Category Archives: Current Events

Andy Grove on Scaleup

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Andrew Grove is the former CEO of Intel who was responsible for its transition from memory chip producer to microprocessor producer. According to Wikipedia, Grove is responsible for an increase of 4500 % in Intel’s market capitalization. In his youth he and his family escaped from Budapest, Hungary during the Soviet invasion of 1956. Groves holds a PhD in chemical engineering from UC Berkeley. Grove is now retired and is a senior advisor to Intel.

Grove recently wrote an article for Bloomberg that is quite insightful in its analysis of certain aspects of American corporate culture. In particular, Grove notes the disconnect between US technology startups and the subsequent expansion of business activity leading to job growth. He also notes that startups are failing to scaleup their business activity in the USA. The Silicon Valley job creation machine is powering down.

Grove makes an interesting point here,

A new industry needs an effective ecosystem in which technology knowhow accumulates, experience builds on experience, and close relationships develop between supplier and customer. The U.S. lost its lead in batteries 30 years ago when it stopped making consumer-electronics devices. Whoever made batteries then gained the exposure and relationships needed to learn to supply batteries for the more demanding laptop PC market, and after that, for the even more demanding automobile market. U.S. companies didn’t participate in the first phase and consequently weren’t in the running for all that followed. I doubt they will ever catch up.  Andrew Groves, 2010, Bloomberg.

To build on what Grove is saying, I’ll embellish a bit and add that an industry is actually a network of manufacturers, suppliers, job shops, labor pools, insurers, bankers, and distributors. When deindustrialization occurs, the network of resources collapses. The middle class takes a big hit when a commodity network moves offshore. In the end, the intended market for commodity goods and services- ie., the middle class- is weakened by the very move that was supposed to keep prices down and profits up.

Grove is most concerned with the matter of scaleup. This is the business growth phase that occurs after the entrepreneurship proves its worth in the marketplace. Investors pour money ino large scale operations and staff to get product onto the market. Grove suggests that investment in domestic startups who do not follow on with domestic scaleup are not participating in keeping the magic alive.

Offshore scaleup negatively counteracts the benefit of domestic innovation. In a sense, it is an abdication of the trust given to the entrepreneurs by the citizens who provided the infrastructure to make the innovation possible.

Grove makes a good point in his editorial and I think that the rest of us need to take an active stance to question the facile analysis so often uttered by business leaders when it comes to relocation of business units offshore.  Citizens paid for the infrastructure and a large part of the education that makes our innovative technology possible. There needs to be more public pushback on business leaders and government officials about this topic.

Russia being Russia

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It was reported that the Russian Parliament has approved a draft of a law to increase the powers of its FSB, or the remnant of its Soviet era KGB.

The final version is somewhat weakened from its earlier form, which prescribed punishment for individuals who ignored such warnings from the F.S.B. In remarks posted on his party’s Web site this week, Vladimir Vasiliyev, the chairman of the State Duma’s Committee on Security, described the new power as “a preventive conversation” with “someone who is beginning to move toward committing a crime.” (New York Times, July 16, 2010)

Imagine that. A Future Crimes Division.

When asked about the bill by a German reporter during a meeting with German Chancellor Angela Merkel on Thursday, President Dmitri A. Medvedev said, “what is going on now is the result of my direct instructions,” and that foreign commentators should not concern themselves with it. (New York Times, July 16, 2010)

The police state is back. The Russian gov’t is moving (back) towards policing perceived intent. What a sad day for Russian civilization and the world.  Queen to E5, check.

Viewpoints on American Business

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Over at the Robert Reich blog there is a recent commentary on Chinese currency policy. Reich makes some interesting comments on the Chinese approach to industrialization.

But most fundamentally, China is oriented to production, not consumption. It wants to become the world’s preeminent producer nation. While keeping the yuan artificially low is costly to China — it pushes up the prices of everything China imports — China is willing to bear these costs because its currency policy is really an industrial policy.

We think the basic purpose of an economy is to consume, not to produce. So we only grudgingly support industrial policy. We think of government efforts to rebuild our infrastructure as a “stimulus.” We approve of government investments in basic research and development mainly to make America more secure through advanced military technologies. And we give American companies tax credits for R&D wherever they do it around the world.

