From The Street...
Friday, January 31, 2003
Uta Bread
When Brother Tom first got married, he lived in Iowa City. As a young travelling video salesmen, I'd visit occasionally, "breaking into" his apartment with a credit card on the latch if I got there before he or his wife Beth did. She Baked Bread - and I remember eating a great deal of it I found there with lots of butter while awaiting their return at the end of the day.
During a recent visit to Iowa, I got Beth's latest creation - Uta Bread - Her recipe follows:
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Combine all these dry ingedients in a large bread bowl:
3 cups unbleached white flour
3 cups whole wheat flour
2 cups bulgur
1 tbs. salt
2 packages of dry yeast
Add approximately 1 1/2 quarts of water and stir to consistencyof batter bread.
Let sit overnight or all day.
Divide into two loaf pans. Bake in pre-heated 400 oven for 1 hour and then reduce heat to 375 for an additional 1 hour.
Do not slice immediately, or the bread will be gummy. Let is sit for a few hours.
About the name: Named by us after an old friend from whom we got the recipe. Her name is Uta Kraupf.
Enjoy...
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To Die For...Rub It In Your Hair....
Demise of Telecom...FCC and Congress
Peter Huber, who I quoted below on Power and Energy, wrote today (well, the January Issue of Commentary) about the Telecom business and how it has been affected by Laws and Regulations - and how it has collapsed because of this. Article | Telecom undone—a cautionary tale. Huber's biographical outline is impressive. Manhattan Institute Scholar | Peter W. Huber. He's a lawyer in Washington and his books and essays on the Environment, Digital Power and Energy will simply blow you away with their tight turgid logic and simplicity. The surprise today was the one on the Telecom business. Right absolutely dead nuts on.
Gilder says the lack of government regulation in certain areas of the Telcom business is attracting VC money. The market, in its Wisdom, avoids the foul hand of government, and choses the many technical hurdles of the unregulated spectrum. Being engineers, these entrepeneurs can quantify the challenges and specify the solutions - minimizing the unknowns - in a place like the WiFi space. This is much more attractive, and a lower risk bet than trying to outguess the political machinations of Reed Hunt and Michael Powell of the FCC.
Limited Energy? Nah....
Peter Huber is yet another Real Smart Guy. His web site is here. Digital Power Group
He wrote a 20-some page paper (pdf) explaining in very clear terms where energy comes from, what it takes to get, and how the more we use, the more we get, so to speak. NoLimits.pdf
George Gilder comments:
Peter Huber has calculated that mile for mile bicycles use more energy and inflict more damage on the planet than SUVs do. The scarce resource is arable surface area. The interior of the earth is essentially indestructible and inexhaustible. Riding a bicycle means consuming more food, produced on the surface of the earth. Driving an SUV means using oil, which per BTU, is hundreds of times more cost effective in use of land than is farming. A general replacement of cars with bicycles will result in increased pollution, as you can tell by visiting the Third World countries that rely chiefly on solar and muscular energy for transportation.
Broadcast News...
Colleagues report that many broadcasters are learning that television news, once thought to be a profitable source of revenue, is good only if you are number one in the market. Betacam and other tape/mechanical devices cost a lot to maintain (est $1K annually) - and the news and production and technical staff necessary to field a credible product just is no longer affordable, in an age of few crumbs for the also rans. News "systems" were -not very long ago - loooked at by struggling broadcast products manufacturers, as a grownig demand part of their business; and now most everyone has a "broadcast news solution" - integrating the acquisition, ingest, editing, "journalism" and airing of news. An early wake up call was seen when CNN issued their field folks DVCams and PowerBooks and told them to learn how to edit and shoot, in addition to their standup duties.
Well, many smaller stations are simply doing the math and giving it all up; investing their limited cash into infrastructure and distribution, and realizing that stuff for conduit is better for their business than stuff for content. (Brother Tom just started teaching a Journalism 101 class - and was amazed to see how many new students thought newspapers existed to distribute information...)
More requirements are coming from The Bigger Guys, who need to Keep Track and Manage all their stuff. ESPN is reported to be acquiring a large "server" system for all their content. The task of keeping track of it all, of managing the Metadata, attracted Microsoft to the fray, and to the contract , estimated at >$60M. "No Video goes into the Facility", says someone familiar with the project. Separate servers keep track of all the Metadata and the "work" is done on it. Seeing a software company like MS get into this business (This would be their first one, I believe) is reminiscent of the scores of attempts over the years made by Large Computer Companies (and Storage Companies) to get into television. Treating television signals as "just data" is the original driving fallacy, and the shoals below are dotted with the wrecks of previous unsuccessful, and now much poorer, ventures. Digital Equipment/IBM/Mercury/EMC/StorageTek/SGI come immediately to mind.
