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Global Crisis/Innovation Blog

Why America Needs a Capital Budget

By Shlomo Maital

Facing the threat of a double-dip recession, as the U.S. economy again slows and joblessness remains stuck at about one worker in 10, President Obama has brought new proposals to Congress.  One of them is a program for investing in infrastructure – roads, railways, airport runways – through an Infrastructure Bank.  According to Bernard Schwartz and David Rothkopf, writing in Financial Times,

All of the president’s ideas are solid ones with broad potential benefits. In our view, among these, an infrastructure bank is particularly promising and has been misunderstood in many of the initial responses. It is so central to what the US requires at present that voters and leaders in both parties need to examine it carefully and find a way to bring it to fruition.”[1]

Here is the problem Barack Obama and the Democrats face.  They spent $1.2 trillion in “fiscal stimulus” and bailouts, and the American people perceive that a large part of this money was wasted, because, it is a fact, the economy has not recovered despite this massive spending, yet the American people will now suffer the ‘hangover’ from it – paying back the debt that this program created. No-one likes to pay a debt for something that gave no value.

The Republicans are taking full advantage of this.  Hence, at a time when the economy needs more government stimulus, it is doubtful the Congress will agree to it, especially not before the Nov. mid-term elections.

Is there an innovative solution?

Why not simply redefine, restructure and rethink the massive U.S. federal budget?  Why not separate government spending into two parts:  Current and Capital.  Current spending, on things that are used up in a year or so. Capital spending, on things that create assets that yield future income. This includes investment in physical capital (bridges, roads, railroads),  and human capital (education, schools).  Against current spending, no borrowing should occur.  Such spending will not generate assets whose income can pay off the debt.  But against capital spending, borrowing is allowed, because such spending does generate yielding assets that generate the income needed to pay principal and interest.

Will the American people buy this? I believe they will.    Businesses do their budgets this way.   And well-run countries should be managed like businesses.  Americans can understand the difference between wasting billions on bailing out GM and Chrysler, and spending money on modernizing the moribund air traffic control system or putting in an additional runway at Boston’s Logan Airport.  Show them the numbers clearly and accurately, explain them, and I believe they will understand and agree.   Perhaps even a change in politicians thinking will occur.  By creating a capital budget, there will be a strong incentive to starve the current budget and feed the capital one.  Which is precisely the kind of long-run policy America and its run-down physical capital need.

[1] “The right plan to tackle America’s crises”,,  Sept. 8/2010.


Innovation Blog

Somali Pirates Revisited: Moving Up the Value Chain

By Shlomo Maital

In January, and again in March, I wrote blogs about the Somali pirates who capture ships off the Horn of Africa and hold them for ransom – about how innovation might solve the problem (outsource the naval protection to China? Put sticky goo on the decks of cargo ships?).

This time, I’m revisiting the Somali pirates, to use them as a model for innovators.

Don’t get me wrong.  These pirates are criminals and should be brought to justice.  But the world has greatly underestimated the ingenuity and enterprise of 16-year-old uneducated poor youths, who take rickety small boats hundreds of kilometers to board huge ships and hold them hostage.

Now, there is a new development. According to the Global New York Times [1],  Somali pirates are moving up the value chain.  Once, their mantra was, “we just want the money”.  Typical startup guys.   Now “the pirates are getting more ambitious”.  They are scaling up, reinvesting profits, organizing and moving up the value chain.

Take, for instance, Mohamed Garfanji, a pirate boss.  He organized the hijacking of half a dozen ships, and used the millions of dollars in ransom money, not on high living and women and drugs, but on building a small infantry division, well trained, comprising several hundred men, 80 heavy machine guns and fleet of large trucks with antiaircraft guns.  This is a formidable force. It is now ‘for hire’,   offered to local authorities who need law and order in a country where there has been no real central government since 1991 and no real force to oppose the Shabab, the rabble of Muslim fundamentalists.  (An African Union force, and Ethiopian army contingent, have been ineffective).   Garfanji offers real value creation to his clients.  And he makes his mother proud.

2010 is proving to be a banner year for hijacking, with some 30 ships hijacked already, bringing millions in revenue.  Piracy is definitely a growth industry.  Shipping firms prefer to ignore the problem, and would rather pay ransom than invest in armed guards or other prevention measures.  But the pirates are diversifying.  They are reinvesting their income to hedge their bets, just in case the technologically-advanced world with its $2 b. aircraft carriers each  housing 80  F-18 fighter jets   really does figure out a way to deal with uneducated teenagers armed with Kalachnikovs and tiny motorboats.   So far, the F-18s are losing.

