~synthesis~

redemption

In September 2002, President Bush established a Doctrine, which among other things, stated that America will not only wage war on countries that directly and immediately threaten her, but also wage war on countries or organizations in countries that might at some point threaten her.

In December 2009, President Obama endorsed this doctrine when he announced that he would send an additional 30,000 troops to Afghanistan. Despite the fact that Afghanistan or the Taliban pose a direct or immediate threat to America. Some argue that Al Qaeda is a threat, but the consensus is that they are based in Pakistan, not Afghanistan.

So much for a different strategy with the new administration.

But this isn't really the problem. The problem is the absurdity of a "superpower" declaring war on a few hundred disaffected criminals (it's the equivalent of Apollo or Zeus or Poseidon declaring war on the four guys that maliciously starched their chitons). America didn't stop there - they called "them" evil. Intentionally or not, both Presidents Bush and Obama created a much larger "them," one spanning both a whole race (Arabs) and a whole religion (Islam). It gets worse - unlike the superpower who lords her wealth and excess over the planet, these millions of "thems" happen to be among the more impoverished on the planet - so it's kicking sand in the faces of people who are already buried up to their necks.

If you're a sports fan and someone from a rival team thoroughly insults "your guys," are you angry? Do you want to get even, pray that your team beats the crap out of theirs? Yes, but you're not going to take a gun and actually attack their players, you've got too much to lose.

Imagine if you were one of "these people" (poor, without education, without hope) and you were dissed as roundly and viscerally as America just did - the insult wasn't just to your sports team, it was to your religion, your very way of life, your family, and your heritage. How would you react? How would you react with literally nothing to lose?

Now imagine you're a well-funded ~200-person organization looking for recruits to help reassert "our pride and honor against those arrogant infidels that have called our race and religion a cancer, and maliciously killed our women and children." Don't you think that if you offer them a chance for "respect" (not unlike what gang bangers offer young children in many American cities), and give them money to feed and educate their families, that they'd happily join up even if it was (literally) a suicide mission?

For the last eight years, America has wasted more than $210 billion vainly attempting to "eradicate evil" - an evil (Taliban) she helped create and arm when the Soviets invaded not so long ago. Now they will double down with new troops, and activate a strategy of, are you ready for this - training and arming local militias!!!

Jeez! Can we be any dumber than this??

Has anyone ever successfully created peace, democracy and good will by training and arming small communities of testosterone-filled destitute, tribal warriors??

What if instead of giving them a reason and capacity to kill, we gave them a reason and capacity to live? What if the United States worked with other developed nations to create a multi (say 10)-year trade agreement with Afghanistan where their crops (all but opium) were bought by "western" countries at premium prices - one that made it worthwhile for Afghans to put down their guns and ammo, and pick up their hoes and fertilizer? What if we provided them with tools and resources to create more arable land (irrigation, soil improvement, seeds, etc.)? What if we helped each community that was interested build a local cooperative from whom we would buy products?

The next two years are expected to cost Americans ~$100+ billion/year. Let's instead spend that money (along with $$ from other wealthy countries) to overpay for agricultural products. Let's help Afghanis develop the means (over time) to sell their products competitively. Let's give the people of Afghanistan a reason to live and a means to care for their families, and a sense of self-worth that makes it impossible for any terrorist organization to lure new recruits.

Surely this is a truer path towards peace and a self-determined society?

content, bandwidth and lunch

Marshall McLuhan was right - the medium is the message.

In almost every case, those that thought content was king were proven wrong. From analog modems (remember baud rates?) to DSL to Cable to FIOS, people routinely (and happily) pay a premium for bandwidth,  but they absolutely hate to pay for content.

Think back to the days of the original Napster and Kazaa - if I had been one of those that used either service, my thought process was simple: "I hate paying for content, but I don't mind paying as much or more than $100/month for bandwidth." I may only download 50 songs in a month but I'm still going to be happy with my killer bandwidth vs. having paid $50 for music.

These days people actually pay for multiple sources of bandwidth - I have broadband at home, a data plan for my phone (and a voice plan) and then also pay for hot spots when the need arises. But I still dislike paying for content, I do use Pandora/Hulu, etc. and will buy content, though grudgingly.

Mark Cuban wrote brilliantly about the DVR vs. internet video. In it he talks about how in their typically narrow-minded (the only thing I know is a hammer so everything looks like a nail) mentality, media companies want cable companies to eliminate or cripple DVRs because they allow viewers to avoid commercials. This perspective is shared by most if not all content publishers. They're crazy!

You know others are progressively eating more of your lunch and yet all you want to do is hang on to the meager scraps you have now? Why?

Digitization has altered the equation for publishers - they had the corner on both the medium and the message, but now anyone can distribute content (we haven't even talked about bit torrent) and most people can publish without needing an "official" publisher.

From music to video to books, each publishing machine has attempted to preserve its original business in the hopes of extracting yet one more drop of revenue. But in trying to preserve history, they're losing sight of the future.

People are willing to pay for access, but content ...not so much. Content is less-valued - not just in publishing, but also pharmaceuticals with generics, with clothing and jewelry and knock-offs, etc.

Here's the thing - digitization increases profitability. Manufacturing costs drop dramatically (no physical bits), distribution costs drop dramatically (no bits, no inventory, no returns), cost of sales drops dramatically (eliminate the middle-man), and market size increases dramatically (direct to every customer on the planet, no retail constraints).

If you had all four of these factors beckoning you, why not go that way? Why not actively pursue tomorrow instead of trying to live in yesterday?

Because the greatest predictor of future failure is past success.

commodity U

In the words of Wayne Gretzky the best hockey player ever, "a good player skates to where the puck is, a great player skates to where the puck will be."

Reading Seth Godin's recent post about abundance and scarcity, there is no doubt that winning is about altering the model, redefining the game so that it favors your "home-field advantage" vs. anyone else's. History is littered with examples of things that were once special, expensive and sought after, but are now commodity. From air travel to televisions to mobile phones to personal computers, value diminishes as innovation takes over or as Seth put it, we move from scarcity to abundance.

The mark of a great organization is its ability to anticipate the next disruption (where the puck will be) and either be the authors of it, or redesign to obviate a competitive threat altogether. Organizations that sustain preeminence do so because they understand that being entrenched in their past successes is the surest path to future failure. It's not easy; they face phrases like "old school" or "back in the old days" or "we've done it that way forever" and have to overcome that tendency to stay in the past where it's comfortable.

The communication revolution has felled many seemingly iconic "incumbent" organizations and even entire industries. Perhaps they failed to grasp the implications of the democratization of publish, access, and more critically, connect. Sadly, some also fail to realize that the "hold" they might have on a market is wavering as the demand for their unique "thing" dissipates.

There is one industry that for the longest time has managed to subvert the forces of change, and stay true to the old ways - higher education. They've historically prioritized faculty over the students or rarely paid attention to teaching quality (how many professors did you have that had any training or any skill as teachers?). As long as they were the accreditation gatekeeper, and were able to attract funding from public and private sources, the students were secondary, if not tertiary (sorry). The recent economic times have changed things - most universities are now realizing that student "satisfaction" is critical, but only because their cash flow is now so significantly dependent on undergrad tuition - most of the other sources are diminishing.

But this isn't all, conventional universities are facing competition from three other sources:

1. Just like universities complain that high school students aren't prepared when they graduate, employers must also train graduates before they're ready to contribute - they don't all hit the ground running. Sure they want a trained candidate, but one who has proven skills delivering business value (not academic value). Candidates' other experiences (work, creative, community, teaming, etc.) are sometimes better indicators of work effectiveness. This puts less pressure on student to have to go to a branded school, and more focus on demonstrating their ability to be a valued employee.
2. Online players like  University of Phoenix or Kaplan University are really traditional educators in a new medium, but they're growing by leaps and bounds. They have a more streamlined economic model than traditional schools (less buildings, more bandwidth). Their professors also have to be better teachers given the online medium. Their diplomas are also respected by employers.
3. Have you ever heard of StraighterLine or P2PU? The former is a $99/month all-you-can-eat lectures to earn college credits, and the latter a community/peer learning facility by subject/class. These two organizations may not succeed right away, but IMO there's a "there" there. Sure it'll take another decade to gain a foothold, but I think StraighterLine or Peer2PeerU or similar entities will be the University of Phoenix of the 2010s.

Adding this up, universities are facing funding shortfalls, skeptical students (customers), disruptive business models, and a product that's been devalued in the marketplace. That sounds very much like they're being commoditized. Nobody believed the University of Phoenix would survive, but it has thrived - so much so that others (Kaplan) are copying its model. You even have institutions like Florida Virtual School, which is a very successful Kindergarten-Gr12 school. Once again we see scarcity shifting to abundance; those that try and hold on to the old ways may well be doomed, and those that adapt will survive.

I think this is a good thing; competitive spirits will surface, academia will raise it's head to try and figure out where the puck is going, and everyone (especially the students) will benefit.

is free free?

How do you make money and still sell things for free?? Inquiring minds want to know!

I'm fascinated by these business models - one approach is to lower the price and make it up in volume (examples include SouthWest Airlines, Walmart, Costco, etc.). Google zeroed the price altogether by turning the end user into the product and the advertiser into the customer - this was the first real step towards free at scale. Now free is expected, and if you're not ad-funded, it makes it hard to turn a profit... or does it?

Seth Godin wrote about righteous indignation and avalanche opportunities this week, and Krishna asked sure free is for users, but what about publishers? All three blogs apply to business models, how you can optimize your opportunities, create scale (which requires very broad reach), and make money.

While Seth was talking about customer service in the first, I see a different kind of righteousness - "I deserve to get paid, and I'm damned if I let someone take my stuff for free!!" As Krishna argued, it costs money to sell stuff for free; it's easy to understand why people feel indignant about it. Read Seth's second post (avalanche), and you learn that your boss *really* pays attention when you can demonstrate significant reach, outcomes, growth, etc., and you begin to think - the only way for me to break through and get customers to pay attention is to sell it for free.

Do you have to overcome the mentality of expecting to get paid for what you value most? Surely its what the customer values that counts! Not everything has to be for free - people will pay for some things - but what?

If I were an artist you liked and were to offer you my music CD for free, would you begrudge me charging you $4.95 for shipping (even if it only cost $1.25 to ship)??

If I were a chef you liked and offered you appetizers for free provided you bought the main course, would you "buy" (even though you know the main dish prices include the other costs)?

If I were to give you a car for free but charge you $10/gallon for the special fuel it needed, would you "buy" the car (even though you know you'll end up paying for the car in the end)?

Is Free *really* Free?

We all *really* know that deals like this are not truly free, they're just packaging. At the end of the day, any of these organizations needs to earn money in order to pay its employees, cover operating costs, etc. We recognize and respect this because we hopefully do, and want to keep getting paid ourselves.