Don’t be fooled into thinking that US companies will continue to make big profits from sales in China. China allows big U.S. and foreign companies to sell in China on condition that production takes place in China – often in joint ventures with Chinese companies. It wasn’t American know-how, so it can eventually replace the US firms with China firms.  [Italics by Gaussling]

It seems to me that American policy leaders have no clue whatsoever on how to coexist or compete with China economically. Because of the authoritarianism in contemoporary Chinese culture, they are able to focus their resources on long term goals while we in the USA rely on a kind of economic Darwinism. It seems that we are waiting for the rational forces of the marketplace to take us forward in the economic struggle with China.  In reality, American businesses have no nationality. Their obligation is only to achieve maximum shareholder value, irrespective of parochial concepts of national interest.

Americans like to put on a show of maintaining an orthodox capitalistic stance against a nation state like China. One with a centrally controlled economy.  Unfair currency policy is a foreign policy that China is using to leverage the flow of export dollars their way.  Somehow we are content to play cards with an opponent who has stacked the deck.

It is worth remembering that much of the technology that economically emergent states use to energize their manfacuring sectors was paid for by US citizens over the last 100 years. Electronics , metallurgy, chemistry, aerospace, transportation, automation. The US has made substantial contributions to technologies that are now ubiquitous.

These emergent states have not funded generations of successive invention and improvement to achieve their semiconductor FAB or petrochemical complex. Corporate investors dropped it out of the sky.  This technology that we have been busy exporting has been dearly paid for by generations of hard working citizens here. Yet, through the exercise of advanced business philosophies, this magic of ours has been transplanted off shore to the benefit of a few.

I think there is an assumption that our American democracy is somehow a uniquely robust form of democracy. It is hard to make that argument anymore. A culture that equates money with speech and validates it in the Supreme Court is a culture that accepts the notion that the congress is part of the marketplace of goods and services.

In the face of a shift in the global economic center of gravity, Americans are busy in an orgy of fratricidal disassembly of its institutions. Journalism and independent media come to mind.  The former watchdogs of democracy are now quasi-analytical entertainment divisions of a few major comglomerates.

The market is like a stomach. It has no brain. It only knows that it wants more. I think nations like China know this about us and take full advantage of the fact that we like to wear the badge of orthodox capitalist on our sleeves. In a way we are just country bumpkins who have never traveled out of the county. We’ll be true to our doctrine as we run aground.

I think that, in the end, publically owned corporations will be the death of our economic vitality. Blind reverence for CEO’s who maneuver a dividend no matter what the economic climate force this species of organization to abdicate any sense of national affiliation. It’s been happening for many years. Legions of B-school students study the strategy of Jack Welch and similar ethically agnostic characters who serve the greater good of the corporation.

Instead, legions of B-school students should be trying to figure out how to sustain American manufacturing rather than how to outsource it. These people should not confuse M&A with progress. Making things and offering services that people want is how progress happens. If taxes are too high to sustain business within these borders, then an open effort to bring corporate taxes into line based on mathematically defensable arguments should be made. To work for progress is to be progressive. We need more progressive business people, not more financial wizards. The grownups of America need to step up.

NatGeo King Tut Exhibit- Ho Humtep of the Ballyhoo Dynasty

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Th’ Gaussling went on a minor field trip recently to the local art museum in Denvertown to see the marvels of King Tut. And what a marvel it was … of marketing. It is hard to say that the exhibit met expectations. To be sure, there are some fine artifacts on display.  And it is a splendid example of museum-craft. Notable is the exquisite goldsmithing and scuplture on display. There are decorative articles that resemble a form of gold filigree that are quite impressive for the era. My northern European ancestors were sleeping in hollow logs and howeling at the moon when the Egyptians were doing the work on display.

But at the end of the day, the exhibit is yet another recasting of history in a theatrical form suitable for the attention deficit masses. Case in point:  a video short subject portrays DNA work on a mummy where the scientist assures us that such research is a part of the larger effort to cure disease.  Golly, sounds urgent.

Well, maybe there will be useful findings that contribute to the betterment of human health. But if it doesn’t , is the knowledge useless? I think not. This is the same sort of lame apologia used for jusifying space exploration or studying the frogs of Amazonia. If you are not looking around, you are not going to find new things.

Scientists should stand firm with the conviction that exploration is a net benefit for mankind. We should be more careful that claims of a breakthrough are tempered bya realistic warning about the speed of progress.  We should stop leading people along with false expectations about the fabulous things just around the corner. All progress is the result of prolonged hard work by many people.