Mebbe Leitch's Margaret Craig - or her counterparts at other "server" companies - oughta be on their way to Redmond, proposals in hand. Here- Take My Server (Division). Please.
Saturday, January 25, 2003
More Anti-French Stuff...
Another in a long line of on-going, clever anti-French commentary. As Fred Barnes said on Fox - "We need the French to teach the Iraqis how to surrender..."
Jonah Goldberg's Goldberg File on National Review Online
January 24, 2003
Le Chutzpah - Don’t call the French principled.
On Wednesday, French president Jacques Chirac declared: "As far as we are concerned, war always means failure and therefore everything must be done to avoid war."
Not only does this encapsulate French military philosophy to a T (or is that a "Ç"?), it summarizes the full extent of the mainstream antiwar movement's "argument." This shouldn't be news to anybody by now, but just to clarify: If you go into every situation saying there's absolutely nothing worth fighting over, you will inevitably end up on a cot sleeping next to a guy named Tiny, bringing him breakfast in his cell every morning, and spending your afternoons ironing his boxers. Or, in the case of the French, you might spend your afternoon rounding up Jews to send to Germany, but you get the point.
I'm sorry to pick on those two titans of what Don Rumsfeld calls "Old Europe," especially considering the fact that all of official Germany and France are banging their spoons on their high chairs about this (entirely accurate) description. Indeed, the bleating from the Euros over Rummy's reference to Das Alte Europa virtually mutes by comparison the kerfuffle here in the U.S. when a German official compared our sitting president to Hitler; or when, a few years ago, former French defense minister Jean-Pierre Chevenement said America was dedicated to "the organized cretinization of our people." I'm sorry, Monsieur Chevenement, but from where I'm sitting, any cretinization going on in France has been purely self-inflicted.
Consider for a moment the current French position — and, no, I don't mean prone. This week they announced that containment works. The French foreign minister, Dominique de Villepin, declared, "Already we know for a fact that Iraq's weapons of mass destruction programs are being largely blocked, even frozen. We must do everything possible to strengthen this process."
Well, if France knows for "a fact," then France also knows for a fact that Iraq has such weapons programs. After all, you can't block or freeze what doesn't exist (if you don't find this logic compelling, go right now and tell your wife that your longstanding efforts to bed Filipino hookers have been "largely blocked, even frozen" by her constant inspections into your bank account and that she therefore has no reason to take a more aggressive posture towards you. Then, see what happens).
So, if France knows for "a fact" that these programs exist, then it knows for a fact that Iraq lied in its weapons declaration. Because, you see, the Iraqis themselves insist they have no weapons programs to halt. In short, France wants to keep inspections going because that's the best way to keep Iraq in a permanent state of non-compliance. I could have sworn that when the U.N. said Iraq had one last chance to cooperate with the U.N., it didn't mean it had one last chance to make the U.N. look stupid by playing keep-away.
Imagine your kid has been playing with matches. You confront him. He puts his hands behind his back. You say, Let me see what's in your hands. He says no. You insist. He shows you one hand. You say, Let me see the other. He returns the first behind his back and shows you the other one. You demand to see the other hand. He says no. He plays the same game for a while. Then he hides the matches in his pants. And so on. According to the great minds of Old Europe, a smart and sophisticated father would keep playing this game indefinitely, while a boorish (i.e., an American) father would say, "Listen, kid. If you don't stop this B.S. — and right now — it'll take UNMOVIC a year just to find my boot in your ass."
Well, color me doltish because we know Saddam Hussein has tons of chemical and biological weapons he's hiding behind his back. President Bush — another alleged dolt — was right when he said this feels like the replay of a bad movie. What's so insulting is that the French and the Germans seem to expect us to take their arguments seriously.
And what's so disappointing is that so many Americans are taking them seriously. Wading through the internal contradictions and verbal mobius strips of the peace-at-all-costs idiocy spouted by our domestic mau-maus of the antiwar argy-bargy has me feeling like one of those muppets whose eyes bounce around independently of each other.
For example, there's the crowd that insists there's no proof that Saddam Hussein has nuclear, biological, or chemical weapons — while simultaneously arguing that we shouldn't disarm Saddam because he might use those weapons on us in retaliation. "Don't shoot! He's unarmed! And if you do he might shoot back" is an argument fit for a world where clocks melt, hands draw each other, and people take Barbra Streisand seriously.
I don't want to rehash all of the same old tired antiwar arguments... but just to be quick: If we wanted Saddam's oil we could have taken it in 1991 when we won the first Gulf War. For that matter, if we were the oil-hungry empire these buffoons keep saying we are, we could have taken Kuwait's and Saudi Arabia's while we were at it. Or — if we wanted so badly to get Iraq's oil to flow through America's "Big Oil" — we could simply agree with Saddam that we'll lift the sanctions if he gives us the oil contracts. He's indicated more than once that that would be fine with him.