What about Google? When you happily use their service, you might do so because they're a great company, have a great product and try not to be evil; but have you thought about how economically successful they are? Google employs more than 19,000 employees, earns more than $20 billion/year and achieves more than $4 billion in net profits. These are amazing numbers!

Lots of people had to pay Google cash so that they could be so profitable. These same people had to get paid to be able to afford to pay Google, and you and I (end users) had to have paid them to start this process.

Free isn't free - it's just damned good marketing. Or in Google's case, a brilliant business strategy of turning the customer into the product and selling it to someone else.

Where is the next "avalanche"?? I'm thinking it has something to do with aspects of reCAPTCHA and massively multi-player games. These are both brilliant innovations that are just scratching the surface of new paradigms of commerce.

dropstop

Eli Broad has put a ton of philanthropic energy and money into education; his foundation's site has some interesting statistics:

1. 1.2 million students drop out of high school every year, 44% of dropouts under 24 are jobless
2. Dropouts pay less taxes (costing the Feds potential revenue), and 65% of US convicts are dropouts
3. It costs $12,956 more per year to house an inmate ($22,600) than educate a student ($9,644)

Assuming dropouts only spend two years in jail over their adult lives, then each dropout costs the government $45,200 + $? in arrest/court costs + $? in lost tax revenue = $100k (guessing $5,000 in arrest/court + $50k in lost taxes). I think the actual costs are much higher, but let's be conservative and say it's just $100,000 per dropout over their lifetime.

This means every year, the American government (American taxpayer actually) takes on an increased burden of $78 billion dollars just from the 65% of dropouts who will become convicts. Just for the dropouts since the year 2000, this burden over their lives is over $700 billion. To put that in context, the annual operating budget for education is $450 billion, which serves almost 50 million students. [See update below.] I couldn't find the data I wanted, but still believe that the burden on society is significant enough to warrant the investment below. 

Why do students drop out of high school? The three most frequently-cited reasons are: family issues ~25% (pregnancy or becoming a parent), employment ~32% (couldn't combine school and work, or needed to get a job), and motivation ~69% (didn't care, no-one pushed them). How about this: two thirds said that they would have tried harder if more was expected from them (i.e. someone cared).

The National Dropout Prevention Center proposes fifteen strategies for improving graduation rates (about twelve too many); if I were to pick three, besides the obvious ones (centralization and teacher improvement), my third pick would be mentorship, or as I proposed, "minternships."

I recall hearing about a Big Brothers Big Sisters study that said effective mentorship requires a minimum 18 month commitment; less can actually do more harm than good. The quality of the mentor is of course also a critical factor. But if you're good and you stick around, the results are strong and positive - the mentee is more likely to complete and graduate school, etc.

Is there a common thread among the three main reasons kids drop out? They're not being counseled well about family planning, birth control, safe sex, etc.; there are no clear options for financial support for children in high school; there's no-one who believes in them, encourages them, and provides them with a model of how to achieve gainful employment. There doesn't seem to be one, but I think we can create it :-).

Let's build a formalized mentorship program (using the Teach for America concept, we could call it "Reach for Americans") where students are able to receive not just counseling and support, but also a stipend (for community service or internships that pays enough to prevent the need to get a job). The mentorship must focus on both family planning/sex ed and of course motivation, support and inspiration to stay in school, graduate and succeed. Let's not make Reach for Americans (or whatever it'd be called) a .org - let's instead make it a .gov, that way it's not beholden to fund-raising, and students can count on the counselors being there always.

The program should begin early - say at age 8, and continue through high school graduation - this would get expensive (but I bet we'd not only improve graduation rates, but also student performance, and hopefully in a generation be able to claim that families were elevating themselves out of poverty because their children were graduating high school (potentially going on to community college or university), and earning a family wage. This organization might also become a student advocacy group, and argue for student rights across the board, but particularly in low-income communities.

The business case is clear, the outcomes could be significant - I think we should pick a state and give it a try.

UPDATE - I realize (thank you everyone for your emails and comments!) that I made a false assumption above - 65% of criminals are dropouts, not 65% of dropouts are criminals. I will correct this this evening.

talent pools

If more money doesn't ensure a better education, what does?

A few days ago, J.R. sent me a link to an excellent presentation by Sir Ken Robinson about how today's schools kill creativity. J.R. also shared a recent post by Peter Bregman which advocates that you aren't pushing hard enough if your path to success isn't marked with failures. Then Kay (20 year public education veteran) sent me an email that illuminated a dynamic in education and health care that I had not considered before:

Quality

Prior to the 1960s, the American workforce excluded more people than it included, cutting off access to a huge, talent-laden pool of workers. During this time, most women were limited to three professions - nursing, teaching and administrative work. Thus limited, fully half our population's best and brightest devoted their energy and passion to these three fields. Is it any wonder that wellness improved, schools (and students) in this country were among the best in the world, and companies were well-run?

Imagine that - society actually benefited from discrimination. How ironic!

Since there were more candidates than jobs, employers could hire the cream of the crop at "competitive" rates. Again - how lucky for education, health care, etc.!

Things changed in the 1960s - attitudes began to shift and opportunities began to grow. When presented with alternatives, once again the most talented of this community left their present and moved on to their future; this time to the detriment of education, health care, and business administration.

Creativity

Like most people, I believe that teachers are the most critical factor in student success.

Standardized curriculum/testing, prioritizing literacy and numeracy, and a lot of the challenges that Sir Ken identified have been around a long time, but until recently the teachers were so good, they overcame these issues and the students learned regardless. What's more, because of their confidence and ability, teachers were also comfortable pushing limits, allowing their students to push limits, and together achieve great learning, knowing that mistakes and failures pave the way to insight.

In essence, the system wasn't great prior to the 1960s, but our successes happened in spite of this, and only because the teachers were good enough to overcome their environment. The proof of this is that there are brilliant classrooms and (in very few cases) schools today, but these teachers are very much in the minority among their peers.

If you build it...

If you ask a bureaucrat, he'll say we need to recruit back all these great teachers at an incremental cost of $billions. But it is rare in a large system (education, health care, mega-corporations, etc.) that adding more money creates better results. We need a different approach:

We must begin by ensuring that the outcomes of learning (the "what") are clear and explicit. But we leave it up to the teachers to determine how to accomplish these goals. We do this by federalizing (thus erasing a massively redundant bureaucracy), and eliminating the need for unions (who are generally resistant to change). By giving teachers and schools ownership over the "how", we can eliminate even more bureaucrats, and make the gig that much more attractive. The result (despite increasing teacher salaries) should be a significant reduction in the education budget, and a more appealing place to work.

We attract great people by recognizing that teaching is not a job, but a profession. We acknowledge that professionals seek the creative and intellectual freedom to do great things and make powerful differences.

We can make teaching a real destination, one that draws in the best of our society by giving them the room to grow.

fed-up?

Hello everyone and sorry for the two-week gap in posts - you gotta love vacation-time!

All levels (from municipal to federal) face tough, tough financial challenges; each layer is dealing with its own challenges and scrambling to survive. Even if one level finds balance, it is still subject to the whims of those around it. In California for example, the state's recent budget agreement requires the municipalities to "contribute" money to the state's coffers, so a resident of a city can get hit twice - first with a state-wide program cut, and then because the city's revenue stream is impeded, a potential (and potentially related) municipal cut as well; all of this with no aggregated consideration of that individual or organization's situation.

For example, an education program cut by the state could reduce an inner-city school's funding, and when combined with a separate municipal cut, could result in the school canceling specific programs, or closing its doors altogether.

Additionally, both the state and city leaderships are also aggressively pursuing federal funds to mitigate their failures, creating a dependency on yet another branch of government. In good times when taxes are flowing, this type of thing doesn't happen often enough to cause any wide-spread grief. But now, when things are pervasively bad, the impact is profound. What becomes glaringly clear is the extent to which every level of government is intertwined, and really one big morass instead of a set of "small" ones.

Small Government?

A lot of people (me included) believe in the idea that small government is better, that the Feds should delegate legislation, decision-making and authority as far down the chain as possible on the assumption that local issues are best dealt with by local governments; thereby keeping the Federal government small. But this has spawned a system where each of the levels runs elections, legislates, is responsible for collecting its own revenue, and forming and staffing its own organization(s), defining separate priorities, perpetuating more bureaucracy, etc. But the delineation of responsibilities between the layers isn't clear, things like education or health care or law enforcement all have multi-layered and often competing or conflicting agendas.

With all this layering and duplication and potentially conflicting actions, surely the last thing that's accomplished is a smaller government?

Wherever you may go

Let's start with something as simple and seemingly innocuous as marriage, which is bizarrely deemed to be a local issue. The opening of the Declaration of Independence states that, We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness. With the Gettysburg Address, Lincoln posited the idea of a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal.; and whose closing demands that government of the people, by the people, for the people, shall not perish from the earth.

Whether gay, straight or otherwise, you are equal and have the right to be happy no matter what. Hmmm... How then does one state get to have one law about marriage, and the state right next door an altogether different law? What happened to the citizen in all of that? How is it consistent with the Declaration that a gay person is prevented from being equal and pursuing happiness in one state, but by literally crossing a street, they suddenly have rights?

And when it becomes an inter-state issue, courts and governments at all levels have to deal with the issues of marriage - because it's clear that in reality, no one level owns it.

Money changes everything

How about taxation and spending. Today every layer of government must find a way to raise funds from the citizenry. It is possible for you to be subjected to three or four taxes that are separately progressive and regressive, that create tremendous pain not only for you the tax payer, but also the collection system. The result is organizations at each level doing the same thing, not thinking about each other, and wasting money, due to the the inherent redundancy and inefficiency.

When it comes to spending priorities, one state might choose health care over education, because more of their voters are closer to retirement and in need of more care. Maybe this is reasonable, but in tough times, when they have to close schools because they can't get budgets balanced or borrow to cover shortfalls, what happens to the children of that state, and their future?

The disparity of student performance by state in the USA (as well as the disparity in curriculum goals, learning standards, etc.) is proof that American students are victims of district, state, and nation-wide discrimination. This can't be right, and it certainly doesn't save money when each city, district, or state makes their own decisions about closing schools, changing curricula, etc. In this the communications revolution era, it is stunningly naïve to think that education should be local vs. global.

In the end...

Why is "many governments" considered small government? Why not have one national government that assures every student the same educational opportunities; where everyone lives by the same laws; that we should all pay taxes, but that those taxes ought to be collected once, be progressive, and cover the needs of all the citizens, according to the laws of the land?

