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Global Crisis/Innovation Blog 

Patricia’s Dilemma: The Generation Gap 

By Shlomo Maital  


  The generation gap


In my travels, I meet many talented, brilliant young people.  In teaching innovation, I find that many are frustrated, because they hold high-paying jobs for companies that preach innovation but do everything possible to eradicate it.  As a result, they believe they have lost their creative spark forever. I try to restore it.

  Lately, added to the creativity frustration, is another more serious dilemma. Many young people reject the rapacious short-term profit-at-all-cost values of their employers.  The world has changed. But companies and the senior people who run them, especially those in financial services, think it has not.  They do not hear the message of Occupy Wall St.:  Change your values, change how you think and act.  What do you do, as a young manager, if the job you need is provided by those very companies whose values you reject?    

   Here is the essence of a conversation I had recently with a brilliant young woman, whom I will call Patricia.  

         Until I was 6, I grew up in Northern China, in an industrial city, China’s 4th largest.  We lived in public housing, in a row house with three other families. We shared a kitchen. We bought food in the market, in reusable containers. My job was to buy the soy sauce and I would bring it home in a refillable container with a spout. We were poor and happy and we shared.  Then we moved to America.  I did well in school and worked for a financial services company.   I avoided going into debt. I bought things when I had the money. I paid for my MBA with savings.  But I am worried by those around me, who pile up credit card debt.  In China we learned to save. 

        The last company I worked for went through four painful rounds of layoffs.  On four occasions, people were fired.  This created a bitter tense atmosphere, with no-one knowing if they would have a job next month.  It was ruinous.  This employer was a profit-maximizer. They lost sight of long-term values, of serving their clients. 

      I am now searching for a job. I don’t want to work for such a company.  But it looks like there are very few companies that are run on more pro-social ethical values.  I am searching for one.  They are hard to find.  I don’t want to compromise my values by joining a company I do not like nor approve of.  But what choice do I have? 

         I can’t recall a time when the ‘generation gap’ has been bigger — between my generation, who ruined the planet, created global warming, created the disastrous 2007-9 global crisis, and yet still fail to understand what we’ve done and why everything has to change, and quickly; and young people, whose future we have ruined by our distortion of capitalism, leaving them with a polluted planet, a mountain of debt and an uncertain future.   If the facts change, Keynes once said, then YOU have to change.  The facts have changed. The ruling generation has not.  They don’t get it.  They don’t begin to understand the young people leading Occupy Wall St.  They don’t even try. 

  Patricia and I are now engaged in a desperate search, for an employer whom she admires, who shares her basic values, and for whom she could devote her energy and brains with passion and good will. 

       Readers, can you help? 

Global Crisis/Innovation Blog 

Four Dilemmas: Some Thoughts on Solutions

By Shlomo Maital   

 In the previous blog, “Four Dilemmas”, I asked readers for solutions to four sticky problems. Here are some of mine. 

1.  Point: Americans are drowning in debt;   

     Counterpoint: But the weak economy needs people to spend, not save.  

     Solution:  Almost obvious.  Encourage people to save.  Mobilize those savings to buy infrastructure bonds, to finance new airports, roads, fast trains, schools, and cheap world-class broadband (America lags pitifully in this area, far behind South Korea).  Investment can supply the demand. The bonds will pay good interest, because the social return on infrastructure is known to be high.   America’s infrastructure is woeful. Put resources into future-oriented investment, not wasteful needless consumption.

2.   Point:   Greece cannot possibly pay even half of what it owes.  

   Counterpoint:   But if Greece does not pay what it owes, EU banks will take a huge hit. 

   The EU’s brilliant solution is to ask China for money (100 b. euros!).  China’s per capita GDP is about $3,000.  Europe’s is about $30,000.  What a perfect idea. Borrow the funds from those ten times poorer, to solve a problem you yourself created.   There must be a better way

3.  Point: America’s weak economy needs huge amounts of dollars to be pumped into it, as it is on life support, to keep interest rates low.