And if we're responsible for "creating" the monster that is Saddam Hussein, our moral obligation isn't to let him continue torturing and killing, it's to fix the problem by getting rid of him. If war is "always" a failure, than we failed when we stopped Hitler and the Holocaust. It was a failure when the slaves were freed and it was a failure when America broke from England. And — if you're of a lefty bent — it was also a failure when the Bolsheviks beat the White Russians and it was a failure when Castro pushed Batista's troops to the sea.
But, as the German who was tired of fighting said, let's get back to the French. President Chirac now favors containment, as does the editor of The Nation — a magazine which now more than ever reads like it was poorly translated from Le Monde's reject pile. What's so funny is that these are the very quarters from which the bleating over the cruelty of containment has been loudest (see my syndicated column on France). France, to the head-bobbing approval of the American Left, has been arguing for years that sanctions should go. The French bailed out of our enforcement of the no-fly zones years ago. Throughout much of the 1990s their mouths have been running like a piece of Brie left on top of your TV set about the devastating impact sanctions have had on Iraqi children.
And just to set the record straight: The sanctions regime has improved the health of all Iraqi children not under Saddam Hussein's thumb. In the Kurdish North — where American and British, but not French, planes prevent mass slaughter — there is no mass starvation or child-health crisis. Saddam, and not sanctions, has killed hundreds of thousands of children in order to score propaganda points, which have in turn been manfully presented to the world community by Mr. Chirac in exchange for fat oil contracts. In effect, the French (and Russians) do not want a war-for-oil because the current peace-for-oil allows them to collect billions from the corpses of dead Iraqi children.
So when the French now say they are in favor of sanctions and continued inspections, they merely mean they are in favor of preventing the U.S. from changing the status quo and depriving the French of blood money. One would not normally associate the word "chutzpah" with a country so hostile to its Jews, but there you have it.
But there is a positive moral to this story. The irony is that the very fact that so many members of the peace-at-any-cost school now favor sanctions proves that the threat of violence has its uses. After all, if Bush weren't threatening war, the French, The Nation, et al., would still be crying about the need to repeal the sanctions rather than the need to stiffen them up. So malleable are their convictions, you almost get the sense that if Bush were to threaten genocide these people would champion "mere" war as an acceptable alternative.
But Bush need not make such threats to put some steel in the Gallic spine. Should it look like Bush will go to war without U.N. approval, France will jettison its principles like so much ballast and sail right along in the American armada's wake, so as not to miss out entirely on the new division of Iraq's petroleum pie. And that's the point. Here in America, France's useful idiots — as Lenin would surely call them — believe the French are staking out their position on the basis of principle. These Americans are, frankly, fools. Just because you're principled in your opposition to war hardly means that everyone who makes your case does so for your reasons. You may think the U.S. needs U.N. approval and, because France says the same thing, you think they agree with you. But the French spout this righteous drivel because they want to hamstring American influence to their advantage. After all, they virtually never seek U.N. Security Council approval for their own military nannying of their basket-case former African colonies.
France is doing what it thinks is best for France — not the world, not America, not humanity, but France. If that involves screwing America, they'll do it. If that involves leaping to America's defense at the last minute like the cartoon dog who's got the big dog at his side, they'll do that too. If you are a dedicated opponent of an American war, fine. It's perfectly defensible to be rooting for France's success at the U.N.
But if France's righteous bloviating against war makes them your Dashboard Saint of International Integrity, it's either because you are sand-poundingly ignorant of how the world works or it's because you think France's self-interest is more important than America's. If the former applies to you, read a book. If it's the latter, maybe you should move there along with Alec Baldwin, Robert Altman, and the rest of the crowd who promised to leave a long time ago. But whatever you do, don't call France's position principled, because that just insults us both.
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Friday, January 24, 2003
Mogombo Guru - One Angry Fellow....
The Daily Reckoning
The Daily Recokining features The Mogambo Guru. This is one angry outspoken fellow. But he makes very good "common" sense, and is very funny. Go to the above link and read his whole - recent - essay; here are some excerpts -
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And, and, and, well let's just say that Chaos Theory has proved that every piece of money is connected to every other piece of money in the global economic cosmos, and perturbations in this theorized cosmos result in profound changes that are, after the system has iterated a few million times, impossible to predict. If it is impossible for Chaos Theory to predict what WILL happen, it is thus proved that what WON'T happen is linearity. There will be a change from what was predicted based on things proceeding in straight lines. Some dorky butterfly in South America flaps it's stupid little wings, and that tiny disturbance of the air thus causes it to rain in Chicago three days later. Who'd a-thunk it? Interesting, and intuitively obvious, after you ponder it awhile. So "duh," huh?