[1] “Jeffrey Gettleman, “In Somali civil war, both sides embrace pirates”.  NYT Sept. 1/2010.

Innovation Blog

“We Need LESS Innovation, Not MORE!”

By Shlomo Maital

“Businesses need most of their workers to carry out their primary duties with enthusiasm and consistency”.  We thus  need less innovation, not more. [1] This is what Pat Lencioni argues, in the latest issue of Bloomberg Business Week.

Here is Lencioni’s case, as he states it:

“The problem isn’t so much that we’re overstating the importance of innovation; it’s more about what so many leaders are doing with it. Too many of them are exhorting all of their employees to be more innovative, providing classes and workshops designed to teach everyone how to think outside the box. They’re also doing their best to include innovation on a list of core values, emblazoning the word on annual reports and hallway posters, hoping that this will inspire people to come up with new ideas that will revolutionize the long-term strategic and financial prospects of the company.

Even well-intentioned and dedicated employees are bound to respond cynically to these efforts, frustrated by what they see as hypocrisy. They just don’t perceive a genuine eagerness among leaders to embrace the new ideas of rank-and-file employees, and they’re mostly accurate in that perception. For all the talk about innovation, most executives don’t really like the prospect of their people generating new ways to do things, hoping instead that they’ll simply do what they’re being asked to do in the most enthusiastic, professional way possible. And so it is no surprise when they get pounded for preaching innovation without really valuing it”.

I think that what Lencioni means is this:   Not that we need less innovation, but rather, we need less hypocrisy on the part of business leaders who on one side of their mouths preach creativity and innovation, and on the other,  find it a pain in the neck to have to listen to crackbrained schemes proposed by employees, most of which are worthless.

If you truly and honestly believe you can get   both BHAI [2] breakthrough ideas,   and hundreds of hairless small  0.1-per-cent-gain ideas, from your employees, then implement an innovation process in your organization, including giving regular feedback to those who propose ideas and a systematic method for giving each proposal or idea a fair hearing.

But if you are not ready to walk your innovation talk, better not to do anything.  You will simply create frustration and unhappiness.   In order for someone to speak up, they have to know that there is someone who is truly listening.  If you’re not ready to listen to potential innovators, don’t ask them to speak in the first place.

Recall, too, that if you don’t listen to an employee’s idea, your competitor might.  Robert Noyce left Fairchild, where he pioneered semiconductor integrated circuits, and went on to co-found Intel, where he led the invention and  development of microprocessors (with Ted Huff).  Fairchild is long gone,  Intel is a global giant.

[1] Bloomberg Business Week,  “Organizational Life”,  August 27, 2010,   “Why Companies Need Less Innovation”. by Pat Lencioni.

[2] Big Hairy Audacious Idea

Innovation Blog

Cotton Candy?  Carmelized Popcorn?  Sea Weed? Meet Chef José Andrés, World’s Most Creative Chef

By Shlomo Maital

Meat … Chef José Andrés.  It’s not a spelling error.      Chef José, the pioneer of molecular gastronomy, has this to say about meat:

“We overemphasize meat.   Meat is boring. I love it.  But only once in a while.  Put meat in your mouth, chew it,  in seconds all the juices are gone….then what?  You are stuck for  20 more seconds chewing and chewing and chewing… with no flavor.   This doesn’t happen with pineapple, asparagus, green peas.     The future of gastronomy lies in vegetables and fruits, they are far more exciting than chicken.  Take a chicken breast,  the best ever made, compare it  with a beautiful pineapple.  Aroma?  Acidity?  Afternote?  The chicken breast has none of these.”

Chef José was featured on a great 60 Minutes segment,  interviewed by Anderson Cooper.  He is Spanish, came to America with $50 in his pocket about 20 years ago,  is only 41 years old,  started and runs some of the world’s greatest restaurants, and is changing the world.  His The Bazaar is the only LA restaurant given four stars by the LA Times.  Innovators everywhere can learn a lot from him.

Ruth Reichl, author of the acclaimed Tender at the Bone and a former editor at Gourmet magazine,  says about Andres:  “… expect wonders, his food will do things you never imagine, it will float at you.  Textures you didn’t ever think possible will be in your mouth. It’s not a gimmick. It’s a kind of magic, a circus of the mouth.”