Lithium Dreams

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A well written article on the supply situation of lithium can be found at the Daily Kos. There is no point in my adding to it except to say that I second the motion. The USA needs to get serious about forging relationships fostering stable lithium supplies.

Update:  Journalists have only now “uncovered” a 2007 USGS report on the mineral resources of Afganistan.  Prospecting for minerals in Afganistan- there is a plum job for a westerner. Imagine doing anything there? Not least of which, poking around in the countryside attracting IED’s and snipers. Even better, imagine trying to work a deal with the authorities (whatever that means) to obtain mineral rights?  I’ll bet the South Africans are working a deal this very moment. 

When is comes to minerals, China has been building relationships in Africa for a while now. I get the sense that China is centrally focused on manufacturing oriented activity rather than just running finance games of chance. China hasn’t forgotten that infrastructure is built upon access to natural resources and is quietly stitching itself into the supply side of the market. America, with its great hordes of MBA’s and strutting bankers, seems to have an unhealthy fetish for financial gymnastics and celebrity.

American CEO’s of public corporations will tell you that they have a fiduciary responsibilty to maximize shareholder value. Based on the way the rules are written, they are right. The corporate masters of the western world will be replaced if they lose sight of this fact. After all, Rome could have been built in a quarter if they had the right consultants and financing, couldn’t it?

This structural shortsightedness predisposes them to focus on financial instrumentalities that operate on the same short time interval as they do.  You can’t build a factory, grow the business, and earn profit over one or a few quarters. But you can put monies into accounts which promise a return on a quarterly basis beginning the day of the transfer. What if that fiduciary argument could be put to rest? What if a CEO didn’t have to emulate Jack Welch?

The USA needs new thinking on how to operate manufacturing businesses profitably within its borders in a manner that they are not so easily subject to obsolescence by competing foreign operations with a lower tax base and lower labor overhead. Existing theories of city planning, zoning, and suburbia must be reconsidered. 

In a previous posting I recalled the experience of walking through the back streets of Bangkok, Thailand. There I saw endless streets lined with shops that served both a mercantile and residential function. The shopkeepers lived in their shops. They could consolidate their assets and labor to serve the need for shelter and for making their living.

American workers have little opportunity to consolidate their assets in this manner. Their wages must cover rent or a mortgage to provide shelter which cannot be put to work. This severely limits entrepreneurial options, rendering the worker subject to the vagaries of  employment by others. If a US worker loses his/her job, they have little in the way of self-help options for survival because of municipal zoning. If one wanted to sell custom furniture or repair cars, they would have to find a properly zoned space. But this takes resources up front along with licenses, tax ID #’s, insurance, etc., and most US workers are poorly prepared for this eventuality.

Lower pay might be tolerable in the USA if employees could have a lower cost of living. One way to do that is to offer company owned housing for employees. Interest payments on a mortgage or residential rents are a large part of an employees lifetime expenses. If an employee had the option of living in housing provided by his/her employer at a reduced interest rate, part of the savings in living costs would be captured by the company in a correspondingly reduced payroll or a rent arrangement. I get the feeling that large groups of hourly workers out there would give this a try if it were available.

This is not part of the current standard model of US business or of US lifestyle. “Company store” models have been used in the past with less than happy results. But it strikes me that if you want to build a viable textile mill or zinc smelter in the US, for example, a factory with a company dormatory will be needed to make the thing fly.

The reindustrialization of the USA will need this kind of change in lifestyle to bring back low and medium skill industrial jobs. High labor overhead is not stable in a world of low labor and tax rates abroad. The metrics of the American Dream have to be recalibrated to account for competition and the loss of the frontier with its endless resources and space.  

What is most worrisome about the current political and economic epoch is the fragmentation of the middle class. Societies become unstable when large swaths of the the middle class become unemployed and begin to adopt ultra-nationalist sentiments. The Tea Party movement is the result of elements of fascist thinking entering into the dialog. Chomsky has pointed out some parallels found earlier in the 20th century. The current extent and intensity of the certitude of patriotic ideals has been seen before in recent history and with terrible effect. Fascist thinking requires pushback from the center of the bell curve or the xenophobic dread that it spreads may become uncontrollable.