Well, if there is one talent that I am proud of, it my uncanny ability to at least vaguely comprehend something once it has been completely explained, over and over, with various examples and visual aids, especially when put in terms so simplistic that children randomly walking by the open door understand immediately. So putting this superficial grasp to work, I say, in a direct rip-off of a "Saturday Night Live" bit of humor, "But nooOOooo! This is not some stinking butterfly in some stinking jungle causing some stinking rain in some stinking Chicago! This is huge freaking volcanoes erupting and blowing things to smithereens! And here at home we have three years of stock market losses, huge climbing trade deficits, monstrous budget deficits, rising unemployment, a dollar falling precipitously! This is huge, flaming asteroids smashing into the country! You DARE speak to me about rain and butterfly wings gently altering the wisps of a breeze? Ha!"
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- The sustained economic recovery that you are looking for will not start until the deflation gets going. Here's how it works.
You go out and raise a billion dollars or so from clueless chumps to start a widget factory. You soon find that you can't make any money with that kind of debt, and you don't. You go bankrupt, and the widget factory gets sold at the bankruptcy auction to some guy for a million. This drop in price is the dreaded deflation that the Fed is apoplectic about. The new owner finds that he can make money with a debt burden of a million. And he does. The factory hums along, workers are re-employed, taxes are paid, and beautiful flowers bloom in every corner of the shire.
That is how Shumpeter's "creative destruction" makes progress and economic vitality appear Phoenix-like from the ashes of failure. Stupid investments are wiped out, and the stupid guys who put their money into those stupid investments are also wiped out. Capital is freed up, the stupid learn a valuable lesson to teach their children, we get educated children who will not make the over-investment mistakes that ruined their stupid parents, and life goes merrily along.
But, nowadays the stupid guys who put their money into the stupid investment are donors to political campaigns, and so they bring pressure on smarmy, stupid elected officials to decide that the best thing to do to help these stupid guys is to get the government and the Fed to do something even MORE stupid. Ergo, stupid stimulus programs and more stupid excesses of more credit and fiat money.
Now, if stupid stimulus programs worked without engendering offsetting downside problems down the road, and if all excesses of money and credit did not cause more problems tomorrow than they solved today, well, then okay. But I want to sincerely say, with all the respect and profound humility I can muster for such an idea, is this is the stupidest idea that any stupid person ever cooked up. And believe me, being a real stupid guy myself I have come up with some real stupid ideas in my life, but this eclipses even me at my worst, and is patently, provably stupid stupid stupid. And, with all due respect, any doofus who thinks it WILL work is also stupid stupid stupid, and the short list of these stupid people includes almost everybody in Congress (ex-Ron Paul), and literally everybody at the Federal Reserve, as far as I know. I mean, there MAY be one person working in the mailroom or something at the Fed who ISN'T stupid, but I dunno.
The bottom line is, in case you ain't figured it out for yourself, that if you think that today's problems are bad, just you wait until tomorrow when these stimulus programs, I meant to say "stupid stimulus programs," or even appropriately "stupid stupid stupid stimulus programs," start working their malignant magic. You will look back and wistfully long for the relatively innocuous problems of today, as tomorrow things are doomed to be catastrophically bad, because what our stupid leaders, and I use that term with every ounce of pejorative contempt that I can muster, are doing is catastrophically bad. Well, only if you believe that the entire economic history of the world has any relevance whatsoever. Which I do. And so will you. Tomorrow.
And I am sorry for the overuse of the word "stupid." But there is no other word that I could come up off the top of my head with that expresses the true nature of it all. To do so, I would have to get up off of my lazy butt and walk all the way over there to the bookshelf and get the thesaurus and sing that little song "A B C D E F Geeee..." until I get to the S section of the song and then have to figure out where S is in the damn book and blah blah blah. What a hassle. But getting back to the point, which is to explain why I chose the to flog the word "stupid," is that a stimulus program now is beyond ill-considered. It is beyond mal-informed. It is beyond ignorant. It is merely, and there is that word again, stupid.
I am hoping that you will award me with extra credit for not using incendiary obscenities or gutter-level profanities as adjectives, as is my wont, but uncharacteristically restrained myself to using only the word "stupid." And I purposely did not use the word "moronic" when referring to Congress or the Fed, as I was trying to show a little respect for morons.
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Thursday, January 23, 2003
Learning From the Market
In tough times, customers, not competitors, determine who wins.
Geoffrey Moore, author of the Crossing The Chasm theory of technology sales, says Smart Companies adapt their business once they learn what their real customers want...
Busting out Strategies
Smart companies will let the technology bust do what the U.S. Justice Department would never allow--clear the field of competition.