A valid argument against one big government is that there is nothing to temper its behavior - without a system of checks and balances, a government could turn authoritarian, no longer represent the will of the people, and potentially even harm them. No doubt this is a huge risk, and one that should be guarded against. But then I think about the Cheney/Bush presidency, and imagine if a second 911-like attack had occurred just after the 2008 Primaries, that Cheney might have declared a state of emergency and delayed or canceled the elections in the interest of national security... that doesn't seem implausible does it?

A second argument is that local issues can't be dealt with "federally" - exactly which issues fall into this category? And why can't a federal machine solve them?

I think a three (or more)-party political system reduces the Authoritarian risk. I think a purely federal government is a viable governing mechanism. It would be much more efficient, ensure that every citizen is equal, and not be subject to the sometimes idiotic whims of locally-elected "leaders."

necessity and invention

I've been reading a lot about increased funding and expanded budgets for "innovation" in education lately. America spends a lot of money (among the highest) per student on public education; most people are unsatisfied with the results, and yet the prevailing strategy to improve things is to throw more money at the same system.

The Numbers:

According to the National Center for Education Statistics, in the 2005-2006 (the most complete data I could find) school year for public K-12 schools:

1. Total number of students: 49,113,000
2. Total number of teachers: 3,143,000
3. Spending per pupil: $9,154
4. Total operating budget: $449.6billion
   • Instruction $274.2billion - 60.98%
   • Support Services $157.1billion - 34.95%
   • Food $17.3billion - 3.84%
   • Enterprise Operations $1.0billion - 0.23%
5. Total budget: $528.7billion (#4 + $7.4b other current expenses, $57.4b capital outlays, $14.4b interest on loans)

ASIDE: According to the US Census Bureau's Public Education Finances report, of the $274.2b for Instruction, 89.8% or $246.2b goes towards teacher salaries and benefits ($78,334 per teacher). That's a pretty good wage these days, but as I've said before, I believe that teachers should be better-paid, and respected as peers to doctors, lawyers and engineers. Regarding this last point, I wonder then if it's time for teachers to secede from their unions? Most lawyers, doctors, engineers, etc. are not union members; I wonder if being union members creates the impression of not being on an equal footing with those professions, and actually diminishes teachers?

I'm not judging whether the level of funding above is too much or too little for America. Let's say it's just right. Now combine this with the graph to the left, and it's pretty clear that the budget is big, and has and continues to grow very rapidly.

I don't know enough about the public sector, but in business when growth like this occurs, it is likely that bad habits form. People get lazy, money is not spent wisely, and consultants get hired to do what employees should be doing, or to provide management with a CYA safety net. Management gets in the rut of preserving the status quo/gravy train. Most organizations that survive past the rapid growth phase have to go back to the drawing board and rethink their whole business. They must develop a strategy re-defining success, specifying new resource allocation models, and advocating entirely new business processes and approaches in order to achieve their goals.

With the kind of funding growth education has enjoyed, I wonder if the administrators have simply been adding more $$ to existing line items - taking the easy way out?

Have they taken the time to form a strategy that establishes where the puck will be, enumerates and prioritizes their current resources, and defines a plan for how to get there? If the current budget won't get to the puck, they should first look inward, make trade-offs, and then demonstrate exactly how additional funding results in specific outcomes that other stakeholders want and would fund.

I've written before about how organizations can get waylaid by their own success, and the effect of size on performance. While both blogs were about commercial companies, I wonder if some of the same principles might apply to education?

At one time, the American education system was among the best in the world, and it appears that the formula from that era remains in force today despite many changes to the world around us. Why is that? Despite all the lip service paid to edu-evolution, except for very small pockets, the system appears to be just the same as it was two or three generations ago. It feels like Education is trying as hard as it can to live up to this Peter Drucker quote.

Can education achieve innovation when increased funding is not a part of the picture? If necessity is the mother of invention, is it possible that the constant increases in funding have resulted in precisely the wrong (zero-innovation) outcome?

Humans tend to think most creatively when their backs are against the wall, and they have to adapt or die. If put in that situation, would the American education system find a completely new and innovative way to achieve its goals? I think it's possible.

It takes leadership to achieve this, but I don't see the present administration (President Obama or Secretary Duncan) taking this on. We remain in desperate need of an education sensei to lead us.

free at last?

Chris Anderson has sparked quite the debate with his latest book, Free (MSRP: $26.99(!)). Malcolm Gladwell wrote Priced to Sell, expressing skepticism about the book, Seth Godin responded with Malcolm is wrong, and Marc Cuban went on to draw the distinction between Free vs. Freely Distributed.

Chris, Malcolm, Seth and Marc are all brilliant and accomplished; as Seth pointed out, it's an amazing expression of "free" that we're able to read their words for free (except the actual book:-). We must celebrate that people like C, M, S & M freely share their ideas and more than that, actively engage in debate. This is a testament to one kind of free.

Evolving Business Models

Free (truly free) is rare. Unlike commoditization which is altogether common. For me, it centers on the business model. In high-tech it began with IBM - their model was superior customer service and sales. They prioritized the customer (mostly big, big organizations), were fully intimate with their priorities, industry, politics and people. There was truth in the statement "you never get fired for buying IBM." They always stood with you. They priced hardware steeply, but wrapped it in a cushion of service and support that was unequaled and highly valued.

Then came Microsoft - they prioritized the product and the channel. The built a partner community like no other, paid attention to independent application developers, who understood their end customer and built great applications that dragged Microsoft's "platform" technology along. Microsoft commoditized hardware - their platform software ran on a bunch of different gear, which meant that the customer could shop around for the best price, knowing that the "value" lay above the hardware in the software. This forced IBM to change its business model from hardware-biased to service focused.

Now we have Google - they turned the game on its ear brilliantly. Why make the customer pay at all? Let's make the end user the product, and sell access to it. Google's advertising approach turned both hardware and software into commodities (doesn't matter what kind of computer or browser or whatever is "underneath"). This is powerful, and why many hardware and traditional application or platform software companies are struggling.

It's ironic that success (to be pervasive and set the standard) leads to others copying you, the bar rising, a loss of differentiation, and a new addition to the ranks of commodity.

The big question is - what will commoditize Google?? In its heyday no-one believed IBM would be usurped. Similarly for Microsoft. It's not clear what follows Google - but you'd better believe someone will, yet again changing the game. IBM's model lasted for a couple of generations, Microsoft's for barely a generation; the pace is accelerating.

Mired in Paradigms

Sadly, each organization is/was so entrenched in their model that they dismissed the new entrant as spurious. Even when the new model had taken hold, the incumbents persisted in staying the course to extract every last drop of milk out of their cash cow. Despite being repeatedly kicked in the head, they still believed they were right and should not abandon what got them there.

What will threaten Google? Is it possible to commoditize or replace the ad-clicking consumer? Is there a new kind of channel? Will Google buck the trend and be the author of the change that out-modes their current model?

According to yesterday's Harvard's Daily Stat, the "Internet" (US numbers only) employs 1.2m people = $118 billion in wages and it drives $175 billion in direct transactions ($20b advertising + $85b retail txns + $70b to Internet service providers). 11% of the Internet business is advertising, a full 40% is for Internet access, and the balance (about half) is web-fronted purchases. While big, advertising is not #1. The massive majority (89%) is the consumer buying things.

The Next Model

Google's genius was finding a way to transfer the direct payment obligation away from the end consumer and putting it in the hands of the advertiser (consumers do pay for advertising, it's just hidden). What would happen if people stopped clicking on ads? What would happen if advertisers found the ROI of web-based ads to be lower than alternate channels? Would that be the end of "free"??

I will pay for something I value. I might take it if it's free, but it has "free value" vs. real value to me. If I had to pay, I probably wouldn't take it.

In his article, Gladwell referenced consumers choosing a 15cent chocolate vs. the 1cent alternative; when they lowered both prices by a penny, they chose the now free chocolate. Is that more about convenience than value? Since you have to open your wallet anyway, the price becomes less of an issue, and you may as well get what you really want, provided you think it's worth it. Could this be the crux of the "next" thing? Making buying easy?

Apple, Amazon and others make this somewhat possible with iTunes/AppStore/One-Click-Shopping, or Starbucks charging your credit card with no need to sign - just swipe and done. I think people increasingly expect to get knowledge and insight (news, books, articles, etc.) for free; but outside of that, I'm not sure that free is mandatory. Take music or movies, while some people will download for free via a Torrent or something else, most do pay. In fact, artists that offer "pay what you want" downloads of music on their sites, often make more than the 99cents that iTunes charges.

Will it be this simple? Frictionless transactions or a new, more effective advertising medium? Or is there something else out there that is fundamentally shape-changing? I suspect the latter...

adventures in babysitting

I was listening to The Watchmen on This American Life last weekend - it affirmed my conviction about the sad, sad state of American regulatory oversight. The show is about financial services regulators and attempts to find out "who's to blame for this mess." It determines that one regulator was most "in charge" of many of the companies that failed most miserably.

It reminds me of a post a few months ago questioning whether our government has any regulatory insight at all, and then one that pushes our government to own it's own decisions. Listening to "The Watchmen" brought all this back, identified a potential scapegoat, and I think pointed to the real culprit.

A Fateful Year

In 1989 the Federal Home Loan Bank Board (FHLBB) was abolished by President George H. Bush and replaced with the Federal Housing Finance Board (FHFB) and the Office of Thrift Supervision (OTS). The FHFB regulates the 12 Federal Home Loan Banks, and the OTS regulates the Thrifts (providers of home loans).

Among others, here are some recognizable names that are managed by the OTS: AIG, Countrywide, GE, Ameriprise, American Express, Washington Mutual, IndyMac, and ING. I'm sure you've read about these fine institutions often in the last few months.

Around that same time, Alan Greenspan successfully pressured Congress into not legislating derivatives; and finally 1989 is also the year the Glass-Steagall Act was repealed by Congress.

Missed Intentions

But these were only the beginning. When the FHLBB was abolished, rather than start from scratch, the Administration did the worst thing possible. They ignored why things happened, just assumed it wouldn't happen again, and did the bare minimum. They appointed a new leader and changed FHLBB's name OTS - they did NOTHING else.

The real culprits (as is often the case) are not the front organization (OTS), but rather our elected representatives, who naively assumed that once the crisis was over, going back to business as usual would magically fix everything.

I haven't seen any Senate hearings on their own failings??? Gluttons for punishment that they are, the citizenry keeps reelecting these same culprits over and over again :-(.

What about the regulators?

Here's something I didn't realize: they are funded by those they regulate. Implication - the more companies they regulate, the more money they get. This is horrible!

