Bill Gates's Charitable Vistas

A critique by by economist Robert Barro on the role Bill Gates's philanthropic activities have had on the world, verses his activities as the founder of Microsoft.

While I think Barro is a little harsh here, he makes an interesting point that creating a product that increases productivity is far more beneficial to the world that simply giving away millions (billions?) to charitable causes. The argument goes that creating such a product (Windows), increases the ability for people to generate their own economic value. It is hard to argue with this point and in general terms, I would agree with it.

Of course, Gates isn’t just throwing around money and the focus of his foundation is (in part) funding research for cures that may not be economically attractive to some pharmaceutical companies (building software can be profitable, finding a drug that only poor people really need is not).

Why Africa needs a Marshall plan

An excellent opinion from Glenn Hubbard and William Duggan of Columbia Business School. As I start my new gig with the global BD team, this sort of thing very much inspires my thinking. Is there a role for big business in helping the development of small business and of economic activity in general in poorer parts of the world?

I'm not talking about charity or "CSR" here, I mean opportunities that hold economic upside for all involved; opportunities that make strong business sense for all participants.


FT.com / Home UK / UK - Why Africa needs a Marshall plan

Facebook | Oh Canada...

This pretty much confirms what I've suspected all along, for some strange reason, Facebook is really popular in Canada, particularly my home town Toronto.

Over the course of a few weeks, I got a bunch of invitation to join Facebook from friends up in the Great White North. It took me quite by surprise because I've never really looked into Facebook here in SV, and there aren't many people I know around here who are into it.

Facebook | Oh Canada...

Thoughts on the Pigou Club

Greg Mankiw references two articles that support the “Pigou Club” thinking, which is basically a carbon tax should be levied to encourage “green” behavior and account for the true costs of carbon in the atmosphere.

I agree with this position and am encouraged that economists of Mankiw’s background and expertise support such a plan of action.

I won’t summarize the two articles, but I will highlight a couple of concerns that I have. Nothing I mention here means that I necessarily disagree with any of the points raised in the articles, just that these are things I thought of while I read them.

From Jeffery Sachs quoted in Scientific American:

The key to solving the climate change crisis is technology.

Broadly speaking, I agree with this point. But I do get nervous when someone says there is a single magic bullet solution to any large problem. I’m not sure that is what Sachs means, but to my mind technology and societal behavior change are equally important. True, new technologies could inspire societal behavioral change, I just think we need to be more up-front about that or talk about how to marry the two concepts.

For example, car-pooling is a behavior change, hybrids are a technology innovation; put the two together-- car-pooling in a hybrid—and now you’re really talking!

Sachs also mentioned low or zero emissions through clean coal. I’m far from smart enough to debate him but, is that for real? I should do more research.

The next article was from Fortune. One point made here on ethanol was:

The net effect is close to nil; if you doubt that assessment, check out this recent study by the Canadian government, which found that a 10 percent blend of corn-based ethanol would reduce emissions by about 1 percent.

Again, I’m sure this is true and I have been a little skeptical of the recent craze around ethanol. But to that point, we all know that with any new technology it starts out expensive and inefficient, but as it gains adoption, price goes down and efficiency goes up. So it is consistent to say that ethanol may not be very efficient now, but it is reasonable to assume that as it gains widespread use, its ability to offset emissions will increase.


Greg Mankiw's Blog: Readings for the Pigou Club

Footnotes to trade

Economist Dani Rodrik takes two separate looks at other issues that get attached to trade agreements. One is a look at labor and environmental issues (which he seems in favor of) and the other is IP and patent protection (of which, he seems a little more suspicious)



Dani Rodrik's weblog: Trade and environmental agreements in trade deals

Dani Rodrik's weblog: More on market-access rent-seekers

Watching Blade Runner...

instead of studying.

Conversation between Roy Batty (a Nexus replicant, which is an artificial life form) to Chew, the genetic engineer who designed his eyes.

Chew: "You Nexus, huh? I design your eyes"

Roy Batty: "Chew... If only you could see what I've seen with your eyes."

Batty's line one of the greatest in cinema history. (And its engraved on my iPod)

The many faces of globalization

NY Times has an interesting profile of Dani Rodrik, a Turkish born economist who pushes alternative theories on globalization.

