~synthesis~

stimulating peace

America is a generous country - from 1946-2010 (in 2010 $), she has given just under $2.1 trillion in foreign program and military aid. Impressive, and well... it makes me proud to be an American.

Over this period, the #1 beneficiary of American largesse is Israel ($185 billion or 8.9% of all aid).

Israel receives American aid with good reason - they are the longest-standing democracy in the Middle East, and they have the most effective lobbyists in the world. The value proposition is the preservation of Israel in the face of their anti-Zionist neighbors.

I’ve spent time in the Middle East, and except for the (very) rare zealot, the people I’ve met care little about the Jew/Muslim issue - their focus is their family (health, economic, social wellbeing). This is because the people I knew were gainfully employed and had something besides zealotry to live for.

Are there freaks on both sides that are filled with hate? Of course, but not as many as we might think. Do some of them wish to create armies with which to wreak violence? Yes - on both sides. The media’s relentless and gawky focus on the ugly side of humanity is why we think they represent the majority.

America also has it’s share of hate-filled people, but it’s not so easy to achieve critical mass here - most Americans have too many other things to live for/distract them. Even the Occupy Wall Street movement petered out because people soon had better things to do than sit in tents and be irritating.

In 2010, America gave Israel $2.8 billion ($386/person or 1.3% of Israeli GDP) in aid. The West Bank/Gaza received $693 million - $4/person or 10% of GDP. Israel’s GDP/capita is ten times that of their poorer neighbors; the average income in Israel is just over $30,000/year vs. just under $2,000/year in the West Bank.

Is it any wonder that it’s easy to recruit Arab “soldiers” - they literally have nothing better to do, and very sadly, nothing to live for but dying. Having just $5.50/day will lead anyone, however civilized or educated, to desperate acts. It’s not hard to see how a Palestinian parent might join a terrorist organization, or “volunteer” a child to the “cause” - it’s the only available way to feed their family - they’re that poor.

Has the $185 billion in American aid done anything to create a (self-) sustainably peaceful Israel? No. Should we stop? No. Should we continue doing the same thing? No. So...?

Our goal is the long-term preservation of Israel; we should then stop funding their ability to kill Arabs (majority of US aid to Israel is military), and instead help Israel by enabling the Arabs' economic viability.

Employment is the offspring of the marriage of demand with capacity. If America were to proffer large tranches of demand (we will buy $X millions of products Y1, Y2, etc. for the next Z years) to the Palestinians, the result would be widespread employment in Gaza and the West Bank. We would phase out our investment as they became self-sustaining.

This would profoundly change the dynamic in the region. If you had two ways to feed your family - send your daughter to her suicide-bomber-death, or work at a job, which would you choose?

If the majority of Palestinian families are earning enough money to cover shelter, food, education, healthcare, etc., and if they are then earning just a bit more so as to buy that new iPad Mini or a TV, I guarantee you they will not reelect Hamas. They will choose a commerce-minded government bent on improving their economic situation even more. Israel won’t matter except as a trading partner; they’ll be too busy playing Angry Birds, watching Desperate Housewives, and thinking about what they’ll buy with their next bonus.

Now think of how much more stable and peaceful Israel would be. The best way to end war is to give people something more valuable to live for.

America should never weaponize other countries. Peace through prosperity should be our foreign policy motto.

healthy wallets, healthy bodies, healthier US?

Why are healthcare costs around the world rising so dramatically? The costs of innovation, lawsuits, and an aging population are among the “claimed” reasons. Of course they have an effect, but are they the only reason?

If you have an expense account or your parents’ credit card, your “generosity” with their money is much greater than with your own money. You’ll buy more expensive things and be more careless with them - after all - you aren't paying for it.

Health insurance = other people’s money.

If it's your own hard-earned money, you’re more likely to think before you spend; put more effort into preventing expenditures (live healthily), be diligent with your medicines, etc.

American health care was regulated [fascinating read] in the early 1900s; it resulted in better hospitals, but initially very few licensed physicians; this scarcity increased costs, and health insurance was created to ensure that patients could pay their bills. Insurance became pervasive through the 1960-‘70s, and when Medicare and Medicaid were introduced, we were off to the races. By distancing the cost from the consumer, people progressively became more cavalier.

The very existence of health insurance assures excess.

