June,  less than three months,  China’s stock market created $3.5 trillion in new capital gains for its investors. Many of them are working people, who scrimp and save and buy shares.  They were richly rewarded.

            Between early June and July 7,  the Chinese stock market fell by one-third, wiping out $3.5 trillion in capital gains.    Over the 12-month period to July 8,  the Chinese stock market is still up by 75 per cent!

           Once again,  for the millionth time, investors learn that whatever goes up, can and will come down.  When it does, it often comes down pretty abruptly.

          The so-called “crash” in China’s stock market has been greeted with what could be seen as a hasty, panicky intervention by regulatory officials, who suspended trading in over 90 percent of the 2,775 shares listed on Chinese exchanges, as the government tries to quell a sell-off.   I still believe that most small investors in China are not selling, are wisely holding on to their shares, and believe, rightly, that they will bounce back.

        It all depends on your time perspective.  If it is a one-month horizon, well, this is a crash.  If it is a one-year horizon,  then, Chinese shares are still up by 75 per cent,  from July 2014 to July 2015.   See the chart below.     

china stock index one year

With a bit longer perspective, that one-month 33% drop doesn’t seem as steep, does it?   And I believe most Chinese investors bought in to the market well before the decline of the past month.   If they bought in before March, they are still ahead.   That $3.5 trillion in losses is purely paper, purely perception.  Why not measure the gains between July ’14 and July ’15? 

      There is no need for government intervention.  The model of Hong Kong (Hong Kong authorities bought shares after the 2008 global collapse, and ended up profiting when share prices rebounded) is not one China Mainland should follow.    Sometimes, “do nothing” is the best and wisest policy,  in health care and in financial regulation.        

Innovators:  Are You Comfortable with being Uncomfortable? Are Your Kids?

By Shlomo Maital

 discomfort

            Comfort:   “a state of physical ease and freedom from pain or constraint”.    

            The purpose of much of modern life seems to be to annihilate all sources of discomfort from our lives.   Pain?  Pop a pill.  Hungry? Thirsty?  You’re never more than 5 minutes away from fast food that gives you bulges in ugly places.  Frustrated?  Well, if you can’t leap over the bar,  hey,  just set it lower. 

             The problem with this is,   things that truly create immense value for human beings happen, only when creative people become uncomfortable with the current state of affairs – with what exists.  Without this divine dissatisfaction, and discomfort, we would have no progress at all.  If everyone was satisfied with everything as it is…?   If everyone shunned prolonged discomfort?  Nothing would change.  And heaven knows, there is a lot that MUST change.   When Jack Ma, founder of Alibaba, launched the company in 1999, he told the team of 17 that he assembled, that the next 3-5 years would involve a great deal of pain.  And it did, beginning with the NASDAQ crash of March 2000.  But led by Ma, his team was comfortable with being uncomfortable, because there was a reason,  rationale, vision and goal.   

             I think this issue begins with raising our kids.  As parents, we want the best for them.  We want them perhaps to avoid the hardships we ourselves experienced.  We smooth their paths.  We make them comfortable, as much as we can.  And our schools do the same,  avoiding the tension and frustration that occurs when kids are challenged to do better, far better, in math and reading.  We want our children to avoid failure.  But failure is part of life.  Resilience after failure is one of the most important skills one can have.  How can you acquire it, and strengthen it, if you never are in a situation where resilience is needed?

             The Jewish Talmud requires every parent to teach their children to swim.  It’s common sense – what if they fell into a river or lake?    By the same logic we also must prepare our kids for life’s challenges.  Meeting those challenges may involve prolonged discomfort.  If you cannot face any discomfort, how can you achieve greatness, for yourself and for others?  How will you ever invest the 10,000 hours that Malcolm Gladwell says is the difference between mediocrity and greatness, in anything?   If you only do things that you know will be comfortable, successful, you will miss many many wonderful opportunities for adventure and innovation. 

           I recall jogging with each of our children.  They didn’t always love it.  But our boys have all done marathons (I’ve done two, NY and Boston),   and all have taken on, and surmounted, major physical challenges that led to important achievements.   I think that running with them when they were young may have helped. 

        So my message is:  Get comfortable with being uncomfortable.  Help your kids do the same.  New and strange things by definition are uncomfortable, in general.   If you welcome the risk, the uncertainty, the angst, that comes with trying the unfamiliar, the challenging,  the unknown,  even the frustrating,   if you welcome discomfort, soon you become comfortable with it.  And then, you can go on to invent great things and change the world.  

Kids’ Scores Rise When They Care About Other Kids & Teachers

By Shlomo Maital  

  school caring

     It’s summer vacation time for school kids.  A good time to reflect on what they will return to, in September.