     Counterpoint:  But the buckets of dollars pouring into the world are weakening the dollar, eroding its stability as the world’s currency.   

   Solution:  a Global Central Bank, creating a world currency, on the Three Bears principle:  not too much of it, not too little of it.  If a central bank makes sense for America, Europe and China, why not for the world?

  4.  Point: Democracy is an intrinsic good, an ‘anchor’ value. 

      Counterpoint:  Yet democracy continues to elect incompetent politicians. And they’re getting worse.   

  Solution:  The Singapore approach. Singapore’s Prime Minister and ministers are more highly paid than senior CEO’s.   This is not about the money; it is a signal to young people, that leading your country is valuable and important.  Obama is paid less than a junior manager in GE.  If America believes in capitalism, why doesn’t it practice it?  America’s “business” has $15 trillion in annual revenue. Pay its “CEO” (President) commensurate with the size of the business. 

Global Crisis/Innovation Blog 

Four Global Dilemmas: If You Have the Solution —  Call Us

By Shlomo Maital  

  British mathematician Andrew Wiles worked for three years in an attic study in   to prove Fermat’s Last Theorem.  Then, an error was found – and he worked for another tense year to fix it.  The theorem defied proof for over 358 years – from 1637 to 1995.

   The world seems to face  problems that are equally tough to solve.  But we cannot wait for 358 years to solve them. They need solutions NOW.  And we economists are helpless.  So perhaps non-economists can crack them.

   Here are the key dilemmas facing the world today, as I see them.  If you can solve any or all, please – use the blog feature to say how.  Better yet, call or write the G20, who next week will meet in comfy warm Cannes, a perfect site, because their bumbling has become a horror movie worthy of the Cannes Film Festival’s red carpet.

1.  Point: Americans are drowning in debt;  the overall U.S. debt  includes $50.7 trillion of debt owed by US households, businesses, and governments,  more than 3.5 times the annual GDP.  Fearful of their future, people are trying to reduce their debt and save. 

     Counterpoint: But the weak economy needs people to spend, not save. If they don’t, unemployment will remain high and the economy will stagnate.  Spending is key, because it makes up 70 per cent of GDP.  The other 30 per cent isn’t enough to compensate, even if it grows a lot.  


2.   Point:   Greece cannot possibly pay even half of what it owes. Here is why:    “In 2012 it will have to pay some 52 billion euros (35 billion in mature bonds and 17 billion in interest), while it is expected to receive 12 billion euros from the EU.   In 2013, Greece is not expecting to receive anything from the EU, but it will still need to pay approximately 44 billion euros (27 billion in mature bonds and 17 billion in interest).   It needs to have more than 84 billion euros for the 2012-13 period alone, so even if it receives a loan of 60-65 billion euros, it will still have a shortfall of 20-25 billion.  Life, however, does not end in 2013. Where will Greece find the tens of billions of euros it need annually to service its massive debt? And what will happen after 2014, when the amount to cover interest rises?”  Stavros Lygeros, Greek journalist. 

   Counterpoint:   But if Greece does not pay what it owes, EU banks will take a huge hit, threatening the stability of the entire EU financial system, and requiring a bailout.

  Counterpoint:  But German, French and British taxpayers balk at having their taxes used to bail out Greece, or, for that matter, to bail out banks.   British finance minister Osborne just declared he wouldn’t think of it.   The “solution” announced today by the EU is inadequate.


3.  Point: America’s weak economy needs huge amounts of dollars to be pumped into it, as it is on life support, to keep interest rates low.

     Counterpoint:  But the buckets of dollars pouring into the world are weakening the dollar, eroding its stability as the world’s currency.  Once central banks held 90 per cent of their reserves in dollars; now it’s closer to 60 per cent. The global economy needs a stable dollar, the U.S. economy needs a weakened dollar to stimulate exports.


  4.  Point: Democracy is an intrinsic good, an ‘anchor’ value. 

      Counterpoint:  Yet democracy continues to elect incompetent politicians. And they’re getting worse.  China selects leaders very undemocratically – and they are highly educated, highly tested (years of serving as deputies) and highly respected. 