Worse, when the new leader for OTS came on board, his mission was to expand his pie, and to do that he went on what amounts to a recruiting spree. He was aided tremendously by the fact that financial services companies can choose their regulator if they "qualify." For example - AIG, having learned about OTS' value proposition ("we're really flexible and generous with our oversight"), purchased a small Thrift (worth a mere one tenth of one percent of AIG), and was then able to elect to be regulated by OTS! Worse still, it was in OTS' best interests to keep a hold of as many of the old Savings & Loans as possible, which meant the most lenient regulator was regulating the worst offenders!

Is it any wonder that all of this combined with the creativity and ingenuity of traders, and the "you're only as good as your last deal" performance/compensation mentality, that things turned out the way they did?

So...

Should there be an organization that monitors the monitors? I don't think so - adding management layers never works well. What can we do instead??

First, it's pretty clear that regulators must be independently funded (via tax dollars), and that they must never solicit business (no lobbying or recruiting members). The hard one though is performance expectations (if you are what you measure, then how do we measure them?). Regulators are most effective when they're harmoniously (working well with their "flock") invisible, with their ideal result being a smoothly running machine.

What about real babysitters? A wage is negotiated, and the sitter is paid at the end of the job, provided the house is intact, and the kids are unwounded and asleep. If the sitter is good, then s/he gets more gigs, and because they're now in demand, their fees go up as well.

So... I propose an accelerated pay scale based on continued good results. Say they get 90% of current salaries as base. For every year their community is issue-free, their salaries go up 10% (1st year = 99%). If it remains issue-free in Y2, it's another 10% to 109%, and so on - by year five they're at 145% of base. We  bump it up by another 5% after five years so that the Y6 increment is 15% - then by Y10 they're up to 291% of base <-- not bad! But if an issue arises, they're back to 90% and have to start over. This might seem generous, but wouldn't you want great people in these jobs? You also want to make the pain of failure relevant. Moreover, think of the cost to taxpayers of the failure we've just experienced. The motivation then is to keep getting paid really well and increasingly better, provided the house remains intact, and the kids are safely sleeping.

Will this have the desired effect? I welcome your ideas...

social darwinism

I'm not a fan of protectionism. I think that every business or industry must either thrive in the global marketplace or die. This is how we ensure sustainable businesses and a vibrant economy. You only have to look at the auto industry to see how protectionism and creating a false-economy (one, two, three) solely to support an expensive, unionized labor force were not sustainable, caused or perpetuated uncompetitiveness, and eventually resulted in failure.

Yesterday was a beautiful, warm, cloudless day here in Seattle. Hanging out at a nearby park/marina, I noticed two sets of parents with their infants - one was using an anti-bacterial wipe to sterilize a restaurant highchair, the other was feeding their child (overhearing this part) ultra-organic, home-prepared, "pure" baby food. Both parents had expensive strollers; bragged about their infant's already hectic schedules; and talked about how they were already looking at schools (or even home-schooling); and (this blew me away) bemoaning how careful one had to be to pick the right kids for play-dates. Next to them was a family that had just plopped their infant down (no autoclave in sight), and were feeding him restaurant-prepared junk food. The latter child seemed happy, energetic, inquisitive, looked around, laughed, etc.; the former two were both placid.

Assuming these "super-parents" succeed, their kids will never touch "imperfect" food, never inhabit "unclean" environments, have ultra-busy schedules (playing with the "right" kids in "appropriately-designed" play spaces), enjoy ultra-managed electronic access, and ideally never have an uncontrolled exposure to anything.

This is not new; a large class of baby-boomers have been raising children like this for more than a generation.

How are these kids acclimatizing to the real, post-pubescent, high school world? Being around people with different opinions, potentially more confrontational, competitive, angry, etc. will have an effect. Will their systems have the antibodies, immunity and resilience to eat in the real world? Will their bodies accept a non-hypoallergenic environment? Will they be able to adapt to dealing with "raw" situations containing stress, angst, happiness, lust, greed + alcohol, drugs, cigarettes, etc.?

Exposing children to the world suddenly, and now without the parental protection safety-net has resulted less healthy, uncontrolled, immature, binge-driven behavior in high-school and university (and beyond). Academic performance has declined generation over generation, as has the motivation to excel. Children today aspire to be so much less than their grandparents and parents - you only have to look at relative academic performance to confirm this.

Can it be because their parents coddled them to the point where they have no motivation to achieve, nor do they fear failure?? After all, their parents have always been there - haven't they?? They expect to be happy, successful and healthy, because they've never known any other reality.

I think well-intentioned "super-parents" (like their NHTSA & EPA counterparts) may be doing their children more harm than good. I hope modern American children are not already down the path of suffering the same fate as General Motors, that like GM they're so close to action, and have so much social inertia that they are unable to see the forest through the trees.

We must expose our children to the real world; build up the physical, intellectual and emotional antibodies and resistance that will enable them to participate; and create the stress, team-orientation and competitiveness that will best-prepare them to not just survive, but aspire and thrive.

pig-headed banking

A home enters foreclosure every 13 seconds in the United States. The forecast is that an additional six million homes are at risk of foreclosure before our little crisis ends. Now put yourself in the seat of the Senior Vice President (or Assistant Deputy Manager in the real world) of Mortgage Collections at Citibank or Wells Fargo or whatever. Besides feeling good that you made several hundred fools who bought beyond their means whimper, what have you accomplished?

As I understand it, most foreclosed homes (in today's reality at least) have two things in common. Their house is now worth less than the mortgage (underwater); and the original mortgage, which was negotiated in "good" times, had an sub-prime adjustable rate, which the homeowner could pay, but the rates have now "adjusted" beyond their means.

So what happens to the Senior VP's portfolio? While he has eliminated several hundred late or defaulted mortgages (which looks good), here's the not-so-good:

• Value of the portfolio has dropped (since assets now have a lower value due to change in ownership & underwaterness)
• Bank now has even more unsellable (empty, dilapidated) property on its books (they own the homes)
• Cash flow has been reduced (mortgages are now not being paid)
• Expenses have gone up (legal and real estate fees for changing ownership)
• Customer satisfaction has gone down (more people hate them)

This doesn't bode well for this bank, banks in general, and the industry as a whole. To add salt, vinegar and Tabasco to the open wound, the customer has to find a new (and clearly cheaper) place to live; their kids may have to change schools; and the whole family is in an ultra-stressful situation, which could result in medical issues, etc. There is also the ripple effect - as more homes are abandoned, real estate prices have fallen, and now even people that did not purchase sub-prime loans are affected and unable to maintain their mortgages, and of course the community's economy starts to depress.

Now I'm not saying the customer is without blame, they bought beyond their means, certainly didn't understand the terms and conditions of their mortgage, and may in some Darwinian sense deserve their fate.

But still - how is the bank benefited by doing this? How is the local economy benefited from this? And by the way - how often has the US Government bought beyond its means? How often has the US Government not understood the "terms and conditions" in say an international trade or foreign policy scenario? These are the patterns and behaviors the citizens are following...

The net result of any foreclosure (in good or bad times) is that both sides lose. The only possible winner in a foreclosure is a cash-rich bargain hunter up homes at ultra-low prices and waiting to sell them when times improve.

A while back, I wrote about the lending crisis and proposed a government-driven solution that would buy up depressed assets and negotiate better terms for the homeowner. In retrospect, I think a better answer is for the banks to do it themselves.

But why aren't banks helping themselves by proactively renegotiating mortgages, keeping the asset intact, and maintaining their cash flow? Surely no-one can argue that it's better to cut off their noses to spite their faces? Why not have a simple escalation process that reaches out to homeowners and helps them stay in their homes and keep paying their mortgages, albeit at lower rates?

Am I missing something?

P.S. Apologies to any pigs I might have offended.

criminal insanity

To succeed in American politics, all politicians, Democrat and Republican alike must have a reputation of being tough on crime. In fact, on a percentage basis, you're more likely to succeed vs. any opponent if you've got a background in criminal justice (prosecutor, attorney general, etc.), and specifically on the "jes' throw all them f#($ers in jail" side.

According to this, in 2007 more than 7.3 million adults were under some form of correctional supervision. That's 2.4% of the country, or 1 in 41 people! But only 75% of America's population is adults, so it's really 3.2%, or 1 in 31 adults!! OMG!!

This includes those in prison, jail, on parole or probation; so for context, the number of people in prison or jail was just under 2.3 million, or about one-third.

The impact to our economy is noteworthy. Check out the chart on the right - I'm not a mathematician, nor am I a statistician but even my tiny little brain is able to spot the trend here. America spent about $210 billion on criminal justice in 2007, up from just under $36 billion in 1982. This amounts to a pretty modest 583% growth over 25 years. If the trend continues, that would put us at $1.2 trillion in 2032.

Want more? Projecting the 7.3 million people puts us at 29 million adults who would be guests or "friends" of the American judicial system in 2032.

Now take a look at the chart on the left (click to enlarge; source: Wikipedia). Assuming all judicial systems around the world are basically right and that everyone in jail is supposed to be there, the United States of America (home of the brave and land of the free) is by far the most criminally-infested country in the world, followed only by Russia. The rest of the planet is basically filled with decent, law-abiding citizens.

This can't be right can it? This country whose capacity for greatness is limitless cannot possibly also be the one that contains the most evil and socially-divergent people, can it?

It is time to recognize the insanity and abolish the "tough on crime" litmus test. We must instead find leaders who believe in the inherent goodness of people, the idea that crime is not the individual's failing, but rather society's failing. It is the obligation of a great and caring society to seek out and nurture the best attributes of its people and not assume the worst. If we draw the line in the right place, we can create a safer, healthier and more vibrant society where prisons are viewed as an absolute last resort, and we look first at the better angels of every person's nature.

bookmaking

I've been traveling the last couple of weeks and haven't had much time to write. But this article caught my eye, and some words popped into my brain.

The New York Times reported that the US Department of Justice is opening a probe into Google's Book Search service. The class action suit filed by authors and publishers was settled recently, granting Google the license (from authors and publishers) to commercialize just about every in-copyright book ever published in the United States. The resulting potential monopoly situation has piqued the DOJ's interest.

According to the Inquisitr, Google has digitized some seven million books, many out of print, and whose authors aren't around to claim royalties. They will charge for access to the books and share the revenue with authors and publishers. You have to register your book in the Book Rights Registry to receive your share of the 63% royalties that the registry will receive. If a book is "orphaned," Google may show 20% of the content for free (ad-funded) and then sell consumers access to the rest of the book, keeping all the proceeds.

Channels Matter

Google controlling the largest digital book library in the world and the ability to set prices and conditions of use for any services provided by Book Search is problematic. There is no doubt that tomorrow's reader will prefer e- to paper, which makes Google's repository the de facto library for America, and potentially the rest of the world, depending on how this goes with the EU and other markets.

