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Innovation/Global Risk 

 Resilience: The Case of the Romanian Orphans    

By Shlomo Maital   

 

 

 

 

In 1990 the world was shocked to see TV images of Romanian orphans.  The mad dictator Nikolai Ceasescu demanded that his people have at least 5 babies.  But increasing poverty meant many Romanians could not afford to keep them. They were put into horrendous orphanages.  Ceasescu was deposed after 24 awful years in power, in Dec. 1989.  He and his wife were executed.  But the orphanages remained full of helpless babies and infants, whose caregivers had no means to care for them properly, with one caregiver often caring for 30 children.  [I chose one of the least horrendous photos, believe me!].

   Childless British parents came to Romania and adopted several hundred of the babies.  Their developmental deficits were enormous.  Cindy and Anthony Calvert were the very first British couple to travel to Romania to adopt a child, from an orphanage in Kluge, Transylvania.  [Their story is featured on BBC]. They could not believe what they saw. The children lay in filth. They had no stimulation. Some could not even stand, as they were kept in their cribs all day and all night.  And the Kluge Orphanage was far from the worst.  After an enormous struggle, eventually they did manage to bring a child, Adi, age 18 months, home to England.  Adi chose them with her huge smile, despite everything.

   Renowned psychiatrist Sir Michael Rutter has studied these children for 22 years. He returns every two years or so to study their progress.   He found initially that many were two to three standard deviations from the developmental norm, in terms of both cognitive abilities and physical abilities and growth.  These huge deficits should have implied that all the children were doomed to lives of retardation, illness and suffering.

    This was not the case.  Children, it emerges, are incredibly resilient.  They can make up developmental deficits with alacrity.  The longitudinal study by Rutter and others found that as much as two-thirds to three-fourths of the Romanian adopted children are perfectly normal.

   Adi, for instance, is a beautiful 22-year-old young woman, aiming at a career in the performing arts. 

    Resilience, in psychology,  is a person’s individual’s ability to cope with stress and adversity, and bouncing back to a previous state of normal functioning after trauma.  “Resilience is most commonly understood as a process, and not a trait of an individual”, psychologists note.   

       Rutter’s famous article in Child Development [Child Development

 73, Issue 1, pages 1–21, January/February 2002] offers much room for optimism.  It also demands that society devote greater resources to rescuing children at risk, because a) they are worth it, b) it is never too late, and c) the earlier the children are placed in normal environments, the more likely it is their resilience will succeed.

   I once surveyed a group of microprocessor engineers, and asked them what was the #1 most important factor in their creativity?   Resilience, they said, hands down.  Creativity is always a difficult process, with many setbacks.  The ability to bounce back and continue, persist and succeed is an acquired skill.  Since Rutter finds that all children are resilient, it must mean that along the way, not only to adults lose their creativity but they also seem to lose much of their resilience.

  The lesson for innovators is:  Work not only on your creativity muscles, but also work on your bounce-back resilience muscles, the quality of character that enables you to fight through setbacks and difficulties toward ultimate success. 

    Remember the Romanian orphans.  If they can do it, so can you.              

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Innovation/Global Risk

Runaway Capitalism: How to Clip the Peacock’s Tail       

By Shlomo Maital

 

 Peacock’s Tail 

 

Smithian or Hayekian capitalism, and Darwinian “survival of the fittest” evolution, are closely related.  The social philosopher Herbert Spencer made the link explicit, saying that the weakest workers and businesses had to fall by the wayside, so that the strongest could thrive, gain resources and ‘reproduce’.  This has become known as Social Darwinism.

    Now, an HBR article  titled “Runaway Capitalism”, by Christopher Meyer and Julia Kirby (HBR Jan.-Feb. 2012), addresses a flaw in evolution, one that creates species NOT adapted for long-term survival, and relates this to capitalism’s similar flaw.

     Peacock’s tails have grown flamboyantly large and colorful, because peahens like it, and other things equal, choose cocks that have them.  This makes the peacocks more susceptible to predation and even compromises the whole species.  Capitalism, similarly, like peacocks, are obsessive in its pursuit of short-term return on equity.  Both peacocks’ tails and ROI began as valid ‘proxies’ but have now become so extreme as to “misdirect our priorities”. 