By Geoffrey Moore
January 15, 2003
The wonderful thing about a downturn is it teaches us who we really are. The grittiness of the actual takes precedence over the elegance of the possible. And as we dig into the actual, we find all kinds of opportunities we never saw before.
Consider the startups funded during the boom. Those that are surviving have redefined themselves as specific fixes to particular customer problems. Thus LendX (now called Determine Software), which began as a marketplace to buy and sell leases, now sells software that helps companies recover lease expenses. Pixim, which was marketing technology to disrupt the next generation of digital photography, now pushes security--its technology happens to be good at catching bad guys. Allocity, which was a storage company, now helps companies manage Microsoft Exchange, a huge corporate challenge.
Even well-established Agilent Technologies has refocused its business. Instead of emphasizing fancy new optical-networking technologies, it is concentrating on an area in which real money can be made: helping telecom companies upgrade their wireless networks to third-generation wireless technology. It's all about focus, to be sure, but it's the customer's fingers that are twisting the lens.
Downturns also teach us a whole different way to approach competition. During a boom, many successful companies navigate primarily by watching their competitors and then heading off their attacks. Think Microsoft. Think Oracle. Think AOL Time Warner. But in a downturn, the customer rules, not the competitor. Indeed, chasing the competition is a great way to go out of business.
When you look at your competitor, like it or not, you see yourself. You do battle to gain bragging rights in the industry. But bragging rights aren't likely to create value for customers in a downturn. Better to let your competitors continue on their way. Let them even "get ahead" of you, for they are getting ahead in a lemming's race that will put them out of business.
Consider Cisco Systems. At the height of the boom there was a brief moment when its market capitalization topped $600 billion, making it the most highly valued company in the world. At that time its market cap was equal to the sum of its top four competitors. In 2001, its market cap had been cut in half but was equal to the sum of its top ten competitors. Fast forward to today, and its market cap has been halved again, and yet now it is equal to five times the sum of its top ten competitors.
All Cisco had to do, in other words, is let the technology bust do what the U.S. Justice Department would never let any company do--clear the field of viable competition. To be sure, if the competition wanted, it could turn itself around. But the inertia in such sectors is so powerful that this is much easier said than done.
The downturn's ultimate lesson is, what does not kill us defines us. For some time, we have needed such a lesson for the tech sector. We had gotten unreal. Now we have a chance to reclaim our reality. It is painful, but then getting fit always is.
GEOFFREY MOORE is chairman and founder of the Chasm Group and a venture partner at Mohr, Davidow Ventures. He has authored four books, all published by Harper Business: Crossing the Chasm (1991), Inside the Tornado (1995), The Gorilla Game (1998), and his latest, Living on the Fault Line (2000).
Gold Up, Stocks Down....China Flourishes....
Only China is growing....
Excerpts From The Daily Reckoning....
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Sell stocks; buy gold. The Trade of the Decade has been a
big winner for the last 3 years.
Whether it will continue to be a big winner or not, we
can't say. But we wouldn't give up on it yet. Stocks are
still much too expensive. And gold - though perhaps
overbought in the short term - is still far too cheap.
Abby Joseph Cohen says you should have 75% of your money in
stocks. Ed Kerschner, Steve Galbraith and other Wall Street
strategists agree, with Kerschner recommending an 89%
exposure to the stock market. Of course, the companies they
work for sell stock, but we're sure that does not affect
their judgment. They call them as they see them - and right
now, they see rising stock prices.
It will be a long time before the lumpeninvestoriat gives
up on the dream of getting rich without working. That's the
promise of modern American capitalism...that even ordinary
people can "make money while they sleep," to use Francois
Mitterand's expression. Wall Street forgot to mention that
they could lose money while they sleep, too.
Except for China, the world economy seems to be drifting
into an era of slow growth, deflation, and stock market
losses. Europe, North America and Japan all have aging
populations and feeble economies. Everybody depends on U.S.
consumers to keep buying...but the Americans are running
out of money. For 30 years they've been consuming more and
more of their savings, instead of investing it on
worthwhile projects. They have jobs - but the jobs don't
pay much better than they did 30 years ago. And the
consumer has much more debt than ever before. The Fed
offers to make more and more money available - but what are
Americans going to do with it? They're already having
trouble paying their bills. Why would they want to borrow
more? And businesses, what can they do? The heyday of
mergers and acquisitions, stock buybacks, and huge
investments in information technology is over. With
consumer goods falling in price, it's very hard to find
capital investment projects that will make a profit - no
matter how low the Fed puts short-term rates. Business
profits, as we have pointed out before, have been declining
as a percentage of GDP for the last 30 years.
China is not complaining. It has the lowest labor rates in
the world and a remarkably dynamic manufacturing sector.
Its people save 25% of their incomes (the most recent
figure for Americans was less than 2%) and has linked its
currency to the dollar, so a falling greenback makes
Chinese goods even more competitive. Other nations will
have to lower their currencies too, in order to avoid
losing market share.