Publishers are OK with this because they have secured monetization rights to new releases, thinking that this is their greatest source of revenue. This tip-of-the-iceberg mentality is fraught with risk. Long-tail principles teach us that more than half of what interests people is not recent, today or kitsch - it's the stuff that's in the inventory that publishers just ceded. Moreover, there is a principle of efficiency or one-stop-shopping that pushes people to go towards more definitive and complete sources. Given that, it's a slam-dunk that every new author is going to want to have their newly-released book in the medium that gives them the most potential readers - Google; this will force publishers to want to push all their content through Book Search.

Of course you will all recognize this as the same dynamic and head-in-the-sand mentality that the RIAA and music industry exhibited in the face of iTunes. Looks like publishers even more naive, 'cause they don't believe this will happen to them.

Channels Rule

This is something publishers know intrinsically, but they're so entrenched in their world that they can't grasp this new paradigm, or the fact that it will subsume their current business. The individual author probably likes this because they're thinking this will results in increased royalties for their books. The Darwinian Free Market Forces (DFMF) person in me says - "Good - let them be victims of their myopia!" But the Serve Society's Best Interests (SSBI) side says - "No - we can't allow this to happen!"

Society (and the people) should control access to its members' works (especially works of art). Broad, universal control of literature, music, art, etc. can not be in the hands of a commercial enterprise, no matter how benevolent they may be, or appear to be. It belongs to the people.

Changing the Channel

What if we form a joint venture (this applies to the USA only) with US Library of Congress (LOC), National Endowment for the Arts (NEA) and the US Public Libraries and ask Google to turn this Book Search facility over to it. We will form www.booksearch.gov (or bs.gov for short - I'm guessing it'll be easy for people to remember this) as a revenue-generating facility whose profits for the first three years will go to Google (to cover their investment), and following that will go to funding the LOC, NEA and Public Libraries.

This appeases the both the DFMF and SSBI in me and allows us to keep the fruits of society's labors in the hands of the people and not the one.

<<UPDATE - to correct some typos - Thanks John>>

oversight Easter egg?

When the US Federal Government "took over" key American financial institutions, they imposed executive compensation restrictions, undertook Congressional investigations on bonuses, and decided to legislate how "their banks" would pay their employees.

What did the employees do? Many left. Where did they go? Some (the best and most employable investment bankers and traders) went to smaller, boutique firms where compensation is not regulated by Congress. The NY Times thinks this is a bad thing, but maybe not - here are three possible outcomes, which together might be a silver lining:

I. Dekeiretsuification

The exodus of trading talent means the big (now over-regulated) financial institutions may not be able to rebuild their brokerage/Wall Street presence. This could be a godsend if they go back focusing on their core business. Banks stick to savings and credit, insurance companies focus on actuarials, and trading companies focus on the markets.

If we can go back to a pre-1999, reinstated Glass-Steagall Act state, then government oversight of each type of financial institution is more clear, and conglomerate organizations like today's AIG & Citi are not possible. So even if bad behavior does occur, there should be less need for government intervention, and market forces would prevail.

II. Renegade Boutiquism

As these "quality" traders and brokers move to smaller, boutique firms, they will go back to their roots - commissions by the deal (no long-term view); employing aggressive, creative market-making approaches, looking for every loophole and finding new ways to create revenue streams; and doing whatever it takes to achieve hyper-returns.

Today there is a good regulatory framework (the SEC), but with one gaping hole - the rating agencies. As I wrote here, they were a critical point of failure, contributing signficantly to our current predicament. The SEC and Congress need to focus their energies on repairing this to restore rating integrity. Let the boutiques play - this is the "cowboy" end of the financial services system, and it should remain so.

III. Lax Americana

For those with a big ego who can't let go of "American supremacy," this is the tough pill to swallow. Being meekly Canadian, I'm not so wrapped up in it :-). With tight Glass-Steagall-like regulation, there is no possibility of massive American financial conglomerates. But I'm guessing that Russian, Chinese and Brazilian regulators will not restrain their banks, and these will be the new financial services "powerhouses" of the 21st century.

If US (and the West) regulators can think long term, they will first make sure that their infrastructure's dependency on these mega-banks is limited and managed; and they will resist the teenage male testosterone urge to view these "foreigners" as a challenge to their "manhood".

When they were going after the salaries and bonuses, I thought the Feds were being spuriously regulative. But provided we can re-enact Glass-Steagall, reassert Rater integrity, and stay focused on the long-term health of the economy, the result should be a stronger, more accountable, and better managed financial services system.

Let's hope the Easter Bunny is smiling...

$18.69

Some of you noticed that I tried Google's AdSense service about three weeks ago, I'm now happily back to being ad-free. It was an interesting experiment, I tried to keep them unobtrusive, despite using three distribution mechanisms - the site, search and the feed.

As you've no-doubt guessed, I "earned" $18.69 over this time. I had intended to contribute another $18.69, and take the total $37.38 and donate it to a local charity which my employer would match, to get to $74.76. 

But even now I am unable to get to the money I earned - Google won't allow me to provide payment information - it says I must reach the $10 earning threshold first. I'm pretty sure that $18.69 is greater than $10, but I defer to the very bright minds at Google - they must know of a newer math.

Speaking of which, I read today that Google now owns 3% of the global ad market, which gives them something akin to Wal-Mart's (who has 4% of the worldwide retail market) economic stature. The author (Christa Quarles) went on to suggest that Google should next move into the more lucrative corporate IT provisioning business, where they can provide cloud-based services to companies (they currently have 0.1% share in this market).

I don't agree. For Google to branch out into this space, they would need a level of sales and marketing and support that IMO is inconsistent with their business model. Unless of course they have innovated a whole new business model. And even then, I think they should stay true to their core business.

It's telling that we are comparing the market might of Google to that of Wal-Mart. Think about Wal-Mart's market dictatorial capability. They tell their suppliers what they want and at what price, and the suppliers acquiesce. Google seemingly has the might to tell people (it's channel partners like me) that math as they understood it doesn't apply anymore, and I suppose I have to acquiesce too.

Have both organizations gotten too big? Here's an interesting thought - some of the more diversified companies have suffered the most unhappy fates in this current economic situation - from GE to Citi to GM to AIG. Isn't this a bizarre reversal? We're taught to diversify our portfolios to protect from specific reversals, but looking at this market situation, it looks like a bad strategy.

Or was it? One common denominator with these poor performers is that they all own a finance company (GE Capital, GMAC, etc.). I believe even Wal-Mart had explored the idea of creating a bank. If they'd all only been banks (no trading, insurance, etc.), they would have been subject to more stringent regulatory oversight, and perhaps never been able to get into this situation. But with their diversification, and current rules, at the highest level, they were able to choose which regulator applied to them, and of course they chose the most lenient, which gave them the most latitude.

I hope Google doesn't go into finance - it could be their kiss of death, especially if their new math is anything like the math that our friends at AIG, Citi, GMAC, etc. use. And it'd be a certainty that I'll never see my $18.69.

getting your ticket punched

Brian Dixon wrote a great post on the transforming role of education. As I read it, I asked myself - what is the most elemental reason that people get an education?

For parents, it's about structured, mostly free babysitting; though I suppose wanting more for your kids than you had and thinking that education is the path towards that might have some influence.

For the government, it's about capacity creation. Once we moved into the Industrial Age, it became clear that GDP growth was tied to capacity to scale output, which was tied to the capacity to create scalable output, which was dependent on educated people. Plus most politicians are lawyers, and despite Shakespeare's best efforts, they still live, are inexorably linked to their alma maters, and want to see them live on and be filled with students.

For the student... now there's an interesting question. In most cases, entering the education system is an involuntary act. At some point they get used to it, and then hopefully enjoy it, building a community of friends, etc. But why (at the most fundamental level) do students wish to be in school?

A part of it (especially today) is that children know we live in a capitalist/market-driven world. They know also that from food to clothes to cars to games to phones to whatever, the biggest impediment to getting what they want (besides parental and legal constraints) is money. Once they're old enough, as long as they operate within the rules of society, the main thing in the way of what they want (or think they want) is money.

Again - why school? Until the Information Age, the ticket to employment (and thence income) was an accreditation of some kind. The better the accreditation, the better the employment & wage. School was the most likely path towards this. Two things have changed in the last couple of decades - first the success of athletes and musicians that prompted some to believe they had a non-academic path to bling; and second, the success of creative Internet commerce (mostly by young people) where "accreditation" wasn't required - examples include the Million Dollar Homepage, and of course this Forbes list of teenage millionaires - most of whom were really smart, but seemingly didn't require school to get it done.

Notwithstanding the fact that these successes are the equivalent of winning the lottery, it still puts children in a place that deeply questions the need for school. This of course creates yet more pressure on schools to be a place that compels children to want to attend and remain.

Back to Brian, I was at his place of work (High Tech High) last week. It is an incredible school. There are many things that make it so, but two stand out for me - first that it is a joyous place, and second that every student that I met or saw exuded "I can be anything." This is a tribute to the philosophy of this school and its amazing teachers. I got to spend some time with Brian and Larry Rosenstock, CEO of High Tech High (HTH). We had a wonderful conversation, one that befitting the surroundings, spanned a gazillion topics. Of course I learned a ton, and emerged that much more inspired and grateful that I get to do what I get to do.  While we didn't talk about it, I believe Larry would sign up for the three measures of school success I suggested here.

At HTH, I saw students wanting to be in a place where inspiration provokes outcomes, where the outcomes are meaningful, and where everyone (faculty, staff and students alike) thinks: "we can, we must, we will." It is this type of inspiration that every student needs, the inspiration to not merely seek the quick, easy win or a free ride, but instead the path of challenges, team work, and accomplishment - that's the ticket.

fiscal prozac

Stimulus packages are near top-of-mind for almost every person on the planet who has access to CNN. I have also fallen victim to this and written about it on a number of occasions. Two posts (one, and two) prompted a lot of discussion (my gratitude to Bob S. for sharing his economist’s perspective).

Here’s what I’ve learned so far.

We need to see 10 trillion dollars (yes, $10T!) of flow through the American machine annually (GNP) to have a solid economy with “full” employment. At its worst, our GNP had fallen to $7T. The goal of the stimulus packages at the highest level is merely to throw money at the problem. It turns out that it matters less where the money goes, as long as there’s more money flowing. As long as cash flows into the system, expansion happens.

What about the bank bailouts? When you borrow money, leverage is created – you’re spending more than you have, and the banks are too. They convert their deposits (counting on most loans to be paid back on time) into debt, at a greater than 1:1 ratio. In other words, they can lend more money than they have, because they’ve done the due diligence (theoretically!), to know that they are issuing loans to credit-worthy people.