     The authors cite GE as a good example. Under legendary GE CEO Jack Welch (we must be first or second in every industry we operate in), ROI and ROE became GE’s gods.  Today GE, under Jeff Immelt, has adopted not only different rules, but a different rule book.  So for instance, GE’s new MACi electrocardiograph is priced, in developing countries, at one-tenth its price in developed countries, and is now selling well in Europe.  A business model driven by considerations of profit margin, and ROE, would never have gone this route. 

     Capitalism is still the best system.  But it became a peacock.  Evolutionary pressure, and human logic and pragmatism, will eventually moderate the peacocks’ tail effect and bring capitalism back from its lemming-like obsession with short-term profitability. 

Innovation/Global Risk 

Audacious Social Innovations for 2012: The View from HBR      

By Shlomo Maital

                               

 Bob Shiller  

Harvard Business Review’s January-February 2012 issue has a dozen audacious ideas for reinventing society.  Some of them are really great. Here are a few of them. Innovation is not just about gadgets. It is mainly about how we live, work, and love, and get along and cooperate with one another. 

   Bob Shiller, the most creative mind in finance, suggests:  Countries should replace much of their existing national debt with shares of the ‘earnings’ of their economies, i.e. replace debt with equity, the way troubled companies reduce leverage.  “This would allow them to better manage their financial obligations”, he notes.  These national shares “trills” would function much like corporate shares traded on stock exchanges, and would pay dividends regularly.

   ●  Bruno Frey and Margit Osterloh suggest, simply, “quit tying pay to performance” (especially, for CEO’s).  The evidence is overwhelming, they note.  It doesn’t work. It doesn’t elicit the behavior that is desired. So, if we are really evidence-based: Why not stop!?

   ●  Bruce Gibney and Ken Howrey say, totally change the way Venture Capital funds invest.  They HAVE to change. In the past decade, 75 per cent of VC funds made no money! So much for that legend!   “It’s time for VCs to return to boldness. …to find and help build the revolutionary startups that generate transformational change. That is where the returns lie!”  Bravo!

  ●  Ellen Gustafson says, “regionalize the food supply”.  Eliminate the dominance of Big Food. We can no longer afford it.  90% of world coffee exports are controlled by 3 companies.  81% of beef packing in the US is handled by 4 companies.  82% of US corn exports are made by 3 companies!  By regionalizing food, we reduce monopolies and create competition. Also, cut corn production, move to more fruits and vegetables.  It’s healthier. 

●  Arun Majumdar says, “electrify the bottom of the pyramid”.  Bring electricity to the 1.5 b. people of the world who live without it.  Do it with affordable, self-contained power generation and storage systems.  Why? Evidence shows, when energy consumption per capita reaches 2,500 kwh, countries move near the top of the human development index. 

●  Gregg Easterbrook says, “send people to Mars!”.   Give NASA a new mission, he says, one that is inspirational. Find an economical way to send people to Mars.  Colonize Mars. Just as JFK’s Rice Univ. speech in 1963 energized a generation of young Americans to study engineering and science, so will “put a Man on Mars” project for NASA. 

   ●  Linda Hill and Kent Lineback say, “crowdsource management reviews”.  Use a widely available website, SpeakTruthtoBosses.com, to enable any employee to evaluate his or her boss.

   ●  Wayne Porter says, “partner with China to build Afghanistan”.  China sees countries as markets (make money).  American sees them through political eyes (build democracy).  China’s approach is what Afghanistan needs. Partner with them, because what America is doing now isn’t working.  And China has an interest in Afghanistan’s stability – it’s right on their doorstep.

●  Parag Khanna and Karan Khemka says, “enroll the world in for-profit universities”.  Why?  We need a massive increase in investment in human capital, at the higher education level. It won’t come from governments.  They are too strapped. Enlist the private sector.  For-profit universities will supply a quality product and thus attract large numbers of students.  It will bring an inflow of resources, badly needed, just as occurred in ICT and other industries. 