Chef Jose thrusts at his interviewer what looks like a small ice cream cone.  It’s not.  It’s…well, bagel and lox, wrapped inside a tasty small wafer cone.  Yum.

Chef Jose likes to surprise.  He serves Cooper a cocktail, icy cold on top, foamy, with hot liquid on the bottom.  Surprise!  A key principle of innovation – do the unexpected.  Chef Jose’s dishes have many many surprises.

He serves what looks like a solid green glob.  Cooper pops it into his mouth. Whoops…It’s all liquid inside.  And – it’s actually …seaweed.  Cooper says, “It’s all I can do not to lick the plate! But we’re on camera!”.  Jose says:  OK.  Turn off the cameras!   Next, Cooper gets an incredible dish – cotton candy wrapped around seafood.  Cotton candy is the most amazing invention ever, exclaims Chef Jose.  Again – surprise!   Cooper tries his clam chowder.  Surprise!  It has potato in it.  Who in the world puts potato into clam chowder??  Surprise!  Chef Jose does.  Break the rules.  Molecular gastronomy.

How does Chef Jose know if what he makes is good?  The MiniBar.  This is a small place in Washington DC, where there are places for only six people.  There, you are served his experiments, and you give feedback.  The waiting list?  Well, it’s only slightly harder to reserve a seat there than to get a seat next to Jack Nicholson courtside at a Lakers game.

Chef Jose teaches a course at Harvard University in culinary physics.  There, he teaches about molecular gastronomy – how you analyze gourmet cooking by deeply understanding the structure, texture and interaction of the molecules of the ingredients you use.  I wonder if he makes lunch for his students.

The thing I liked best about Chef Jose is the fact that for the past 17 years, not long after he arrived in Washington DC from Spain,  he has been volunteering for Robert Eggar’s DC Central Kitchen. There he trains former drug addicts and criminals to become chefs in intensive 12-week courses.  He raised $1.5 million to support the school.   He and his students prepare meals daily for 4,000 needy people in the DC area.  And he has hired 10 of his graduates to work in his own eight restaurants.

“We chefs should be more outspoken about the way we are feeding America,” he insists.  “We should be committed to the 97 per cent of Americans who don’t eat in restaurants.”

Chef Jose is married to Patricia and they have three daughters.

Innovation Blog

Can You Smash the Vase? And Do You Know When to Smash It?

By Shlomo Maital

The best definition of diplomacy I’ve ever heard comes from my friend Bilahari Kausikan, Second Permanent Secretary (i.e. deputy minister) of Foreign Affairs, Singapore, an exceedingly wise and experienced diplomat who has tracked world affairs through the soles of his feet, and with his very sharp eyes, for almost  three decades.  He first joined Singapore’s Foreign Affairs ministry in 1981.

“…diplomacy is akin to making a beautiful vase.  You shape it from clumsy clay, but if it is necessary, you smash it.” [1]

Bilahari goes on to explain that developing foreign relations, at huge effort, in a changing world may demand that the very persons who did so, who created the vase, at enormous cost, may be told this: “we may well ask you to take it and smash it.  And then you must do it without any hesitation”.

Innovation is very similar to diplomacy, as Bilahari defines it.  You fashion new things out of very clumsy clay.  You hope they will be beautiful.  You have a great deal of ego and emotional capital invested in the vase you created.  Since beauty is in the eye of the beholder, you perceive it to be very beautiful indeed.

But alas, you turn out to be wrong.  Nobody wants the vase, nobody likes it.  This becomes crystal clear very quickly after the innovative ‘vase’ reaches the market.  (This is why you must get it to market desperately quickly; until you do, you will never know for sure).

When this happens, you must smash the vase, without hesitation.  Close the business, dump the product, and move on.

This is one of the hardest parts of innovation – as Peter Drucker called it, “abandonment”,  a key part of his famous NYU course that he taught in the 1950’s.  It is something that we professors of innovation do not really teach sufficiently.

Innovator – you may oppose capital punishment, but in your work, you may need to impose it.  You may need to sentence a much-beloved idea to death.  If so, do it quickly and decisively.  As Bilahari Kausikan notes, this toughness of mind at the end of the process – knowing how and when to smash the vase —  is as essential as the creativity that begins it.

[1] In Chua Mui Hoong, Pioneers Once More: The Singapore Public Service 1959-2009, p. 126-7.

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
September 2010
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