I gotta be honest, I haven't read any of Rodrik's work but he does seem intriguing based on this profile.

In fact, I'm not sure what he's saying is all that different from a lot of other economists, that ultimately global trade is good for populations as a whole. But where he seems to take the discussion one step farther is admitting that while global trade is good on the whole, it is not good for everyone and he highlights that there are individuals (if not entire industries) who suffer as a result of it.

Rodrik seems to posit that rather than going after trade as a single minded goal, go after it with a two pronged approach; with the second prong being a thoughtful series of policies on how to assist those who are inevitably harmed by trade.

Seems like a pretty sound strategy to me. Again, I haven’t read anything else by Rodrik so I’m just going off of what’s on the profile. However, I think I am more pro-trade than he is. If I read Rodrik correctly (based on this profile), he is much more cautious about free trade and would probably advocate keeping certain barriers up (or even returning some barriers) while certain industries improve and can become globally competitive.

I see the logic here, but I’m not sure I could support it. Wouldn’t increased global competition encourage slow industries to improve? I guess he would counter that a certain amount of protection would help these industries grow and strengthen, but unfettered competition would wipe them out before they’ve had a chance to establish themselves.

I dunno, I still can’t really buy it. But I applaud that he is able to thoughtfully point out the challenges of globalization and even when doing so, does not dismiss globalization outright.

As usual, there is a lively debate on Mankiw’s blog about this story.

Om Malik launches NewTeeVee

Quick update on what Om is up to... as I've mentioned earlier, I love the idea of online content aggregation.

But another idea I like is creating several blogs, covering different but related topics, around a single brand. It's been done before, but I think it is pretty interesting. With that, it is good to hear that Om is up to some new ideas around his winning GigaOm brand.

Cooked Books? It's Toast for Firm's Market Value, Says Prof

A main incentive for “cooking the books” is to put out solid numbers for your quarterly analyst call. This call is when analysts pour over (or act like they took the time to pour over) your financial statements and attempt to formulate a reasonable opinion on the financial health of your company.

But the thing is, while analysts may put a company in the hot seat over quarterly earnings, investors have a much longer-term view of a company. Sure, quarterly earnings may send stocks ticking up or ticking down, but the overall investor-perceived value of a stock comes from looking at the firm’s financial and reputational performance over the long term.

I don’t see individual investors having the time, knowledge or energy to make decisions based on what are (for the most part) pretty incomprehensible GAAP financial statements. And insistutional investors? I imagine they are too sophisticated to by drawn into a short-term view of a stock (I could be showing my naiveté here).

Either way, the fallacy of the numbers-by-the-quarter thinking is that investors, by and large, are short term thinkers.

James Surowiecki touches on this issue in far more elegant terms than I can muster.

Hat tip: Paul

A softer landing?

Chalk up a couple more points for those who said the economy may enjoy a softer, than rather have to suffer through a harder, landing. If inflationary pressures are easing at this report points out, then the Fed will be less motivated to increase interest rates.

Also, some signs from the housing market that the worst may be over. To me, this sounds a little optimistic. I wonder if it is more of a signal to the Fed saying if you want the worst to be over, think about dropping those rates.

Acquisitions Happen Quickly, but Integration Is a 'Slow, Steady Process'

So here is part two of the podcast series on Cisco's acquisition strategies. Here we talk about the integration process and I would highlight the word "process" because that is very much how Cisco thinks about acquisitions. Signing the deal is the first step in an acquisition, but the real work begins after the deal has closed.

Cisco has earned its reputation as being a successful acquirer because it puts so much attention on the integration of the new company.

In this podcast, director of integration Graeme Wood talks with Wharton management professor Saikat Chaudhuri about Cisco's integration philosophies and the lessons learned from integrating Scientific Atlanta, Cisco's biggest acquisition to date.