  ●  former Google CEO Eric Schmidt says, “pay businesses to keep people out of prisons”.  America’s prison system is badly broken.  Some 2.3 m. Americans (!), or one person in every 100 adults, are behind bars!  This costs $68 b. a year!  The government is not succeeding. Why not incentivize private industry, paying them based on reductions in recidivism, to keep people from coming back again and again to jail?  (Three-year recidivism rates are now around 6 8%! Two in three jailbirds return within three years!).  California spends more on prisons than on education!  Is this madness?

Innovation/Global Risk 

Bloomberg: The Innovator

By Shlomo Maital

    

 

 Michael Bloomberg

  Politicians worldwide are being reviled, as they prove impotent to deal with the stiff challenges posed by the global crisis and its fallout.  Approval ratings are rock bottom, and trust in government is at historical lows.

   Except, perhaps, in New York City, where Mayor Michael Bloomberg is completing his third term.  True, even his approval rating is not that high – but the one-question poll it is based on fails to capture the wide respect he enjoys through his great city. 

    What is his story?

    Michael Bloomberg was born in Boston, on Feb. 14, 1942. His father was a real estate agent, son of an immigrant, as was his mother.  He studied electrical engineering at Johns Hopkins, where he worked as a parking lot attendant to pay tuition.  Later, he got an MBA from Harvard.  In 1973, he became a general partner at the Wall St. investment bank Salomon Bros.  In 1981, his employer was acquired and Bloomberg was fired.  Ouch!  He took his $10 m. in severance pay and started a company called innovative Market Systems (later, Bloomberg L.P.), realizing that Wall St. and the financial community needed high quality business data and would pay a lot for it if delivered user-friendly and above all, fast!   His first customer was Merrill Lynch, which bought 22 Bloomberg Market Master terminals, as well as investing $30 m.    

    Bloomberg L.P.  now has over 250,000 (!) terminals worldwide. (Notice the unusual legal structure – a legal partnership, usually reserved for law or accounting firms!).   It has over a third of the $16 b. global financial information business with annual revenues of about $7 b.  And Michael Bloomberg owns 88 per cent of it shares! By bootstrapping the business, and using his own money, he has retained a vast majority of his company’s shares. 

    The lesson for innovators is simple.  Is there a service you yourself would buy?  That does not currently exist?  Then doubtless there are many others who would buy it, too.  So move fast and launch it.  

    Michael Bloomberg is said by Forbes magazine to be America’s 12th most wealthy person, with net worth of $19.5 b. 

    Bloomberg has followed the wise rule to seek new challenges.  On Jan. 1, 2002,  almost exactly a decade ago, he became New York’s 108th Mayor.  Initially his approval rating was low. Gradually, with the instincts of an entrepreneur, he won respect – and was re-elected twice. He is now completing his third (and last) term.  As New York City Mayor, Bloomberg has sought to deal with the global crisis by creating technology-based startups.  He recently announced that Technion and Cornell will partner to create NYCTech, a science and engineering campus on Roosevelt Island that ultimately will generate 600 new startups, thousands of new jobs (in construction and high-tech), and billions in new income.  Bloomberg receives the princely salary, as mayor, of $1 a year.  In a city where some previous mayors have dipped their hands deeply into the till, Bloomberg’s personal wealth makes him incorruptible, and is perceived to be so. 

    Many people wish he would run for President. Bloomberg decided against it.                                                     

Innovation/Global Risk 

Better mousetrap? Or Better Way? 

By Shlomo Maital 

 

    Ever heard of an engineer named Keith W. Tantlinger?  He worked at a truck-trailer manufacturer in Spokane, Washington.  And he changed our world, through process innovation.  He died last Aug. 27 at age 92.  The title of this blog is also the title of an article about him by NYT columnist David Leonhardt.

   What did Tantlinger invent that changed the world?  Simply, “a lock that connected to the corners of containers and that crane operators could mechanically open and close from their seats.” 

   Uh…so what?    Well, the lock caused a revolution in shipping.  It led to the adoption of containers of uniform size.  This enabled mechanization of loading and unloading ships, cut time and cost of transporting goods and contributed to the boom in global trade. 