And so...we have the wonderful, wacky, world of 2003, with
a falling dollar...falling stock prices...a little
deflation, a little inflation...and rising gold.
Sit back, relax...it may be with us for a long, long time.
Sunday, January 19, 2003
Don't Solve Problems !
Lots of smart, ambitious, capable, and resourceful people develop into problem solvers. Usually this is disastrous for their career. Your boss loves you, since she can not usually connect her printer to her laptop, and as a problem solver, you can.
Wrongo, say Many Management Gurus.
"When you solve problems, you end up feeding your failures, starving your strengths, and achieving costly mediocrity. In the end, problem-solvers tend to fail in a global competitive economy, where winners pursue opportunities" says Gilder; echoing Peter Drucker, management Guru.
"Don't tell me about your doubts, I got enough doubts of my own. Tell me what you believe in!" as Comic/Preacher Brother Dave Gardner used to say.
Taking Advantage of Opportunities - or better yet, Identifying Them and Doing Something With Them, is the Way To The Top. And this works at the bottom as well...
Monday, January 13, 2003
Capitalist Reversal...
One of the tenets of the "digital revolution" was put forward by N. Negropointe of MIT - to the effect that everything now on wires will be "thru the air, and all now thru the air will be on wires". Well, that's been generally true. "You could look it up" in his book Being Digital.
George Gilder has been to China and has come home a convert. Not to "communism", but to the direction the Chinese are moving. Jiang Ze Ming, an electrical engineer by training , has transformed the country as only an EE could.
Rather than Solve Problems, like the folks in Russia tried to do, he followed the lead of his predecessor Dung Shao Peng. He first gave the Peasants (800Million...) the chance to earn thei rown money. It Is Glorious To Be Rich. Jiang opened special economic zones, lowered taxes, and spurred engineering education.
George was impressed.
The American Spectator
Excerpts from -
THE COMING CAPITALIST REVERSAL
BY GEORGE GILDER
The East Is Green
The United States is no longer the spearhead of world capitalist growth and supply-side economics. The global capitalist economy is undergoing an epochal inversion, with Europe and the United States sinking into an overregulated, technophobic, bureaucratic slough, while the former Communist world is embracing the low-tax, deregulatory regime last espoused by President Ronald Reagan. Usurping the Reagan mantle and capitalist vanguard are the former Soviet Union - with its 13 percent national flat tax - and the People's Republic of China, with zero marginal tax rates on agricultural output, a zero capital-gains tax, an engineering-dominated educational system, and coastal -free zones - with their entrepreneurial culture of riotous growth and creativity.
I just returned from a week in China, my first visit since 1988. I was addressing a Forbes CEO conference in Hong Kong, now part of China under the new model of one nation, many systems. Washington regards China as a problem - in fact it is the greatest opportunity in the history of capitalism.
Washington deems Jiang Zemin and the rest of China's leaders to be dangerous Communists. Through our misbegotten export controls, the U.S. government attempts to prevent Chinese companies from purchasing microchip lithography gear that can resolve a line smaller than 0.25 microns. But the United States already depends on China's manufacturing prowess for thousands of crucial goods. And within two years, China will command more advanced, more diverse microchip manufacturing capabilities than we do.
I believe that Jiang - now settling into a back seat as a newer set of Chinese technocrats takes command - is the single greatest capitalist leader of the late twentieth century.
Way back in 1985, when the one-time electrical engineer became minister of electronics, he was smart enough to consult Caltech professor and regnant genius Carver Mead. Under Mead?s guidance, Jiang, that rarest of politicians today, a trained engineer focused China on what we call the telecosm: the weave of industries that exploits the powers of the microchip and electromagnetic spectrum for computing and communications. He also adopted the most aggressive supply-side program in the world economy. Beginning with farms that were not producing their quotas, he established what is essentially a zero marginal tax rate for incremental agricultural production: anything above quota, farmers could keep for themselves or sell for a profit. To any supply-sider aware of the global evidence that lower tax rates yield higher revenues, the response was predictable: within three years Chinese farm production tripled and created the foundations for an economic miracle.
Unleashed by newly created free zones along the coast - where surplus farmers quickly found new employment - China's miracle was entirely capitalist. China still supports a huge state-run sector that comprises close to 70 percent of measured output. According to government data, just 514 state-run companies command 60 percent of industrial assets and half of all profits. But the number of registered private businesses soared from 90,000 in 1998 to 2.3 million in 2001. All the growth and all the opportunity are emerging from the free zones.