Podcast: Cisco's Graeme Wood: Acquisitions Happen Quickly, but Integration Is a 'Slow, Steady Process'


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Graeme Wood is director of acquisition integration at Cisco, the leading worldwide supplier of networking equipment and network management for the Internet, headquartered in San Jose, Calif. Since joining the company in 1998, Wood has held marketing and business development roles, and in his current position he has overseen the integration of 30 Cisco acquisitions -- the most notable of which is Scientific Atlanta, the Lawrenceville, Ga.-based global provider of set-top boxes, end-to-end video distribution networks and video systems integration. The $7 billion deal, completed earlier this year, allows Cisco to offer an end-to-end data, voice, video and mobility solution for carrier networks and the digital home. During a recent visit to campus, Wood spoke with Wharton management professor Saikat Chaudhuri about how acquiring a global company like Scientific Atlanta fits into Cisco's overall acquisition strategy, and the lessons learned about integrating on a large scale.

Imports Spurring Push to Subsidize Produce - New York Times

“The Chinese garlic totally caught us off-guard and knocked us down,” Mr. Mantelli said recently as he checked on newly planted garlic bulbs. “I think our industry has hit rock bottom. Maybe now we can figure out how to make it a level playing field.”

So Mr. Mantelli has joined the coalition of about 75 growers of specialty crops who have united to grab a much bigger slice of the federal subsidy pie.


I certainly do not want to trivialize the challenges Mr. Mantelli and other farmers face. Farmers, and the goods they provide, are an important part of the past and present fabric of our society. That said, I'm afraid I can't agree with Mr. Mantelli that subsidies will help "level the playing field" verses Chinese agricultural imports. I say this on the basis that subsidies are inherently market-distorting and therefore do the exact opposite of leveling playing fields.

“Things that help farmers band together and compete are not inherently protectionist or harmful,” Professor Morici said. “It is not an unreasonable thing for a fragmented industry to ask the government for assistance to make the virtues of their industry better known.”

Hard to argue with this point, I guess I just don't understand why it has to come in the form of government subsidies. Farmers highlighting the virtues of their industry is a great way to deal with competition, both foreign and domestic, but do they need the input of government to do this?

True, the agricultural industry in China is heavily subsidized and they have an artificially low currency. But subsidies battling subsidies will only distort the market further and prevent real innovation from taking place.

Imports Spurring Push to Subsidize Produce - New York Times

Art and science of M&A

Cisco recently did a podcast interview with Dan Scheinman, Cisco SVP of corporate development and management professor Saikat Chaudhuri (from Wharton... but don't hold that against him!)

It's a great 16 min conversation about the art and science of M&A, the importance of integrating an acquired company, and the importance of timing when making a deal.

Dan has overseen over 30 Cisco acquisitions including Airespace ($450M), Linksys ($500M) and Scientific Atlanta ($7B).

Cisco Podcasts

Cisco SVP Dan Scheinman and Wharton's Saikat Chaudhuri Discuss Acquisitions and Innovation, Part I: An Innovation 'Ecosystem'

In the first of a four-part interview, Cisco SVP Dan Scheinman talks with Wharton management professor Saikat Chaudhuri about the key drivers of acquisitions at Cisco and the critical role customers play in innovation.

Quick econ thoughts

Based on the brief snapshot in Reuters here are some quick thoughts....

Core prices are down so the Fed may be thinking interest rates are at the sweet spot. With inflation perhaps in check there may not be any sense in raising them to further slow the economy.

Could Home Depot's disappointing results signal a further slowing in the housing market? That seems a little too basic an analysis to me. But either way, it could be something worth watching and could perhaps mean that there won't be much more happening in the economy from the Fed or the government for fear of tipping this delicate inflation vs. slow economy balance.

There goes one excuse for deficits....

Latest economy figures show that productivity was flat last quarter and per unit labor costs went up. This is renewing concerns that inflation is on the way.

Here’s my take on it based on the little I know: Per unit labor costs are going up, which means labor is consuming more capital to do its work. We get this capital from abroad as foreigners find new and interesting ways to invest in the US.

That is all fine and dandy so long as we can find interesting ways to use their capital; put another way, an argument can be made for trade deficits if we use the capital coming in to up our growth rate, which is intrinsically tied to our growth in productivity.

Productivity doesn’t grow, the US economy doesn’t grow, and those deficits look more and more worrying.


U.S. Productivity Idles As Wage Pressures Rise - WSJ.com

What happens to Africa with Chinese cash?