    Leonhardt quotes expert Marc Levinson, whose book The Box chronicles the history of containers:  “There was no breakthrough in terms of material…there was a breakthrough in thinking through the entire process an coming up with a neat economical solution.”   Leonhardt cites the work of economist Paul Romer, who helped us recognize the importance of processes, rules and systems as technological breakthroughs, and not only ‘mousetraps’.  You can make an argument, Leonhardt says, that “the greatest opportunitis for progress today lie with better rules and systems.  Improving schools is more about process than laptops. “   Reducing errors and expanding preventive medicine, Leonhardt cites, can arguably save more lives in the next decade than bench science, research on the genome, stem-cell therapy, cancer vaccines and all the other lab work we hear about…  

   Tatlinger held a patent, Leonhardt notes..but it is a patent for the less glamorous side of progress, the hard creative work that allows mundane objects to fill new needs.

  Innovator:  Don’t neglect processes, rules and systems.  Can you figure out a system that keeps capitalists from taking on excess risk? That keeps European governments from overspending and overborrowing?  That helps small businesses run their operations better?  Process innovation, research shows, is the most profitable and rewarding of all types of innovation.

Innovation/Global Risk

America’s Capitalism Lacks the Capitalists 

By Shlomo Maital

   Writing in today’s Global New York Times, Chrystia Freeland (one of my favorite columnists) makes a simple point.  The destructive American brand of capitalism, that so many of us dislike, was never really capitalism. It lacks capitalists.

   Why?

    “The U.S.,” she argues, “created a system of capitalism without capitalists, of private sector companies whose owners have abdicated responsibility for the companies that belong to them.” 

    The evidence?  First, exorbitant salaries CEO’s pay to themselves, including bonuses, especially bankers.  Where are the shareholders? Why do they approve bonuses even in bad years?  Why are US managerial salaries so blown out of proportion, compared to Europe and to Japan? Where are the shareholders, represented by Board of Director members? 

    Second, perspective. Why do CEO’s constantly get away with inflating share prices by narrow short-term policies, then grab their bonus and run (WBGWIC, we’ll be gone when it crashes).  I worked this year with a company owned wholly by an Israeli kibbutz, a socialist collective community.  I asked the CEO whether he has problems when the ‘board of directors’ is the whole kibbutz membership.  Not at all, he affirmed.  He is instructed to think long-term, to plan and invest long term.  This is capitalism, run by socialism.  America?  Inflating the quarterly P&L is not capitalism at all, it surely is not what the shareholders want, when they seek to maximize shareholder value over time?

   Freeland quotes an expert, who says, “thinking about where the company should be in 10 or 12 years, these are not the discussions held in many widely held companies”. 

   No, American capitalism isn’t really capitalism.  The diffusion of ownership in publicly-listed joint stock companies has basically ceded control to senior management. They hold their jobs for 2-4 years, and have little interest in what happens beyond that. Shareholders who give up without a fight, who approve ballooning salaries, deserve what they get – myopic companies that destroy shareholder value rather than build it. 

    Freeland recommends that we look at Sweden.  Once a socialist haven, Sweden reinvented itself, with dynamic free markets coupled with strong social equality driven by high taxation of the wealthy.  Swedish companies are vigorously run by their shareholders.  It’s time America learned from the rest of the world.  America is indeed special – it is supremely great, best in class, in drinking its own Kool-Aid.  American capitalism?  Not even close.    

   Boards of Directors!  Rise up!  Do your job! Represent the shareholders who appointed you.  Fight for their interests.  Never ever approve exorbitant salaries for CEO’s who do not deserve them.  Make them think long-term.  Put their feet to the fire. Ask them what their 10-year vision is.  Never let them slash R&D investment just to glorify the quarterly P&L.  Be capitalists!   There is no worse system than capitalism, when those who run it do not act like capitalists. 

Innovation/Global Risk 

How Important Is the Name of Your Product?   

By Shlomo Maital

   

 

 

  The New Yorker’s illustration of “Lexicon”

Innovator – how important is what you call your product?  How much effort and time (and money) should you invest in choosing the right name?

   The answer, according to Lexicon, a top ‘naming’ company that came up with Febreze, BlackBerry, Pentium, PowerBook, Swiffer, and others:  Massively, hugely important.  And the key to a great name is…poetry. I’m not kidding.  Lexicon’s story is told well by John Colapinto, in the October issue of The New Yorker.  He writes at length about Lexicon founder David Placek.

