Tag Archives: economics

Deming on the Financial Crisis From Beyond the Grave

Tell me these aren’t relevant. Tell me it isn’t like a summation of Wall Streets mistakes leading up to 2008. Deming died in 1993.

Deming’s 7 Deadly Diseases of Management*

  1. Lack of constancy of purpose
  2. Emphasis on short term profits
  3. Evaluation of performance, merit rating or annual review
  4. Mobility of top management
  5. Running a company on visible figures alone
  6. Excessive medical costs
  7. Excessive legal damage awards swelled by lawyers working on contingency fees

*http://en.wikipedia.org/wiki/W._Edwards_Deming

On Outsourcing, Protectionism and Education

Things are often more complicated than they seem. Certainly in the worlds of economics and nationalism. It’s no wonder that as the largest economy in the world, America wants to protect that place and Americans are sensitive to any efforts to move jobs elsewhere. Certainly that is true today, with unemployment currently at 9.1%.

In my own field of software development, the concern is that jobs will go to markets in Asia, like China and India. Chad Fowler’s first edition of The Passionate Programmer was even titled My Job Went to India: 52 Ways to Save Your Job. And at first, it seemed strange that this would happen in software. After all, when all the manufacturing jobs started leaving the country, the prevailing argument behind those who accepted this, was that the labor force would be retrained for higher tech jobs, and ultimately a higher potential wage. So how could it happen that the new jobs start getting outsourced?

I’ve followed Dr. Michio Kaku since I read his book Physics of the Impossible, and he has some interesting ideas around this:

Well, is he right? Based on what I observe, I would say he is. When jobs were leaving the auto industry, there was already downward pressure on the wages (signalling low demand). But software developers make a lot of money. It’s not unheard of for developers without a college degree to make 6 figure salaries, even in Midwestern states. By the way, I’m not equating a college degree with skill, but it’s a fact that when demand and supply are near an equilibrium in mature fields, a degree is usually expected. For example, accounting work was not always done by those with a college degree or certifications, but now that is a normal expectation. So I would say that when there are software developers with little to no formal education past the age of 18 making more than some attorneys and doctors with 8+ years of school (and associated student loans), that software development is a field in high demand, and it sounds like Dr. Kaku is right.

There are areas of development that are more prone to offshoring than others. Consulting style services for large corporations have a higher communication threshold and so cultural barriers and communications barriers can be an issue. So these jobs are not typically easy to outsource. However, small projects, and product creation and maintenance (ISV work) is a little easier to move.

So what does all this mean? What if we did try to protect those jobs? Short term, Software Developers would be happy. Supply would plummet and the demand for the best talent would help salaries skyrocket. But Dr. Kaku is right, it would do severe damage economically. Take the regular IT work of companies, and software / web startups, and double the cost. So much work would not be done, because the ROI would no longer justify the increased cost.

To me, the real way to help keep Americans employed is the fix education. If technology is a high demand industry with a lot of promise, why not supply as many educated Americans as we can do fill those jobs. Dr. Kaku seems to be suggesting that. And if you think that’s a soft sounding idealistic answer to the question, consider who else is making the same point to Congress. Not too many people accuse Bill Gates of being a hippie.

I recently watched Waiting for Superman. It’s full of opinion and outright bias, but there are some really clear points that are hard to argue with. In particular, I thought it made an excellent point about schools being designed in an era when the bottom 50% of students went into manufacturing & agriculture, with the next 30% or so headed into non-degree jobs (office administration, clerical, low-level business, sales), and the top 10-20% going to college for professional jobs (law, medicine). According to those requirements, schools aren’t doing that bad, but that reality isn’t true anymore. College is necessary for many more career paths. Producing those same ratios without manufacturing and agriculture simply floods the service sector. It’s why pay is so low in restaurants and call centers.

To support a higher standard of living, our education system has to support technology and innovation. Technology can be taught, but innovation is harder. I think innovation takes 2 parts technology, 1 part business-savy, 1 part liberal arts, and some God-given natural talent (think Steve Jobs). What do you think?