In doing so, China reversed the problem-solving dynamic that paralyzed post-Soviet Russia. The former Soviets initially tried to deregulate centrally, from the inside out, opening up the whole economy at once?thus arousing maximum resistance by all the entrenched, established forces. China's free zones reversed that: people wanted to move into them, pursuing emancipation and prosperity. The result has been the fastest, most technologically inventive industrial transformation in history. Launching low-taxed free zones, focusing education on electronic engineering, Jiang?s program has evoked growth so explosive as to be unbelievable if it were not visible to the naked eye.
And yet this is regarded to be a problem in Washington, where the threat to old ally Taiwan is considered particularly menacing. Indeed, Jiang has had to deal with the crippling burden of China's Communist apparatus and the People's Liberation Army. He has had to confront memories of Taiwan's humiliation of China - this little island just offshore that out-produced the mainland.
I talked with Morris Chang at the Forbes conference in Hong Kong. Morris used to be vice president of Texas Instruments, and he moved to Taiwan to establish the Taiwan Semiconductor Manufacturing Corporation. TSMC has become the world's largest and most advanced foundry-independent semiconductor fabrication facility - fulfilling Carver Mead's prediction decades ago that the industry would end up with design and manufacturing in separate spheres. The leading business figure in technology in Taiwan, Chang wants to invest nearly a billion dollars in silicon fabs on the mainland. His chief problem is the United States, which has restrictions on selling the latest-generation chip-manufacturing gear to China - as if somehow Chinese prosperity is a threat rather than an immense and thrilling opportunity for the world. If Morris Chang is willing to embrace mainland China, maybe the various Morrises in Washington should be ready as well.
In 1988 when I visited China for the Cato Institute, my theme was that the greatest untapped resource in the world economy was not uranium or natural gas or gold or platinum - it was the Chinese people. Expanding on Mao's famous dictum, I said: "Let a billion flowers bloom." That's what is happening in China today.
At a time when much of the U.S. electronics and optical industry is mired in depression, China offers the best hope for the U.S. economy. China is already the world's fastest-growing market for semiconductors. Newly minted companies are pouring millions into gear for metropolitan optical networks. Its cell phone market is already bigger than America's. Single-handedly - if that is the word for a country of 1.3 billion people - China can save the telecosm.
With our increasing webs of obsolete regulation, litigation, and bureaucracy, American capitalism has often needed a bailout from Asian challengers. Over the last five years, South Korea did its part by proving the superiority of Qualcomm's made-in-America CDMA wireless telephony, at a time when AT&T, Bell South, and Cingular - with the U.S. State Department's active encouragement - were busily selling out to the European standard, GSM. Led by Samsung, South Korean carriers demonstrated CDMA's inherent superiority and reversed the tide.
In China, similar demonstrations are underway, not only by China Unicom - the CDMA carrier in China - but also by Chinese companies making routers and switches such as Huawei and ZTE, and by companies in optics. Conceived by Jiang when he was electronics minister and spearheaded by scores of thousands of Chinese technologists educated over the past two decades in American universities and companies, this technological insurgence is a great opportunity and challenge for the United States.
What is our response? One part, of course, is regulation = try to slow down this Communist monster with export controls. Another, to gut our own technology economy, by forcing Chinese students at U.S. technology universities to return home, and by maintaining a fifty-state maze of communications laws, taxes, and price controls that paralyzes our nascently networked economy.
Even in the Bush administration, the Justice Department sees telecom as an arena fraught with monopoly perils.
But there is absolutely no possibility that U.S. regulation can stop the advance of Chinese electronics technology. America will soon be more dependent on Chinese technology than China will depend on the United States. And meanwhile the vain attempt to stop the unstoppable will wreak devastation in the very communications and optical technologies in which the United States has long led the world.
In fact, such challenges are not unusual in our history, and the United States has thrived in the face of every one of them. Chinese institutions now graduate some ten times as many engineers as we do. But during the 60s and 70s, the Soviet Union also created many scientists and engineers - three times as many as we did - and there were many dolorous predictions of the future of the United States in the face of the challenge of the Soviet Union.
In the mid-80s, Japan constituted a similar challenge. We all remember the prophecies that we would be flipping hamburgers and processing laundry for the Japanese wafer fab workers. Even Peter Drucker, who almost never says anything wrong, declared that making memory chips in the United States was like growing pineapples in North Dakota. Many companies took his word to heart.
But the United States responded with entrepreneurial creativity. We changed the rules of the game and compensated for the educational failures of American students by attracting immigrants. While our own elites studied pettifoggery and environmental catastrophe theory, we allowed foreign countries to supply the engineering talent needed by Silicon Valley's entrepreneurs. We also moved to a revolution in chip design, which Carver Mead largely conceived. We changed the field of engagement and provided a cornucopia of new inventions that erupted as the Internet and personal computer revolutions. Those two great themes have carried the U.S. economy forward.