      According to Colapinto, in the summer of 1998, executives from a tiny Canadian startup, Research in Motion (RIM), came to Lexicon’s California offices with a two-way pager that sent and received email. But what to call it?  Geeks and nerds always think of “mega”, “giga”, “super”, “opti”, etc.  The experts at Lexicon did a Mind Map, tendrils of words spreading out from a central concept, and came up with an unlikely name: BlackBerry.  The idea, according to Colapinto:  “short”; “consonant-vowel-consonant”; assonance, alliteration; pleasant sound; friendly, evocative, poetic:

  Naming experts agree on several universals of great names. It’s probably best to keep it short. Names that display a consonant-vowel-consonant pattern are often easiest to say. Pleasantness of sound—the use of alliteration and assonance—all play a part. The real goal, Placek says, is to determine what “story” a client wishes to tell about his product and then find a word that evokes it—and spurs the impulse to buy.  

  Lexicon came up with Swiffer, for Proctor and Gamble, and Dasani, for Coca-Cola.  Placek says that the best name brands, like poems, work by compressing into a single euphonious word an array of specific, resonant meanings and associations.

    Innovator:  After you’ve come up with your incredible, creative new product, and designed how it looks and how it works,  invest the same creativity in giving it a name.  The name makes a huge difference.  Would BlackBerry have achieved BlackBerry success, had it been named ePager? 

Innovation/Global Risk 

Was the World’s Most Beautiful Woman Also the World’s Smartest? 

By Shlomo Maital

 

 Hedy Lamarr 

This is one of the strangest stories I’ve encountered, in the realm of creativity and innovation.  It is about Hedy Lamarr.  Very few readers will be old enough to remember this stunning Hollywood movie star of the 1940’s, who appeared in Samson and Delilah, Ziegfield Girl, Tortilla Flat, and others.   Few know her patent forms the foundation for cell phone technology.   Here is her story.

   Hedwig Kiesler was the daughter of a Jewish Viennese banker.  She became the trophy wife of Fritz Mandl, a wealthy Austrian munitions manufacturer.  The stage director Max Reinhardt encountered her, cast her in several roles (even though her husband forbade it) and Reinhardt famously called her “the most beautiful woman in the world”.  And she was.  She escaped from Mandl, fled with her luggage and jewellery and booked passage on a liner on which movie mogul Louis B. Mayer (co-founder of Metro Goldwyn Mayer) was travelling.  When the ship docked in New York, Hedwig had a new name (given by Mayer himself, “Hedy Lamarr”, named after a silent film actress) and a contract. 

    During her stint with Mandl, she had learned a lot about technology. She had a drafting table at home, where she used all her downtime to invent things, like a bouillon-like cube that produced an instant soft drink when mixed with water.  Together with a weird musician named George Antheil, she worked on ways to help the U.S. war effort. Together they invented and patented a radio-controlled “spread spectrum” for guiding torpedos. (They also invented a “proximity fuse” anti-aircraft shell, a version of today’s smart bombs.)  U.S. Patent Office Patent No  2,292,387 showed how to synchronize transmitter (ship) and receiver (torpedo), in ways that could not be jammed, based on the idea of an 88-key player piano roll that changed frequencies according to a pre-set pattern.  The bureaucratic U.S. Navy could not believe that a movie star could invent anything worthwhile and rejected her idea. But in 1997, Hedy Lamarr, age 82 and still gorgeous, along with Antheil (posthumously),  were given a Pioneer Award by the Electronic Frontier Foundation.  The reason:  Lamarr’s patent for ‘frequency-hopping’ formed the basis of CDMA (code division multiple access), a foundation technology for cell phones.  No-one was really aware of the link between Lamarr’s invention and CDMA, until the Foundation gave her the award.  Lamarr tried to join the National Inventors Council, a body that used creativity to help the war effort (WWII), but she was told her beautiful face was more valuable than her brain, so she helped sell War Bonds.

   As a postscript:  A Canadian wireless developer Wi-LAN acquired a 49 per cent claim to the patent from Hedy Lamarr herself, in 1998,  even though the patent had expired long ago and had no economic value.  Wi-LAN paid for the worthless patent in shares.

    Hedy Lamarr was born too soon.  Had she been born 50 years later, perhaps she might have married Steve Jobs.  If she had, who knows what she might have invented?