On Commuting and The Economy

Yesterday, I left downtown Cleveland at 3:45 headed to a 4 o’clock meeting. I was probably going to be 5-10 minutes late. Instead I ended up calling to reschedule, and still didn’t make it home till 6:15. Two and half hours, for a drive that usually takes me 45-55 minutes. Google maps says 38 minutes, but that’s not realistic on a weekday. As I was virtually at a standstill on I-77, and I saw some helicopters coming and going, I assume this was a very bad day for someone up ahead, and so as frustrating as the experience is, delaying my day (and many others) is a small price for life saving flights to the hospital.

But the traffic did get me to thinking, that most traffic jams are a multifaceted problem. I’m referring to those simply caused by congestion, fender-benders, or traffic stops (and the associated gawking). Wikipedia does a nice job of listing the negative effects. But I think in the current context of the US today, it’s worse than what they list. And I think we have the power to mitigate some of this.

As already mentioned in the Wikipedia list, there is opportunity cost, massive pollution increase, and psychological effects to traffic problem. What about our current time period makes this worse? Try the housing market. How? Workers commuting a long distance wanting to avoid the risks of long traffic tie-ups aren’t nearly as free to move closer to their jobs. Or they aren’t looking at far away jobs merely because of the commute. The tie-in between housing (mobility of workers) and jobs is clear, add urban congestion to that fire. Also, construction and maintenance projects that can make for better commutes aren’t exactly popular, particularly when tied to state and local budgets. Unlike the Federal Government, these state and local entities can’t run large deficits during times of tax revenue decline. Finally, consider the wasted fuel (which is getting more expensive with turmoil in the Middle East) and it’s effects on household budgets that are already stressed thin.

So what remedies exist?

The White House has been pushing for high speed rail projects across the country, but some states have turned the money down fearing the investment they would have to put with it. There are a lot of questions about the value, but it’s hard to imagine that making people more fluid is a bad thing for commute times and the job market. With this in mind, I asked a question about the speed of Ohio’s rail on quora.com.

Telecommuting has gained a lot of momentum, although I expect there has been some reduction during the recession (office space is not as much of an issue with a contracting workforce). While I’ve never been a big fan of working from home, it’s clear that it can save both the individual and company time and dollars.

GPS Systems are increasingly integrating traffic data. Just like emissions standards, having smart traffic systems as mandatory in cars could go a long way to assist in intelligent rerouting of commuters in the event of a backup. How many times have you been in a traffic jam and felt like you were rolling the dice when deciding whether to get off the highway and try another way? There are even social GPS systems like Waze that attempt to address this.

Google has been working on driver-less cars for a while now. Certainly safety, reliability and such are an early concern during testing. Once refined and proven, however, this technology would drastically reduce accidents, traffic stops, and save lives. If everyone were driving such cars (this is a loooong way out), speed limits could be drastically increased with little additional safety risk.

IBM, under their Smart Planet initiative, have been researching and implementing smart traffic systems.

I can only hope that some of these advancements lead to the kind of information available to drivers that is portrayed in this video “A Day Made of Glass” by Corning.

I think the challenge is finding reasonable first steps and getting some coordination between these initiatives. Given a recession, and global competition from rising powers like China and India, the US could gain a lot output from simple efforts to improve traffic scenarios. And maybe civil engineers (specifically transportation engineers) are on top of these ideas, but for now it certainly doesn’t look like the US is leading the way with solving these issues. Even if commute times aren’t drastically reduced, with solutions like the Google car or the high speed rail, imagine the productivity increase of commuting free time with internet available. You could use the time to pay your bill, catch up on news, do correspondence course work, etc. For some commuters, this is already a reality.

Some of the stimulus money was aimed at these kinds of projects, but in my mind, not enough. The long term economic effects of a mobile workforce are undeniable. And these efforts could payoff in terms of global competition for years to come.

What do you think? Does your city have solutions or efforts under way for this? Do you see a particular effort or company leading the way with this? I see mostly efforst coming from technology companies, but are there other significant efforts to address these issues?