To thrive in this new world of the capitalist inversion, the United States will have to change the rules of the game again. This means learning how to educate our own children in math and science. It means unleashing the broadband economy now paralyzed by regulation and litigation. It means recognizing that no tax rates over 20 percent collect any net revenues, and lowering our tax rates to the levels imposed by our competitors. It means that George W. Bush has to adopt the supply-side inspiration of Ronald Reagan. We must change the rules of the game again, or the great capitalist inversion means a twenty-first-century world economy of overwhelming power - and overwhelmingly made in places willing to throw off their chains from the past and seize opportunity now.
Sunday, January 12, 2003
Midwest Return...
I went back to Iowa, Wisconsin and Illinois these past few weeks. Cold. Really cold, and my Hong Kong Era suits and California Thinned Blood were of little help. By in large, the folks back here are a pretty solid dependable bunch. Michael Novak has an essay in National Review on a family visit to Iowa, where he rediscovered the same things. Michael Novak on Iowa on National Review Online My kids were both born in Iowa; my folks retired to Wisconsin from our family hometown of Chicago.
Being a Power Protein adherent (I like to continue the weight loss and ease the effects of type-two diabetes), I was amazed to see huge WalMart-like Food Markets (Woodman's in Kenosha). Literally hundreds of feet of display space for cheeses; not only from Wisconsin, but imports as well. California TV ads like to tout their cheese business, but nothing in California comes close to this kind of retailing.
And lots of Real Sausage. Real Sausage is defined as containing no fruit nor poultry. With still many German and other Central European second and third generation families here, the demand generates quite a large supply. Wonderful stuff.
And Smoking. People smoking is not as illegal here, of course; but Smoking Cheese and Fish and Meat is not a trendy Yuppie Foodie thing - it's done all over. Keep your salmon - Smoked Chubs (that's a small lake fish) are one of God's Great Gifts. Brother Tom in Iowa does a lot of his own, living in a large stand of Woods.
And Drinking. Wisconsin beer, of course; and one is reminded of the large consumption of Brandy up here. Brandy Manhattans are very appealing upon blowing into a Roadhouse with a Frozen California, Korean-Made, "Raincoat".
Weather is also a Bigger Deal here. I talked to several folks at Weather Companies (equipment for TV Weathermen as well as Prediction Services). Year-round storms keep everybody, not just farmers, attentive to what's going on. Wireless Weather sounds like a Coming Thing.
More nostalgic visits to my old neighboorhoods later this week. Roads seem smaller, houses closer, distances less. Sweet Bird Of Youth...
Thursday, January 02, 2003
Seven Principles...
John Lund writes about retiring politicians he'll miss. Among them, Gary Johnson, retiring at 50 as governor of New Mexico. OpinionJournal - John Fund's Political Diary
Johnson's Seven Principles of Good Government look like a Good Plan for Good Business.
They are: Be honest and tell the truth; do what's right and fair; determine your goal, plan and act; make sure everyone knows what you are doing; acknowledge mistakes immediately; be reality driven; and do what it takes to get the job done.
Simplistic perhaps, but right on....
Wednesday, January 01, 2003
Champagne...
New Year's Eve At The Bar...
"A glass of champagne please..."
"Yes sir...here you are"
Well...round glass, okay, but hardly any bubbles, more like a frizzante.
"Bartender, is this champagne?"
"Champagne? No I thought you said chablis. That's chablis. Almaden. Fresh from the box..."
"Oh. How about champagne?"
"Are you kidding ? By the glass ? From behind the bar ?"
"Oh. Well, it's New Year's Eve...Do you have it by the bottle? "
"I think they do", nodding his head towards the frenzied dinner-serving waitresses.
"Oh."
I decided not to try the oysters...
Bull Shoals New Year's Eve
Slow, slow, quick quick...That'll do it. The Arkansas Two Step. The band played various tempos all night but that simple executable code would get you around the floor without a klutz sign on your back. Of course you had to avoid the fringe-jacketed and fancy-shirted folks who could "line dance" to anything. Down here, that is a kind of close order drill without guns, strangely fascinating and attractive - until one tries to join in and realizes you're not to mess with soldiers of the denim like these if you don't know what you're doing. Like the girl at the end of a rotating line of ice skaters, you could do some real hurting if you messed up during these maneuvers. Please try this at home first.
Well, Bob on Steel was magnificent. How he kept that long-ashed Camel gently supported and intact in his plucking hand only hinted at his talents. Lotsa loud booming bass and rhythm guitars made a wonderful mountain-city sound. And rolled-up flannels in the Big Pearl kept Earl on the drums from going too far. A serious blues harmonica would have added a nice touch
"Lambrusco is the only red I have", she said. I should have listened and tried it, rather than go down the harder-stuff path. Today will be a quick quick slow slow day.