Innovation/Global Risk 

The Euro (Non)-Leadership Sinks Again: For the 8th Time

By Shlomo Maital

 

 

Merkozy

  It is said that drowning victims who sink below the surface for the third time rarely come up again.  Not so.  Europe’s leaders have met eight times (!), at summits of futility, to deal with the Euro problem.  Each time, they waffle, adopt half-measures, and when capital markets vote “unlike”, they meet again.  Sisyphus’ boulder was child’s play compared with what Europe’s leaders seem to be doing.  They met again, for the 8th time, sank…and don’t bet against a 9th summit. 

   At the latest European “summit” the EU agreed on FUTURE sanctions against members that overspend.  Great! But wait. What about past debt?  Well, let’s dribble an extra 200 m. euros – a tenth of the amount needed to calm capital markets.  The “Merkozy” alliance (Merkel + Sarkozy) is actually just Merkel, because Sarkozy buckled long ago in the face of German demands.  Merkozy seems to be trying to forestall future problems, rather than deal with present, intractable ones.  This is like calling a supplier to order a fire extinguisher for delivery next year, when your kitchen is burning.

  Europe, led by Germany, is behaving irresponsibly.  And it is backfiring, because Germany’s economy too is slowing. It HAS to, when Europe and the world economies slow.  As the world’s largest economy, the EU is sinking the global economic ship.  The internal European bickering is disastrous, as France’s Central Bank head blasts rating agencies for threatening to downgrade France’s debt. Downgrade Britain, he says.  They’re worse than us.   European incompetence and lack of leadership are exacting a heavy toll on the world. 

    I urge readers to write off Europe and make a personal contingency plan, in the event Greece pulls out of the 17-nation euro bloc.  Merkel’s political coalition is falling apart, so her stubborn refusal to commit funds to rescue Greece and the euro isn’t paying off anyway.  Perhaps the “optimal currency union” that Nobel Laureate Robert Mundell advocated was never that ‘optimal’. 

Innovation/Global Risk 

Rats and Husbands: Yes, There IS Proven Similarity 

By Shlomo Maital

 

  

 

 

 Today’s International Herald Tribune, page 12, has two seemingly-unrelated stories that prove what I’ve always suspected.  Rats and husbands are uniquely similar.

*   A study published in Science by U. of Chicago neuroscientist Dr. Peggy Mason reveals the first documented proof that rats are altruists. (Until now, we thought only humans and chimps had empathy and altruism).  In her experiment,  free-roaming rats had a caged rat placed in their midst. They could free the rat by nudging open the cage door.  In another cage, there was a piece of chocolate.  She found that the free rats were as likely to liberate the caged rat as they were to seek the chocolate. And when they did get the chocolate, they shared it with the ‘prison’ rats.  There is, of course, strong evolutionary logic for altruism.  Rats who collaborate are more likely to survive and reproduce than those who don’t.  Same, by the way, for humans, if only we knew it.  And I’m pretty sure that if we could ask them, the altruistic rats would say they got great happiness from freeing their imprisoned brethren – as much as, or more than, from chocolate.

   *  A study done at U. of Virginia, in its National Marriage Project, found that in marriage, generosity (the virtue of giving good things to one’s spouse freely and abundantly) conferred huge benefits.  Half the couples with above-average generosity said they were ‘very happy’ together.  Among couples with low generosity scores, only 14 per cent said they were ‘very happy’.   The study cites bringing coffee to your wife in bed in the morning as a small example.  Couples who do or say five positive things for each negative interaction tend to be far more successful. 

   In a previous life, I worked on the branch of mathematics known as game theory. A particularly virulent game known as ‘prisoner’s dilemma’ has two ‘equilibria’ (stable outcomes). One is win-win.  The second is lose-lose.  The winning long-run strategy is ‘be nice’.  But the dominant strategy is, ‘be very not-nice’.   Perhaps that’s why we dislike Wall St.

     So, the next time you call someone (your spouse?) a ‘dirty rat!’,  please, think again.  Rats are nice and helpful.  So are husbands, sometimes.  In the long run, nice rats and nice husbands win.   In that sense, they are pretty much alike. 

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
December 2011
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