Entrenched maladaptive behaviors displayed by US businesses and government are a real barrier to stability over the long term. We in the USA assert superiority in many areas of activity, but show very little ability to actually adapt to the dynamics of global politics. Mindless adherence to threadbare nationalistic doctrine and tired notions of “greatness'” will not get us out of economic trouble. But an imaginative and adaptive marketplace can help.

A bit of sympathy for BP

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I can’t help but have some sympathy for the folks at BP just now. They are not the evil empire and despite their poor safety history, say, the recent Texas City refinery explosion, they do in fact rack up a good many safe operating hours doing very hazardous work. They handle and process flammable materials on the gigantic scale.  And, they respond to market pull for petroleum products.

I have been to meetings in their facilities in the UK and discussed new technology platforms that they wanted to bring on stream. I have listen to a few of their scientists describe their technology and marveled at the new things they have found for molecules to do. They are smart, competent, and well meaning people and we should not lose sight of this.

BP helps to provide the petroleum that we use to conduct out busy modern lives.  We gladly consume every bit of their output. In fact, their contribution to the supply picture helps to keep hydrocarbon prices low. The same is true of all the producers.

The now famous spill in the gulf is clearly a bad thing and it happened to them for several reasons.  But consumers have not responded to this in what you might call a philosophical manner. Nobody seems to be jolted into wakefulness by the depth that producers have to drill to find oil or the fact that these guys are resorting to drilling way out on the continental shelf.  We just plug along expecting demanding that they keep producing at the same price.

If the critics of BP can drill better or operate distillation towers or cat crackers better than BP, then they should get off their duffs and do it. Put up or shut up. The chronic condition we are all subject to is the truism that we can do better.  If you think you can be a better driller, then try it. It’s harder than it looks and it doesn’t look easy.

Needlessly invoking clathrates. BP’s underwater ice machine.

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In the news reporting on the BP oil spill, there is talk of methane/water forming a special ice composition that defeated the previous attempt to channel oil to the surface.  I think folks are referring to clathrate formation. This ice blocked the flow of petroleum from the concrete structure that was lowered over the well head.

But, here is the deal. Wouldn’t you expect cooling of a compressed gas as it exits the well pipe and into the sea water? Isn’t this just an example of the Joule-Thompson effect?  As the natural gas component of the petroleum discharge exits the pipe, it is going to expand somewhat, even at a one mile depth, and cool the surrounding water. If this occurs in unconfined, open water, the jet of petroleum will entrain water in the flow and be warmed by the continuous flow of heat from the water.

But, if the gas/oil mixture of petroleum is ejected in a confined space that interferes with heat transfer, then one would expect the expansion cooling of the gas phase to predominate and cool the water in the confining space, possibly to the freezing point. Clathrates may be formed, but the simplest explanation is from good old thermodynamics.

BP oil spill. What are the merits of using dispersants?

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BP Oil Spill Image, May 4, 2010 (NASA Earth Observatory)

Oil Spill near Mississippi delta. Vegetation, red; Oil, silver. MA 24, 2010. (NASA Earth Observatory photo)

Eventually, BP will find a way to block the discharge of petroleum into the Gulf of Mexico.  And, eventually, the effectiveness of how the relevant parties responded to the incident will be analyzed and findings posted.

I hope that some effort will be put into an analysis of the merits of using dispersants in general and Corexit in particular. What sparks my comment is the finding that considerable subsurface petroleum has been found. This material is evidently close to neutral buoyancy and is drifting with the currents.

Question 1: Is there a connection between the dispersant use and the presence of this subsurface body of petroleum?  

Question 2: What is the desired outcome of dispersant use?  Where did the planners think the petroleum would go?

Question 3: Is there any advantage in encouraging petroleum to remain below the surface, if that is even possible?

At some point, a decision was made to use dispersants on this massive discharge. Is there a scientifically supported rationale for this, or was it palliative treatment intended to mask the surface effects of the release?

Does Corexit really correct it?

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According to news sources, BP is allegedly using a dispersant called Corexit EC9527A.  According to the EPA this formulation contains water, propylene glycol, and 2-butoxyethanol, as well as an unspecified confidential additive.

I guess the question is, what purpose does this treatment serve? By dispersing the petroleum, I assume that the effect is to spread a given mass of petroleum into a larger volume of sea water by virtue of producing dispersed globules of oil-phase material. Does the increased surface area result in off-gassing of volatiles and subsequent submergence of the now denser oil phase? Or, will the dispersed petroleum simply drift into larger patches of oily water? If it enables an increased dispersion so that the currents can chaotically distribute the petroleum to a greater range of shorelines, is this treatment of any real benefit? Perhaps it is better in the long run to have a heavier coating on fewer beaches? Less acreage to scrape.