Global Crisis/Innovation Blog

Does Democracy or Communism Pick Better Leaders? The Case of China

By Shlomo Maital


  Xi Jinping 

This is a trick question.   Does democracy pick better leaders, or Communism?  Democracy is an intrinsic value, regardless.  But lately it has been tossing real refuse onto our shores, to serve as our leaders. And we the people pay the price.   In contrast, next year, China will pick its 9-man Politburo, including a new Prime Minister and new President.  The process is secret and highly undemocratic.  So let’s compare America and China.

  In America, the Republican Party offers Rick Perry, Texas governor who does not believe in evolution and hates Social Security.  The incumbent President is great at rhetoric, but his entire management experience was as a community organizer – not exactly IBM.  At the moment, his approval rating among people under 30 is less than 50 % — and they’re the ones who elected him.    

   In China, President Hu Jintao and Prime Minister Wen Jiao Bao have navigated China successfully through the global crisis.  They are both trained engineers.  The new President will be Xi Jinping, 58. He has an engineering degree from China’s elite Tsinghua University, and he also has a doctorate.   The new Prime Minister will be Li Kequiang, 56, a lawyer with a Ph.D. in economics.  Both men have long experience in government.  Li Kequiang comes from a very poor background, from Anhui Province, and was China’s youngest governor of Henan Province at the age of 43. 

   Why, then, does America’s democratic system, which is alleged to leverage the wisdom of crowds to pick the leaders people love and trust, fail to do so,  and continually produces leaders who fail and disappoint?  And why does China’s non-democratic system seem to pick leaders with wisdom, education, experience and pragmatism?  Why does Western democracy produce leaders like Berlusconi, or Sarkozy?

   The leading Republican candidate at the moment is Herman Cain, a self-made entrepreneur whose slogan is 999. He wants to cut income tax rates to 9 percent, at a time when America is battling to reduce its deficits.  His main appeal is that he has a lovely voice and sings gospel songs during his campaign speeches.  And hey, remember Sarah Palin, candidate for Vice President? 

  There is a very strong American leader, with a proven track record – Michael Bloomberg, mayor of New York.   But he has opted out of the Presidential race, even though he has the money and the brains to succeed.  In China, he would have been picked for President. In America, he won’t even run. 


Global Crisis/Innovation Blog

Think Fast, Think Slow:  How and Why We Argue With Ourselves …and Why That’s Great!

By Shlomo Maital 



 Daniel Kahneman

Kudos to Nobel Laureate Daniel Kahneman.  Despite the fact he could easily rest on his ample laurels, he continues to generate path-breaking research in the realm of how we think and how we act based on our thinking. Here is how New York Times columnist David Brooks summarizes Kahneman’s new forthcoming book, Thinking, Fast and Slow, an “intellectual memoir” *: 

 We are dual process thinkers.  We have two interrelated systems running in our heads. One is slow, deliberate and arduous (our conscious reasoning). The other is fast, associative, automatic and supple (our unconscious pattern recognition). There is now a complex debate over the relative strengths and weaknesses of these two systems. In popular terms, think of it as the debate between “Moneyball” (look at the data) and “Blink” (go with your intuition).  

  Here is how Publisher’s Weekly reviews the book:

 “The mind is a hilariously muddled compromise between incompatible modes of  thought… Kahneman  posits a brain governed by two clashing decision-making processes. The largely unconscious System 1  makes intuitive snap judgments based on emotion, memory, and hard-wired rules of thumb; the painfully conscious System 2 laboriously checks the facts and does the math, but is so “lazy” and distractible that it usually defers to System 1.  Kahneman uses this scheme to  show…

  • ·         why we mistake statistical noise for coherent patterns;  
  • ·         why the stock-picking of well-paid investment advisers and the prognostications of pundits are worthless;
  • ·         why businessmen tend to be both absurdly overconfident and unwisely risk-averse; and
  • ·         why memory affects decision making in counterintuitive ways.