Why not just lend like mad and use the leverage to bridge the $3T gap? Because there's not enough motivation to borrow. In tough times, we all naturally become more conservative, spend less, even start saving in case of an even rainier day ahead.

That’s where the stimulus packages come in. They create immediate cash flow, hopefully directed at driving demand and consumption of goods and services so that people start spending, cause movement in the economy which spurs borrowing, etc.

This is the theory. And hopefully the very bright minds “in charge” get it done, and done right. Money it seems is the ultimate anti-depressant.

But this isn't all peaches and cream.

First, and this is more of a nit. It just rubs me the wrong way that so much money is going to fund what is clearly political pork barrel pandering. There should be more integrity in the system and a sense of social accountability that is sadly missing among those that got elected.

Second, and this is my big one. Have you seen anything that leads you to believe that banks will be better lenders this time around?

We’ve seen bad judgment, which of course provokes Congress to write laws preventing that specific behavior. AIG gives out bonuses to many of those that caused their problems in the first place; GMAC advertises multi-year interest-free loans to anyone as long as they have a pulse; I still get 5-10 credit card, and 3-4 mortgage re-financing solicitations a week.

I’m sure there are examples where banks have cleaned up their acts, but the leadership that caused bad lending remains mostly in place; regulatory oversight hasn't changed enough. International or multinational regulations haven't changed either. Here's a site that reports on regulatory changes - no mention of real or substantive change.

In the main, it looks like the feds are on the right track to improving the economy, except for preventing it from happening again, or even something as simple as disciplinary actions against those that caused this in the first place.

Oversight anyone?

Dichotomies abound

President Obama said many things in his Feb 24 speech. Here are two passages that I found interesting (my italics, and the quotes  came about a minute or so apart):

And though all these challenges went unsolved, we still managed to spend more money and pile up more debt, both as individuals and through our government, than ever before.

In other words, we have lived through an era where too often, short-term gains were prized over long-term prosperity; where we failed to look beyond the next payment, the next quarter, or the next election.

...

The concern is that if we do not re-start lending in this country, our recovery will be choked off before it even begins.

You see, the flow of credit is the lifeblood of our economy. The ability to get a loan is how you finance the purchase of everything from a home to a car to a college education; how stores stock their shelves, farms buy equipment, and businesses make payroll.

Whoa! First, borrowing too much is what caused all this; and then to get out of it, we have to start lending and borrowing all over again!  The very thing that caused the economy to tank is what we need to do to un-tank it? I'm not an economist, but that doesn't seem right does it? I know you can use fire to stop forest fires from spreading, but this is like going shopping to prevent people from buying stuff.

Now let's say this actually does make economic sense. I have two questions:

1. How confident are we that lenders won't do the exact same thing they did before, since they know that they're judgment-proof and will get bailed out anyway? (Yet more irony that the Feds will have to borrow $$ to do this!)
2. Has America gotten smarter in the last six months? Is the citizenry now impervious to those moronic ads? Did we spike the fluoride in the water supply over the holidays?

Because if the answer to these questions is "no," then what makes us think that the result will be any different this time?

A data point: the highest poverty level for a family of four in the United States is $26,500, which is in Alaska (amazing BTW that the poverty level in Alaska is $5,000 more than that average in the "lower 48").  Let's say we triple that and round up to get to $80,000. Now what if the Feds said that as of today and through the rest of this calendar year, we will stop withholding Federal tax from every household that earns $80,000 or less?

Maybe the ceiling needs to be higher (say $100k), or whatever the right number is to equal the amount of money we were going to spend on this stimulus anyway.

How much more "cash flow" might this create?

I know this doesn't help small businesses who need credit lines to help with cash flow, and we clearly need to solve this.

But for the consumer, I wonder if this might do more than enabling bad lenders...

Socialism America-style

I just read an article in the latest McKinsey Quarterly called A better way to fix banks. The title intrigued me, as did the subtitle: "Here’s a plan that could solve the toxic-asset pricing problem voluntarily—without requiring Uncle Sam to nationalize the whole industry—and make (pretty much) everyone a winner."

Sigh...

I thought McKinsey was better than this. The only people they care about are the large organizations - either the banks or the government. I should know better - they are, after all their customers, and by that definition, maybe it's true that their everyone was a winner.

What about the people??? What about the homeowners that are facing their share of the $1.5 trillion in toxic assets? What do we do about them, their homes, their families, and their livelihoods?

America has become a corporate welfare state - believing that preserving corporations is the only way to prevent economic doom. I assume the reason for this is the idea of helping individuals smacks of socialism (though the opposite is true) or welfare, and this country is "too proud" to allow that. While both sides of the political aisle claim to be anti-socialist, it hasn't stopped both from supporting corporate bailouts.

Socialism is state ownership of the organizations that produce and distribute goods and services. "quack"

Back to the toxic assets, I have to believe that not all of the $1.5 trillion is toxic. Some of those former homeowners could detox their debt if renegotiated. I wrote about the 70-40 Company a while back, where the Feds would buy debt that was close to default from the bank at 70% of its original value, and refinance the home to the homeowner with a 40-year fixed rate, principle + interest mortgage. In this way, the debt to the bank is no longer toxic - it is essentially insured at 70% of the original value.

The homeowner is happy because they get to stay in their house, now with a predictable, fixed-rate mortgage, and while their home has a lower value, at least they have one, and are in a position to keep it. The banks should be happy because their losses are capped, and the government is happy because they were actually helpful.

But this isn't all peaches and cream. Lest we forget, I wrote about the guiltiest culprits in the lending crisis. The rating firms (Fitch, Moody's and Standard & Poor's among others) rated all the derivative instruments that were composed of these toxic assets as being of high quality and reliability! What's been done about that? Have the Feds or the Treasury Department or the SEC even mentioned them?

A characteristic of a socialist state is the ability to mask its most egregious miscreants. If it walks like a duck and quacks like a duck...

Fool me once, shame on me...

Imagine you are the parent of a 12 year old child (Rob), who last week asked you for $500 to buy a Wii with WiiFit. And since you had begun to notice that Rob was a tad more inactive than usual, and wanted to encourage some physical activity, you agreed and off Rob went to get Wii'd up.

Two months later you walk by Rob's room and notice that the Wii's just sitting there and looks trashed - game player is broken and the WiiFit mat doesn't look like it's ever going to work again. You're a bit upset, and when all you get from Rob is "I don't know," you resist the urge to get angry and think to yourself, "OK, I've learned my lesson and will never give in to him again."

But Rob's not done - "I don't know" is followed by a request for a $3,000 custom Cervelo bike to ride to school, since "um... like my grades are like going to submarine if I like don't get one."

What's your reaction? (Or better said, do you freak out, and take $500 out of the kid's Christmas budget to pay for recently-trashed Wii, or just ground the kid for a month?)

I'm pretty sure I'd do both, plus I'd make the kid like walk to school in the rain, but that's just me.

Turns out Rob was actually Siamese twins who have now visibly separated, and "Rob" became "Rick and Bob."

And instead of $500 to buy a Wii & WiiFit, it was $17.4 billion, and instead of $3,000, they're now asking for $22 billion more, and like the trashed Wii, the $17.4b has resulted in ...like nothing.

WTF?

One has to give Rick and Bob credit for having the stones to come back to mom/dad (the Capitol) with this bold an admission of abject failure - we used up $17.4 billion in a matter of weeks and nothing's changed. And on top of that the rocks to ask for another $22 billion to stave off immediate death, and then the boulders to also state that despite the whole $39.4 billion bailout, they will still have to terminate 50,000 people!

Wasn't the reason for bailing out the auto companies in the first place to avoid massive layoffs? I may be wrong on this, but I'm thinking 50,000 is a pretty massive number of people?

I've written twice about what we should do instead of bailing out the car companies, and what they could do when presented the opportunity to declare bankruptcy. But we, it seems are hell-bent on just throwing money at the problem.

Sadly, the real blame doesn't rest with Rick and Bob - the idiot twins. That honor belongs in the hands of one Nancy Pelosi. Who is quoted as saying she was hopeful the plans would help lead to the "transformation of our domestic automobile industry into a viable, technologically advanced, and globally competitive manufacturing force."

I'm guessing not even Rob's parents would have been so stupid as to give him the $3,000 bike, what's more they would have punished Rob for having trashed the $500 Wii that he bought! Instead, Nancy seriously believes that giving Rick and Bob another $22 billion is going to result in a completely revitalized automobile industry? Can you say "track record?"

Maybe Nancy needs to lower her Crystal Meth intake or go to Walter Reed to have them reattach the cerebrum that she accidentally threw into the recycle bin during National Be a Moron Week.

I certainly hope she's not a parent.

Stimulate Profound Learning Outcomes

What recommendation would you give the President if he asked for your views on how best to energize our economy? I'm assuming The Big O has all the time in the world, and does in fact read this blog! So here goes, starting with the program musts:

• Must have an immediate impact
• Must be something that has a pre-defined and fixed end
• The economy must continue to flow and remain energetic once the stimulus stops
• It can not be something that ought to be in the budget anyway (i.e. investments that should be sustained over time)
• It must have the effect of being inspiring as well as provoke optimism and a belief that it's not time to "hunker down" and save for a rainy day
• It should not be prone to abuse and fraud

I've written recently about the stimulus package here and here, and then before that had written about two ideas that I'd come up with on the mortgage crisis and then about Detroit Big Three. I still like these, and they fit the criteria.

What about tax-related approaches? A lot of attention goes towards cuts or rebates - and I was generally skeptical about that, but then read this and this, and wondered if I was wrong. Digging a bit deeper, I found this and this. Conclusion: there is no conclusive evidence that a tax cut or rebate will create a positive stimulus to the economy.

But - are we over-thinking this? What's the one thing people are most worried about right now? The one thing that makes them want to save and not spend? The one thing that creates the fear of "what happens tomorrow?" Unemployment - if you feel like your job is here to stay, that your cash flow is predictable, then I think spending will follow, and economic vibrancy is the result. How do we create meaningful, sustainable jobs without bloating the government?

Combining my recent post on the learnings from Japan, where the greatest ROI from their stimuli was from Education investments (174% growth), with this post from Eduwonk, which pointed to this excellent analysis correlating jobs at risk with education level, and now add this entry I wrote last year called Redefining Learning. It suggests that the earlier children are engaged in learning, the better. It also says that teacher-to-student ratios should be highest in early years - from age zero to ten or twelve, and then go down from there. And, we know that investing in Education is goodness all around.