     In an Israeli weekly, psychiatrist Ron Berger, who specializes in helping children all over the world who suffer from post-trauma stress disorder, recounts an experiment tried at a small school in northern Israel.  The school did poorly in national performance tests.  Then Berger and colleagues introduced a program, “A call to giving”,  which focused on two key elements: 

  • Mindfulness —       “intentional, accepting and non-judgmental focus of one’s attention on the emotions, thoughts and sensations occurring in the present moment”. Simply being aware of one’s own feelings and thoughts in the present.
  • Compassion — sympathetic pity and concern for the sufferings or misfortunes of others.

 

The idea?  Create strong bonds among the schoolchildren, first by making each of them aware of their own feelings and identity, then developing a caring attitude toward others, include the teacher. 

   So – what in the world has this to do with test scores?

  Well, apparently a lot.   The school now scores among the highest, in Israeli schools, in national tests.

   Why?   The simple answer could be —   kids study best when they like the place in which they go to school, like other kids,   like the teachers, and find that the teachers like them.  Apparently, children do not thrive in an environment where there is intense pressure to achieve high grades,  and where each individual essentially is out for themselves, sink or swim,  instead of being part of a tight-knit social community that helps one another.

    Is this naïve?  Innocent?  Simple-minded?  Perhaps.  But at least at once school, it works.   It’s worth a try.

 

Greece Collapses – Germany and the World Will Pay the Price

By Shlomo Maital

   Greek collapse

    Two trucks speed toward each other on a deserted highway. They are 50  kms. apart.  Each drives at 100 kms. an hour.   They have 15 minutes before they meet.  Plenty of time to slow down, stop, turn off the road. 

    Yet they still collide head on, with massive damage.   

    Then, the experts debate why this happened.

    This is the story of Greece.  Greece joined the EU in 1981.  It joined the Euro in 2000, in time to implement paper euros and coins when all of Europe did. 

   Here is what  former  European Central Bank Chief Economist Otmar Issing  said, in March 2011:   “Greece was only able to join the euro through deception [its budget deficit was far above permissible levels]  and the currency bloc’s leaders have been “too polite” ever since to deploy adequate sanctions that could have averted the region’s debt crisis.  When I worked for the ECB, I suffered every time countries didn’t meet the criteria…Greece cheated to get in, and it’s difficult to know how we should deal with cheaters. … Greece will probably be unable to honor its debts as it grapples with insolvency. The country’s repayment ability remains questionable even after the government endorsed an accelerated asset-sale plan and a package of budget cuts necessary to draw a fifth tranche of its bailout.”

    It was obvious in 2011, four years ago,  that Greece could not pay back all that it had borrowed.  Today its public debt is an unsustainable 177 percent of its GDP.  So it is obvious – much of the debt has to be wiped out, one way or another.

   Are Greece and its leaders to blame?  Sure.  But on the principle of “sunk costs”, the history is irrelevant. The question is, what to do today, to avoid the crash?  We’ve seen it coming for years, according to Issing.  Yet Europe and its blind leaders continued to torture Greece, imposing ever more severe austerity.  You cannot grow an economy by shrinking it.  And an economy can only pay back debt by growing.  Grade 5 kids know that.  But politicians and economists don’t.  You cannot have a single currency, the euro, without a single united banking system throughout the euro zone with one set of rules.  That never happened. It never will.  So the euro will become a permanent chronic ongoing crisis, and it has been for years. 

    Yesterday German Chancellor Angela Merkel said, “if the euro fails, Europe fails.”  Really?   What has Chancellor Merkel done to recognize reality – Greece cannot, cannot, pay back its debt?    She should have said, “The euro has failed, because I have failed, and I therefore tender my resignation.  I failed to explain to the German voters, that even if we wipe out a quarter of Greek’s debts, Germany still has gained immensely”. 

     Who has been the big winner from Greece’s suffering?  Germany.

     Why? Because Greece has dragged down the external value of the euro, and the cheap euro makes German exports more competitive.  If Germany under Merkel would give Greece 3 percent of all it has gained from the Greece-driven euro decline, the crisis would be over. 

      Some 37 % of Germany’s GDP comprise exports, or nearly $1.5 trillion (in 2014),   just slightly behind that of the U.S., whose population is three times bigger.  Even China exports only 23 % of its GDP.   How strong will German exports be, when Greece leaves the euro, restores the drachma, bankrupts its citizens and its banks, crashes world financial markets,  bashes the world economy —  and then the euro soars,  throwing Germany’s export-driven economy into recession?

     Two trucks speeding toward each other for years.   Could the crash have bene prevented?  Sure,  with common sense. 

     Was it?

     No.   History will be unforgiving to the hypocritical blind leaders who caused this.

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
July 2015
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