   Innovators!  Become aware of your own System 1 and System 2.  Encourage the two systems to argue fiercely.  Be aware of that argument. And leverage it, to build path-breaking icon-smashing ideas.   I believe that we all can be aware of our ‘unconscious’ thought processes, by developing the key skill of simply listening to what they are telling us.  Avoid the sin of laziness – use System 2 to thoroughly justify what System 1 is telling you.   If you do this, then 1 plus 2 will be far far more than 3.


* Daniel Kahneman. Thinking, Fast and Slow. Farrar Strauss and Giroux: New York, 2011 (Oct. 25 release). 

Global Crisis/Innovation Blog

Innovate for Defensible Jobs, Not For Margins

By Shlomo Maital


 Prof. Clayton Christensen

Faithful Blog reader Yoav Medan (Insightec) drew my attention to Harvard Business School Professor Clayton Christensen’s  (“disruptive innovation”) talk at a Gartner Symposium – five key areas of innovation.   Here is a summary:

1.  Disruption comes from below. “If you’re worried about what may kill you, look down,” he said. For example, Toyota came into the U.S. auto market with cars that were low-end.   Over the years, Toyota became more popular than domestic automakers and simultaneously moved upmarket with its Lexus brand. Now Kia and Hyundai are moving up the auto food chain to take on Toyota.  (Think about occupying low-margin low-end businesses, just to be where your threats may incubate).

 2. Universities are on the verge of being disrupted.    Colleges are being disrupted by online learning. “We [Harvard and other top universities] measure goodness by the research that the faculty do. The universities that have the most research published in best journals judged to be best schools,” he said. “Online learning institutions measure success by how good teachers they are. When you compare the quality of teaching at online schools vs. quality we have at Harvard, they are so much better than us even as we turn down our noses because they don’t do research.”

 3. Decentralization can reinvent health care. “Rather than expecting our hospitals to become cheap, we send people out to clinics,” he said. “We bring technology to doctor offices and then homes to begin doing the things you do in a clinic. Drive the technology to the practice, nurses and pharmacists. There are tremendous opportunities for IT in health care.” 

 4.Pursuit of profit ratios distorts innovation. Companies are driven by profits and various margin ratios — leading to the phenomenon where companies outsource low-margin businesses and ultimately entire businesses until nothing is left. That focus on profit percentages — return on assets, for instance — means we manipulate ratios instead of investing in things that grow the economy. 

 5. If you organize product strategy around a job, the business can be defended. “Products are easy to copy, but integration around a job creates defensible differentiation,” he said. One easy example: Ikea, a company built around “furnishing an apartment by tomorrow,” he said. “Everything about Ikea is about organization and making things easy and simple.” Christensen’s big worry: America has lost focus on doing truly disruptive innovations by making products that are simple and affordable. 

   All of Christensen’s five principles point to ways that nations can create defensible jobs, through its innovative businesses, rather than just make money.  Perhaps “Occupy Wall St.” should take note.

Innovation/Global Crisis Blog

  Malaria Vaccine Breakthrough – Why Microsoft Exists

By Shlomo Maital


Glaxo CEO Andrew Witty

Malaria kills nearly 800,000 African children yearly.  Microsoft founder Bill Gates has committed much of his wealth, through his and wife Melinda’s Foundation, to combating it.  Results so far have been poor. Now comes this news:

    Malaria seemed closer to being thwarted as a world menace on Tuesday with the news of clinical trial results for a vaccine that would prevent the mosquito-borne disease from killing some of the nearly 800,000 African children it claims each year.  “A vaccine is the simplest, most cost-effective way to save lives,” said billionaire Bill Gates, cochairman of the Bill & Melinda Gates Foundation, which helped fund the research and the clinical trials conducted in seven African countries with 15,460 children.     