Based on all of this, we should:

1. Redefine public school-eligible ages to begin from the second year (age 1+) through to the eighteenth year (age 17+)
2. Specify teacher-to-student ratios going from 5:1 to 30:1, growing with the students' age
3. Redefine curriculum and assessment standards based on existing research
4. Establish teacher qualification standards and certify teachers colleges
5. Determine the physical classroom and teacher capacity that will be required to service our population 25 years out; this will feed into post-secondary requirements as well

The stimulus package should:

1. Construct new schools **all physical assets in schools should be federalized - they own, provision and maintain all public schools in the country **
2. Expand Teachers' College capacity to accommodate new teacher requirements for the next 25 years
3. Develop a national curriculum with corresponding assessment standards
4. The States (who now don't own and maintain the schools) will hire the new teachers and staff
5. The Stimulus will bump up State funding for staffing
6. The Feds will commit to maintaining schools and State education funding through budget cycles

Implications

Daycare centers will be redundant, but all these jobs just transfer to the new model. Parents of young children will find their "operating costs" are lowered dramatically as the public system covers what was daycare, they will have the time to at least get part-time jobs, and their ability to make ends meet should improve. There will be a surge in employment for construction (which will taper off over time), teachers colleges will grow, we will lower unemployment, and of course the ranks of teachers will double (3 million additional jobs), adding tremendously to the goodness of our country and our children.

What are we waiting for?

Size does matter

When does a company get too big? For most companies, success is defined as rapid, profitable growth. But at some point, the company becomes unwieldy, hires more HR, lawyers and "operations" people than ever imagined, and starts to erode the essential sensibility that made them what they are.

The bigger and more mature an organization gets, the more inwardly focused it gets. (Yes, there are exceptions, but in the main, I think I'm right.) When you start out, and are an unknown underdog, you can't afford to care about anything else but your customers, and building and shipping your product. You are incredibly responsive to the market and your customers, because you'll die if you aren't.

But at some point, you become more focused on yourself, your perception, your opinions, than you do your customers or your products. It's not to say that lip service isn't paid to the customer and the market, but let's face it, even that is a more self-aggrandizing gesture. You take yourself so seriously that now the PR department has a deciding voice in policy.

And if you're looking for the sure sign that you're there: it's when people in the organization get measured on internal awareness campaigns, and actually spend real money advertising to the employees about some little program that only that team cares about.

Another impediment growth was articulated extremely well in this article by Scott Anthony. He talks about how companies raise the bar for successful innovation. In a survey of Fortune 100 companies, some stated that $1 billion was the minimum market opportunity they would target. In other words, innovations that could not demonstrate a $1b revenue opportunity did not qualify for consideration! How do you know? Who knew that you'd be this big when you were starting out, so how are you able to discard opportunities so arbitrarily? Finally, are you really going to believe a forecast a bunch of MBAs wrote based on historical trends and analysis? How often are they right?

It seems that to grow, one must have the willingness to think small, and adopt the rules that encourage an open-minded view of innovation, change and opportunity.

Seth Godin, another very smart guy wrote this really interesting piece recently, in which two paragraphs  connected with me:

Ideas that spread, win. Sometimes ideas get changed in transmission, and sometimes those changed ideas spread even farther and with more impact than the ideas that came before them.

In business, if you lock down ideas, make them difficult to change and spread and have impact, you fail. If you accept the fact that change is real, that there is competition for your ideas and that amplifying the good stuff works, you can grow and thrive.

He's absolutely right. This is a critical element of sustainability, and is ignored often at the organization's peril.

But now I'm wondering - why do I need to grow at all? Why does a company have to keep getting bigger to succeed? Is it possible to stay small and be successful? What if a company (even a public one) decided that it was no longer seeking revenue growth, but feels instead that it's making enough money and that improving its products, processes and services but remaining relatively the same in size is success enough?

What if the employees of this company were happy with that as well? They didn't all want to be CEO, they didn't all need to earn that much more money, they were content with the status quo...

OK - that's just absurd - human nature will not allow this.

Since we can't live in this Zen-infused complacency, how does an organization sustain success? How about combining the views of Anthony and Godin while maintaining a sense of smallness?

What if we were able to build a company whose employees were shareholders, and where innovation and change were embraced. But when an innovation began to flourish, they did three things:

1. The company sold off 60% of the new business, retaining a large but non-majority stake
2. Recouped the cost of its R&D, etc. and hopefully made some profit from the 60% sale
3. Allowed employees related to that business the option of staying or leaving

The effect on their organization would be a new revenue stream added to the investment portfolio, but no commensurate headcount or physical asset growth. If the spin-off did well, they benefited; if it didn't, they didn't lose, since the sale of 60% was implicitly profitable, plus they'd get to write off the 40% that was still on their books.

In the end, the company's performance would be based on their ability to maintain the business they started, and with their culture of open-minded change, the ability to spin off as many profitable innovations as possible, creating new revenue streams, employee growth opportunities, and happy employees and shareholders.

Size does matter, but happiness and success don't require you to be biggest one on the block...

UPDATE:
Pierre de Vries wrote this brilliant entry a couple of days ago (I wish I'd read it before I wrote this). In it he describes the four stages of evolutionary transformation and rebirth (my words) as: "exploitation or growth, a mature conservation phase, a catastrophic release, and finally reorganization leading to new growth." This is conceptually very aligned to what Anthony and Godin talked about as well a most viable alternative path to the one I suggested above. A cycle of continual reinvention might be a very natural and effective way for organizations to avoid bloat and stay vibrant and engaged.

Learning from our Friends

I just saw an article a friend posted on Facebook about stimulus effects in Hawaii, which referenced this article in the NY Times, both are well worth a read.

I learned three things from the Japanese stimulus experience and these two more local articles one and two. First - let's not give away rebate checks - they have a minimal if not net negative impact.

Second - if you chose to support infrastructure in your stimulus package, only invest in projects that have a sustained employment impact (i.e. roads only create jobs only as long as you're building them, but a school or a hospital can create jobs and support the economy long after the the fund for construction is depleted).

Third, in Japan, for every Yen invested in road-building projects, they saw a 137% growth in GDP (or a 37% ROI, due to the temporary jobs + reduction in travel time). For social services and elderly pension payments, they saw a 164% growth, and for schools and education, the impact was 174% growth.

Assuming the American economy would respond similarly, it's pretty clear that our infrastructure investments in this stimulus package should focus on pensions, social services, schools, and education.

Focusing on the highest yield opportunity (Education), let's say we're going to spend $100 on Education in the bill. I'd like to give the first $50 to the States to hire new teachers, but the Feds can't employ teachers, plus it's not a stimulus activity - it's an ongoing cost. So I'd do a trade with the States:

The Feds will spend $35 to build new schools; $25 on teacher professional development and expanding Teachers Colleges; $25 on improving school infrastructure; and $15 on 21st century assessment and curriculum development and distribution. Each State that wishes to take advantage of this must hire teachers equal to 50% of the benefits they will get from the package. They must further commit to paying those teachers in years to come via their normal budgetary process (i.e. no hiring temps). The Federal budget would make sure this happened because they would condition budgetary education funding based on this.

Similarly, the Feds could put more money into the pension pool, but that seems to be a longer-term solution. Instead, I'd put 75% of the funds into construction of housing projects for the elderly, and the remaining 25% into elderly care training programs affiliated with community colleges around the country.

I despair about all the money in this budget that's going towards road repair (very short-term impact), and stuff like broadband - minimal job creation now or in the future.

I hope there is room in the process going forward (like with TARP) to redefine the use of the stimulus package so that it is at least informed by some of the experiences others have had.

Tomorrow's players

Nothing binds two countries more than economic interdependence. When you have a financial relationship, certain things naturally happen:

• You pay more attention
• You learn more about each other
• You are more vested in the other's destiny, therefore you care more about their well-being
• You are very unlikely to want to harm that which can feed you
• You are more likely to understand each other better than before the relationship

Some interesting data. According to this article in the Economic Times (part of India Times), the trade between India and China from 2002-2006 has grown at 50% year-over-year. This compares to 25% growth with any other country. India is one of China's top ten trading partners, and trade is growing fastest among the ten with India. Finally, trade has grown from about $5 billion in 2002 to $37 billion in 2007, and is forecast to be $75b in 2010 (assuming a conservative 25% growth), $113b by 2012, and $225b in 2015.

In another issue of the Economic Times, we learn that trade between India and the whole continent of Africa has grown from $5.2b in 2002 to $26b in 2007, and is forecast to grow to $150b by 2012.

The growth rates with both trading regions (China and Africa) is nothing short of phenomenal.

Two more things to ponder:

1. Together, these three regions represent 3.43 billion people, or just over 51% of the world's population.
2. In 2012, the trade between India and China and India and Africa will be $263b, up from $10.2b ten years prior.

In comparison, the combination of NAFTA (Canada, USA, Mexico) and the European Union represent a population of 942 million people or just under 14% of the world's population, and US trade with Canada, Mexico and the EU was $1.375 trillion, which is obviously bigger than $263b.

I know I haven't looked at US trade with Africa, India and China, and recognize that there are a lot of other factors at play here.

But considering the relative economic potential of the populations of the Western countries vs. that of the Africans, Indians and the Chinese, and the fact that India's trade with these two regions has grown 26 times in ten years, one can't help but think that India's got a lot of upside, and that the economic potential of their population (plus of course those of their very large trading partners) is growing at an incredible rate.

If this growth continues, I wonder what the economic potential India will be a decade from now? Greater than the US? I don't think it'll be that high, but here's one thing that I think will happen - in ten years, more Americans will move to India to improve their lot in life (find jobs, etc.) that will come to American shores. This behavior has already begun as more and more people come here for an education and now rather than stay, go back.

I think Africa, China and India's futures are much more tied to each other than otherwise. If they do end up becoming good friends, establishing connections more reflective of Canada/US relations, the West is in for a pretty humbling time.

If at the same time, America looks upon the rest of the world with arrogant disdain (as I discussed in this post), it is inevitable that as others rise and the gap between have and have not shrinks, they will not admire, or wish to befriend this particular "have" as much as others have in the past. It is good that the sitting President seems more about joining with the world than owning it.

Thank goodness that Vice President Cheney didn't run for President. If he had won, I imagine we'd be calling him Kim Il Cheney [apologies to Koreans everywhere], and building a DMZ between us and Mexico, Canada and everyone else. And when as the sun rose in the East, those nations would be that much more motivated to spank America.

Our job should among other things be to focus on building stronger, friendlier, and more symbiotic relationships with this triumvirate (and everyone else of course) representing more than half the planet.

Do you feel stimulated?

There is an $825 billion economic stimulus package before Congress. Add the $700 billion that was passed just a few months ago, and we're north of $1.5 trillion!

How does this plus wars on two fronts get paid for? Where is all the money really going? How does a citizen evaluate these expenditures and determine whether they are wise, and whether they will result in turning the prosperity tide?