Certainly in a part of the world as wracked by poverty as Africa, it is hard to not to be happy when anyone comes in with loads of cash for local investment.

Loads of cash seems to be what China is dropping on the continent in exchange for natural resources. Hopefully, that investment is putting local people to work on ground there but the Economist here asks the right questions, what else is Africa getting? Know-how? Greater transparency and efficiency?

These questions shouldn't, of course, be restricted to Chinese investments happening in Africa, but all foreign investment there.

If Africa really wants to benefit from this trade, individual African countries should band together to up their negotiating power and extract more for their people and their individual countries than piles of money (which undoubtedly will be misspent in several quarters.)

When I was in South Africa on vacation a while back, there was a lot of debate on TV about the benefits of doing more business with the Chinese (and again, this discussion should be extended to all powers, the US, EU, etc.) If Africa is just selling away its resources and getting little else in return, then this sort of trade will provide little more than a few poorly-paid local jobs.

I'm not advocating any sort of protectionism here, open trade between Africa and China could be a good thing. I guess what I'm saying is that Africa should negotiate for more broad investment in their countries, perhaps to beef up local infrastructure such as roads and energy transmission. There should also be some sort of real oversight with teeth to ensure that any foreign money coming into individual countries is well spent.


Africa and China | Wrong model, right continent | Economist.com

Designing For Behavior In Massive Multiplayer Games - Forbes.com

I guess between this and my earlier post today on Linden dollars, I'm seeing a lot of real-life MBA lessons are being found in the virtual world.

We've obviously discussed a lot about how to organize teams and how to keep teams motivated in real business, but it seem this is a similar problem being faced in the gaming community. How to keep people motivated (either on their own or part of a team) is a key way of keeping them engaged with your game.

Interesting parallel in real life. What is also interesting is that the more of a social community is created in a game, the less likely a player will leave for another offering. But as soon a players start leaving, that opens the floodgates and people begin to leave the game en masse.


Designing For Behavior In Massive Multiplayer Games - Forbes.com

Real exchange in the virtual world

So instead of working or doing school work, I’ve been looking at virtual exchange rates this morning. Yes…my time put to good use. Last class we had a look at exchange rates and I’ve been taking a quick look at Second Life “Linden Dollars” and seeing their rates of exchange for real USD on eBay.

What’s amazing is how consistent LDs go for in USD. The going rate seems to be about 223LD/USD with very little variation between LD lots of similar sizes—lots of thousands and tens-of-thousand LDs go for about the same price per LD. Where there does seem to be a price change is when you are looking at lots of 100 thousand LDs or higher. Here you see prices of LDs drop to about 238LD/USD to 243LD/USD.

This presents an arbitrage opportunity I think to buy up large lots, divide them up, and then sell them off.


eBay - linden dollars, Internet Games, Video Games items on eBay.com

The economic cost of doing nothing

More than anything we need to debunk the myth that doing positive from a social, environmental or ethical point-of-view is negative from an economic point-of-view. This is a false juxtaposition that serves only to act as a cheap excuse to do nothing.

What is really costly is to do nothing on the issues that challenge us today. Throughout capitalist history, the rewards have gone out to those who have sought to change things and drive innovation, the losers have been those who have favored the status quo.

Doing something about the environment (for example) is not a cost, it is an opportunity. The real cost comes from ignoring the problem.

Read on:
Climate change could tilt the world's economy into the worst global recession in recent history, a report will warn next week.

Capacity utilization...who cares?

I've been looking at some of the PPI numbers that came out today and for some reason, the one that really stuck in my mind is Capacity Utilization, which is at 82% and slightly worse than expected.

Two things came to mind when I looked at this number:

1) It has been argued that US trade deficits could be a good thing because deficits provide the US with capital. But if we're not using all the capital (although I'm sure it is impossible to get to 100% utilization), then aren't the deficits truly excessive and should be therefore reduced?

2) The other thought I had was that the US hit the 300M population mark this week. The US population is actually growing (compared to EU or Japan where it is stagnating or shrinking), so this means in the near future we will need more capital per effective worker in order to maintain our current level of growth. So perhaps then this underutilization is a good thing, as it gives us some room to easily add more workers?