   According to a professor of epidemiology quoted on the BBC World Service, the new vaccine provides 50 % protection.  This is far less than the 95% protection most vaccines provide, he noted, but it is the first time in history that a vaccine has proved effective against a parasitic disease, which is what malaria is (a parasite transmitted by mosquitos).    Chances are, the vaccine will be improved, once the mechanism through which it prevents parasitic infection is fully understood. 

   Kudos to Glaxo Smith Wellcome, the drug company which has partnered in this venture, and which has agreed to accept minimal 5 % profit margins on the vaccine when it is commercialized.  Glaxo’s CEO Andrew Witty said his firm would try to keep the cost under $10 per dose, and that it would re-invest all the 5% profit into research on malaria and other such diseases.  An expert at America’s National Institutes for Health noted that in the past there have been commercial vaccines with only 50% effectiveness.   

   Many of us have been critical of Microsoft’s products, monopolistic behavior and amazing lack of innovative skill.  Perhaps we now understand why G-d created Microsoft – to help combat malaria.  As the Bible says, the wheels of G-d grind slow, but exceedingly fine….    Even if the overly heavy MS software and Windows ‘kill’ us, saving all those children might be worth it.    Yet it is distressing that the $10 per dose price of the new vaccine might still be too high.  Apparently, in our world, the life of an (African) child is still not worth even ten bucks.  How sad.     

Innovation/Global Crisis Blog

Job Creation:  Let’s Help Ourselves – and Here’s How!

By Shlomo Maital



 In my travels, I’m struck by how ordinary people have lost faith in their political leaders, and in many cases, in the political system itself.  Increasingly, elected leaders in the U.S., France, Germany, Britain and Italy know what they should do, what they must do, what the PEOPLE want them to do – but don’t do it, either because their political foes block them or because they are afraid the bitter medicine they administer will cost them the next election.   As a result, a new form of direct democracy is arising – mass protests.  Starting with Tunisia, spreading all over the Arab world, then to mass social protests in tent cities in Israel, then to Wall St., then to financial districts worldwide,  large groups of people, many of them young, gather to express how unhappy they are with what their elected leaders are doing and what they would like to do differently.  And it works.  In my country, Israel, this type of mass sentiment led our Prime Minister, Netanyahu, to release 1,023 Palestinian prisoners, in order to secure the release of one soldier, Gilad Shalit, even though in a previous book Netanyahu had fiercely criticized a similar prisoner swap (the “Jibril” swap) as recklessly endangering Israeli lives. 

   Writing in The New York Times, Joe Nocera describes a “help ourselves” initiative of Starbucks founder and CEO Howard Schultz.  I think this is a kind of pro-active direct democracy.   OK, Starbucks coffee is indeed awful, they use Robusta instead of Arabica beans (to save money).  But on Nov. 1 Schultz and Starbucks will roll out the following idea:

    Create Jobs for USA.  Starbucks customers will make donations to this plan.  They will get a red-white-and-blue wristband in return.  The money will become equity capital for CFDI, Community Development Financial Institutions,  NGO lenders that specialize in offering credit to small businesses, under the umbrella of Opportunity Finance Network.  It is these small businesses that are dying because banks won’t lend to them, even though they are the ones that create jobs, while big business focuses on firing more and more people.  Each dollar of Starbucks-originating equity capital will be leveraged 7 to 1, i.e. each buck will support 7 dollars of lending.  And Starbucks Foundation will get the ball rolling with a $5 m. donation.  Starbucks wants other retail organizations to join. 

   I might even be willing to endure awful Starbucks coffee, just to support Schultz’s idea.    

   Nocera ends his column by saying, “with the government and banks unwilling or unable [to help create jobs], it’s time we took matters into our own hands.  At this point, who else can we count on?

Innovation/Global Crisis Blog

Sex, Drugs & Plants:  How Plants Think, And Why Flora Resemble Fauna

By Shlomo Maital



 Bee orchid — it’s NOT a bee!

 Do plants think and feel?  Are people who talk to their plants, and play Bach or Mozart for them, nutty?   Yes – and no. 