As I understand it, the purpose of a stimulus to the economy is to increase the flow of money in the system (and not expand the wallets of the CEOs that got us here). That is, people buying and selling and earning and spending. That flow creates a virtuous circle that moves the economy towards robustness. Economic confidence is one measure of this. There are many others - employment, the money supply, inflation rates, etc.

So - how have we done lately?

Almost exactly a year ago, President Bush implemented a tax rebate to "give the economy a shot in the arm". Several months after the "stimulus", we're in a state that most closely resembles the Great Depression. Looks like President Bush missed - he shot the economy in the groin instead...

Then there's the first $350 billion - how many of you have benefited from this? Have any of you noticed an improvement of any kind since the money was distributed?

And what does the new administration wish to do? Go right back and hit our poor economy the groin yet one more time!

Looking at the bill the House just passed, there's basically zero dollars that go directly to people that would spend it in ways that would help money flow. Take a look at it. The only "cash" that goes to people that would actually spend is tax rebates, and we (and our groins) know how effective they are.

I wrote twice (here and here) about how to help the economy by actually giving money to people who can spend it. But it does require more work, than just giving huge sums of money to very few people. Both of these suggestions require a more structured federal involvement, but interestingly, don't require a whole lot of corporate oversight or regulatory action.

I think doing these two things have a better shot of working and cost vastly less than $1.5 trillion. Your comments are welcome.

Blame Game

Bob Herbert wrote an interesting op-ed in the NY Times recently. He argues against demonizing the teachers' and auto workers' unions for all the problems facing these two industries.

He notes that Randi Weingarten (president of the American Federation of Teachers - AFT) and Ron Gettelfinger (president of the United Auto Workers - UAW) have both represented their unions/members as respectively willing to, and having made significant concessions to help out given these economic times.

The UAW has lowered starting wages for new employees. How does that lower the costs for the Big Three? They aren't hiring anyway - so what difference does this make?

Similarly, the AFT has agreed to change the way tenure is awarded (but not change the tenure of current teachers). They have gone further to allow changes to merit pay and teacher assignments, which is a positive step.

Andy Rotherham of Eduwonk also saw this article and commented that in his experience teachers are not perceived to be the cause of the failings in our education system. Similarly, I don't think auto workers are perceived as the cause of their industry's failings.

So why are they being vilified? Simple - the mission of both unions is to maximize the salaries and benefits of their employees with the most favorable working conditions to the employees. To their credit, the AFT does state in their mission statement the goal to "strengthen the institutions in which [they] work". The UAW does similarly talk about improving product quality.

But in addition to poor management and inappropriate measurements of performance and success (I've written about this often - 1, 2, 3, 4, 5), there is no doubt that during negotiations between labor and management, neither side is worried about the success of their industry. They're respectively worried about getting the most for their members, and and spending the least amount of money on their employees.

In a successful negotiation, the primary goal is to sustainably produce the best results for our end customers. If both sides were genuinely committed to this goal, they would realize:

1. If we don't produce the best product, we won't stay in business for very long,
2. If the business isn't profitable, it won't be around even if we do make a great product, and
3. If our employees aren't treated well, paid well, and cared for as partners in our success, we won't be able to produce our product at all.

Success is not about extracting everything you can from management (as the UAW seems to believe), nor is it about stomping down the unions as Michelle Rhee seems to believe.

Winning is important, but at what price? This isn't about blaming one side over the other, it's about taking accountability for the end result, and understanding that every player in the game must succeed for the outcome to be sustainable.

21st Century Military - it's a dick thing

How to Pay for a 21st Century Military is the title of a recent editorial in the NY Times. It goes to great length to show where the Pentagon can focus its efforts to eliminate programs/investments that are superfluous in this no-longer-new century.

Before I'd start deciding what to cut, I'd ask myself what is the purpose of this whole organization in the first place? There are a four possibilities:

1. Ego - see below for a detailed scientific analysis
2. Inertia - well, it's been around for years, may as well keep going...
3. Offense - to project American power against other nations
4. Defense - to protect American soil from unwanted intrusions

#1 - Ego. Spike Lee wrote and directed a great film in 1990 called "Mo' Better Blues." The main character (a jazz trumpeter) played by Denzel Washington can't be loyal to one woman - why? Because "with men, it's a dick thing." <-- I'm guessing many women will view this as the reason for much if not all male behavior in this or any other century, but that's another conversation.

While unlikely, one has to hope that as a country that is ten (10) generations old, we'd by now have gotten to the point of not needing to stroke ourselves in this way (forgiving the pun)?

#2 - Inertia scares me just as much as Ego. If the machine has become so large and self-feeding that it can't stop despite having no direction or intent, then what do you do? It's very easy to resort to fear-based tactics (our current administration has proved this) and make people invest in this machine just because it's there, but we have to stop the madness.

While unlikely, one has to hope that our ten-generation-old country has gotten to the point of recognizing that size doesn't matter??  

#3 - Offense. What force does America need to project against the rest of the world? Does the United States have an interest in invading and occupying even more countries (besides Iraq and presumably Afghanistan) around the world? Everyone agrees that we should never be an occupying force in any situation (even Iraq), and especially not Afghanistan. So let's get out of that business. What's more, any offensive act should only be undertaken in concert with the United Nations as part of a global effort lead by the UN and not the US.

While unlikely, one has to hope that our almost-teenage (in generations) country has gotten over the idea that being a bully is sexy???

#4 - Defense. OK - there is no argument that this (of all) country needs to have the ability to defend itself, and protect it's borders from unwanted intrusions. While I can't imagine any country wanting to take on the burden of invading and governing the United States, I can absolutely see the value of a deterrent force that is not only able to protect this land, but also participate (as the National Guard) does in civil crises, and be a partner in international, UN-lead peace-keeping efforts.

While unlikely, one has to assume that an almost-adult country has the maturity to know that well-behaved but fun guests get invited to more parties???? 

I'm sure one argument that is foremost in the minds of the pro-big-military is the so-called war on terror.

OK - first, you can't have a war on terror, you're giving terrorists much more credence and oomph (a technical term) than they've earned. Terrorists are criminals. You don't fight wars against criminals, you use the police to arrest them.

Imagine if the US Army had been brought in to fight the Mafia during their heyday? It was rightly a job for the FBI.  This is different in that it also includes foreign locales, so it's the FBI + the CIA.

Using the military ends up involving the entire citizenry of each affected nation. Given the blunt instrument that is any military, you help the criminals recruit more people because of all the collateral damage - this is exactly what we don't need.

There is another weapon that can be used to combat terrorism, improve foreign relations, and even reduce the risk of wars. I wrote about a this a while back.

The recent crises have taught us that the economies of every country in the world are profoundly interconnected. If we can help every economy grow and prosper, the people will be too busy being healthy, educated and employed to worry about harming anyone.

That's the nirvana we should aspire to in the 21st century.

Leadership is about making tough decisions.

Wouldn't it be nice if the Secretary of Defense could dig deep (sorry) to find the cohones to put the country first, and agree that this century requires a fundamental redefining of the American military machine.

Long Tail Advertising

Mark Cuban wrote an excellent post a couple of days ago about the next iteration of Youtube. This quote was interesting:

"A look at the current Youtube home page demonstrates the new reality of user generated content. Everyone wants to get paid.  Rare is the widely viewed video that doesn’t have a profit or stardom motivation."

So what does this mean? I think it's about this concept of long tail advertising. I think these comments in the entry are onto something.

"...the short head will be human, the fat middle social, the long tail algorithmic."  "And he says that the advertising interest is in the fat tail."

I'm struggling to imagine a scenario where it ever makes sense to advertising to the fringe - especially in this era of long tailness.

What is the era of long tailness? We are in or approaching a place where search, social and community all work together to find birds of a feather and connect them. It's pretty clear that the farther down the tail you are, the easier it is to find your friends - the searches get that much more precise, and the communities are that much smaller and more specific.

So - if the farther down the tail you go, the more precisely the community can be defined, what's the point of advertising (which by definition is an imprecise, un-targeted tool for "spray" reach)?

So how does this connect back to Mark's blog? Well - I think the situation for Youtube is more dire than Mark thinks. On the assumption that his premise is true (i.e. most everyone who posts on Youtube has an ulterior motive - either revenue or notoriety), then how will they be gratified?? Having scanned some recent postings on Youtube (over the last hour), the majority are decidedly long tail, and very far away from interesting any large, "sprayable" demographic.

So why advertise to that audience via Youtube at all?? I think Mark's overestimating the willingness of advertisers to put $$ against these audiences. If I were in their shoes, I'd use alternate means to reach my audience, and what's more of the three I mentioned above (search, social and community), I'm going to find myself starting with search, but quickly moving to the other two, since at some point, they'll find me via social and community. I won't need to go looking for them.

And that's when I'll use a different form of advertising than the traditional Google model.

I wonder if we're beginning to approach the point at which what is a brilliant business model (Google's) starts the journey towards the way of the TV ad?

Edu-leadership

What is the right amount of money for a community to spend per student? How does one judge this? A number of studies [one, two, three, four] I looked at today that show contradictory information. Some say that the more you spend, the better the scores are, others say there is no correlation at all.

What's the right answer?

I wonder if we're asking the right question. Is it about the amount or is it about the composition of the investment and the mandate of those managing it? My gut says it's about the latter. My gut also says it's really about how we measure success and where accountability lies.

Today the decision-making rests in the hands of school districts, state and local politicians, heads of schools, and maybe parent-teacher organizations. The federal government also has a hand in this of course.

Three questions:

1. Who defines success?
   
2. Who judges whether success was achieved?
3. Who faces consequences of failure or gets credit for success?

Hmm... I'm not sure the answer to any of these questions is clear is it? Here are three more questions:

1. Who is the customer?
2. Who is the provider?
3. What mechanism is there for the customer to assert their market rights?

Perhaps the answers to these are more clear? Or are they? Is the customer the student, the taxpayer, or the federal government (who funds much of this on our behalf)? Is the provider the head of school, the school, the district, the teachers' union? Is there actually a clear flow of funds through which to assert market rights? Not clear, not clear, and no.

Going back to the first set of questions, you could say that all of society defines success, but this isn't practical, so it falls on legislators, but they'll come up with unfortunate programs like No Child Left Behind. Who judges success? Unclear. Who feels the consequences? Well that's interesting, as in the corporate world, it all flows downhill, so the lowest people on the ladder (teachers) feel the brunt of the pain; of course the students also feel it.

What to do? As with everything else, it's easier to find fault than fix things. From my experience in the corporate world, it almost always boils down to having one leader who has vision, strength, experience, but no ego. If this person is found, they will have the capacity to do what's hard (take a stand with conviction), and push for outcomes based on the best advice available. 

I believe we must know what the goal is and you are what you measure.

I wonder if we have it in us?