EPA is making noise about BP’s choice of Corexit. Seems to me that butyl cellosolve has been in the market for quite some time. There should be some information on its fate in the watershed. Judging from the map, the oil spill is near the dead zone around the mouth of the Mississippi River. So, until somebody gets some survey data, it’ll be hard to estimate the magnitude of the environmental insult of this event to the open ocean.

I do not understand what government officials were trying to do by saying that they might take over control of this spill. What is the government going to do to a petroleum discharge a mile below the surface? Call the Navy? Or Boots & Coots? As good as these guys may be, they’re land lubbers. 

Let the folks at BP finish the job.

NASA Earth Observatory Photo, May 24, 2010.

Rand, Ron, and Ludwig

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Disclaimer: I’m neither an expert on or an enthusiast of orthodox libertarianism. I think it is yet one more narrow utopian social philosophy that a band of economic puritans want to impose on society. To their credit, it is a scholarly economic theory. But it seeks to validate and legitimize the most selfish and materialistic impulses of our primate sensibilities.

I have a comment on the recent public flare up on comments by candidate Rand Paul of Kentucky.

Randal Paul, son of Ron Paul, seems to be very much influenced in his thinking by his father and by Ludwig von Mises. I would characterize father and son as ultra-orthodox libertarians (if only by virtue of their scholarship) along the lines of the Austrian school but lacking the John Birch Society fascist and theocratic elements. I sincerely acknowledge their understanding of economics and history. However, I must differ in regard to their understanding of the non-mathematical aspects of civilization. 

Rand Paul’s recent expression of his views on the civil rights act comes straight from the Austrian view on statism. It is right out of the textbook. The man is not a racist. He just does not approve of the intervention of the state into the affairs of a property owner. I think he would prefer to see market forces solve the problem in the domain of private property.

The problem is that market forces have a substantial element of greed. And greed is what greed does. Social justice is orthogonal to greed forces. American slavery did not end because the market found a way out of it. The slave states were deeply dependent on the economic advantages in labor overhead that slavery provided. The nonmarket forces- government- that are inevitable in civilization intervened and put an end to it.

The impulse to accumulate power is expressed in the market and in government. Power is the ability to allocate resources. The domains of both government and business need to be watched closely because both are subject to the corruption of greed. Both socialism and libertarianism are utopian in their conception. Both tend to fail because adherents must rely on the adoption of their tenets by diverse groups. Both require a kind of homogeneity in thinking that is inherently unstable over large populations. Neither seems willing to accomodate a bell curve of views and behaviors. 

Just read history. You can’t even get large populations to agree on how to enable or even what is meant by the meaning of life, liberty, and the pursuit of happiness.

I fail to understand how people who do not trust big government can somehow trust a business system which can fund methods to override the checks and balances of a natural market. The notion that consumers actually have power through the allocation of their dispersed resources is perhaps partially valid in a village market. It fails in contemporary society because businesses are focused and populations tend to be defocused. 

Advertising works. Consumers are subject to suggestion by advertising influence. Consumers are not perfect, rational economic units. In some ways, we are fish in a barrel.  Businesses can obtain patents or assemble local monopoly and dominate a market in a way that consumers are powerless to respond. Look at how big box stores can move into a local market and dominate. They do provide lower prices, but they also offer a channel for foreign suppliers to cross the border and invade a market for the profit of corporate owners who live elsewhere. They apply instant globalization to local markets that are ill equipped to compete. Economic purists would say that local businesses are unfit in this circumstance.

The proclivity to trend into big-brother influence seems just as certain with business as with government. The purpose of civilization is to buffer the Darwinian forces of nature and make life less brutal and short. Government provides a way to accumulate resources and focus effort on large scale infrastructure and allow access to all. Access to infrastructure facilitates innovation and economic growth and diversity. If you don’t like infrastructure, move to Haiti or Somalia where you’ll be blissfully free of it.

Government can grow to the detriment of all. And, arguably, it is in such a position now. But to abandon this important element of our culture in favor of a more Darwinian approach to everything is a utopian dream that will not come to pass. Libertarians need to develop some pragmatism.