    A National Geographic documentary, Sex, Drugs and Plants, shows how plants can think, feel, camouflage…and seduce.   After you watch it, you feel badly about how humans are abusing the world of plants and trees, and how closely similar humans are, not only to apes but also to dandelions. 

  • Try this at home.  Attach a sensitive voltmeter to a plant.  Now, burn a leaf. (Don’t worry – plants are smarter than humans, we can’t grow a new leg or arm, but they can quickly regrow a damaged leaf).   Check the voltmeter. You will see a 50 millivolt current race from the leaf down to the root, signaling the root to send up the stalk important liquids and ‘food’, to help regrow the damaged leaf.  The current is stronger than that inside our brains, when neurons communicate.  This system is remarkably like a human nervous system.
  • Some plants disguise their flowers as colorful wasps or bees.  The male wasps show up and try to copulate with them.  In doing so, they of course gather pollen…which they distribute onto the next flower, when they give up and try another seductive target.  This is indeed sex, but not the kind wasps really enjoy.  Bee orchids attract pollinator bees simply by resembling them. (See photo).
  • Some flowers live in soils that lack nutrients or grow in water.  Like humans, they need protein. Where to get it?  Why not lure insects onto the plant, with sticky smelly slippery sap, then have the insects slip and fall into the bottom of the ‘pitcher’, into rain water mixed with digestive chemicals.  There, the ‘soup’ dissolves the insects and is then used by the plant for nutritional food.  Yum!

What is quite amazing is that all these incredible innovations in the plant world have occurred through evolution – through genetic accidents that just happen to work at the time.  Nature simply tries a huge variety of experiments, and then leverages those that work.  This is how we human innovators should work, too.   Innovations, like plant mutations, can only be tested in the tough competitive world of real life. 

Innovation/Global Crisis Blog

Readers: Help the Bankers See the Light

By Shlomo Maital



   J.P. Morgan


Here is the situation:  People have lost trust in banks, and in those who regulate them. Banks have lost trust in one another, and hesitate to lend to one another. J.P. Morgan is in trouble, because a small drop in earnings has been amplified into a sharp drop in share prices, hinting at a Lehman Bros. pattern.  (The original founder must be turning in his grave; he staunched several bank panics with his own personal capital).   Now Germany’s bankers have weighed in, blasting the EU’s intention to raise capital requirements on European banks.

    What is going on?

    Here is the core argument.  The bank regulators say, the global business environment has gotten more risky, we think banks need to have more of their own capital (equity as a per cent of risk-weighted assets),  say, 7 to 9 per cent of their assets, rather than, say, 5 per cent today.  Not a huge change, but one that will require the EU banks to raise some $580 b. in new capital.  Sounds reasonable.  Especially since “risk weighted” is very “iffy”, because banks tend to underestimate the riskiness of their assets, and conceal losses not yet realized in the market. 

   The German banks (especially the 800-pound gorilla, Deutsche Bank) say, no way Jose!  If people have lost trust in us, why would they invest in us? How can we raise capital?  It’s making the problem worse. 

    The bankers just don’t get it.  It is of no consequence if objectively, bank capital is sufficient.  If enough people THINK EU banks are undercapitalized, then they are; they will dump bank shares and create the problem they perceive.  It is all about trust, and perception.  

     Here is how the banks can easily raise capital.  They can suspend dividends and use retained earnings.  They can ask existing shareholders to buy preferred shares, on highly favorable terms.  They can sell assets.   Keep in mind that after the US and British Central Banks have flooded their respective economies with new money, there is a TON of money sitting on the sidelines, earning nothing and desperate to earn a reasonable return.  Let the banks tap into this money.  

     By their recalcitrance, the European bankers are not only endangering their own banks, they are endangering ordinary working people in the global economy.  Readers, call them to order.  Write your favorite Deutsche Bank bankers, and ask them why they are irresponsibly endangering your future. 

     In times of uncertainty and lack of trust, a bank cannot have too much equity capital. But it CAN have too little.  Facing this asymmetry – ordinary people know what to do. Why don’t the bankers? 

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
October 2011