Any issue/injury/ailment/ingrown toenail is worthy of a doctor/hospital visit. We aren’t paying so what the hell! As coverage became based on procedures, doctors "found themselves" doing more tests, but since we aren’t paying, test away!

Costs escalated, insurance companies panicked. Rates increased, employers panicked. Lobbying increased, politicians panicked. Laws were written, and now citizens are panicked.

But then the economy began to slow, unemployment rose, and more people were without coverage.

This increased the use of Health Savings Accounts (HSA) and High Deductible Health Plans (HDHP), which allow individuals (and employers) to set aside before-tax monies in a savings account for routine medical care, and purchase lower premium disaster coverage with high deductibles as a backstop.

Now it's your money, from your account, and you're more careful. The effect? Health care spending growth slowed!

We not only think twice about going to the hospital, we even pay more attention to diet and behavior to keep our costs down. Doctors, knowing it’s the patient’s money, are ordering less tests and expensive or frivolous extras. When GE implemented an HDHP-type plan for its employees, there was a noticeable decline in the use of their own expensive imaging (MRI, CT) products! Not good for GE, but absolutely indicative of better overall behavior. :-)

If you’ve read this blog for a while, you know I’m a proponent of universal health care. But it is subject to abuse and mismanagement. I believe all Americans should have healthcare, but let's learn from previous mistakes. Our implementation should be universal, prioritize patient health, and save money by mandating a minimum of HSA/HDHP for everyone:

• Government pays HSA + HDHP for those earning up to 1.5 times the poverty level.
• Government pays HSA only for those earning up to 2.5 times the poverty level.
• All government employees (including ALL elected officials) receive HSA + HDHP.
• All others are self/employer insured.
• All insurance providers must offer HDHP for anyone without descrimination.
• HSA is tax-free/pre-tax; any unspent $ can roll into an IRA or next year’s HSA. 
• This supplants Medicare/Medicaid and any prescription drug benefits.
• High school graduates qualify for lower rates, as do those with a post-high school certification (see below).

Potential upside:

• Doctors say they can’t assure health because patients don’t take care of themselves or take their medicines properly. This doesn’t solve that, but people might pay more attention if it’s their money, and spend a little today (preventative) to avoid spending a lot tomorrow.
• Less excess = lower costs.
• More self-care = healthier people.
• Direct payment by the patient via HSA (debit card) reduces administrative costs.
• The elimination of Medicare/Medicaid in favor of subsidized HSA/HDHP for those that need it most.

Education mandate - it seems obvious that the more educated you are, the healthier your are, and the longer you live. Now there’s data. So why not tie universal health care to universal education? It only makes sense.

Health insurance costs in the developed world are rising much faster than GDP, and the US is in the worst shape. This approach blends universal access with the very American idea that that we should all have a vested stake.

If we see success (lower costs, improved well being) with this approach, maybe we should also try it for public education?

America is a unique country - it's approach to social services (health, education, etc.) should also be unique.

social business

Facebook announced its first post-IPO earnings this week, heralding a critical step in the maturity of social networking - is this a new way to make money, or just the same-old?

The "same-old" is Google, whose innovation was to turn what was the customer (we who search) into the product, and selling us to their customer - the advertisers. It was brilliant, and transformed the very nature of internet monetization.

Social is a bit different - most who use it are less susceptible to, and rarely click on ads. After all, the idea is to connect with friends, share - not to click on random ads. With that, this aspect of Facebook's Q2 (second quarter) numbers should give pause:

• Earnings: $1.18 billion
• Earnings from advertising: $992 million (84%)
• Average monthly users: 937 million
• Total quarterly users: 2.865 billion
• Average revenue/user/quarter: $0.41 ($1.23/year)

Piling on, their most ad-lucrative market, and also the most stagnant in terms of user growth is America; the fastest growing is mobile (543 of 937 million users, or 58%), however converting mobile users into big time revenue remains undiscovered country.

At ~1 billion users, Facebook owns ~14% of the planet's population; but even the user base doubles this coming year (nigh impossible), the current revenue/user puts them at just $8.5 billion/year. Hardly "big-time," especially given their initial $100 billion valuation. (For context, Apple expects to earn $13 billion from iTunes alone in 2013.)

Key to social networking is the ability to publish what you're doing or thinking right now. This requires a mobile, connected device. The problem of course is that mobile, connected devices have to be small enough to go anywhere, and if the screen is cluttered with ads, there's no room to express yourself or see what your friends are up to, which defeats the purpose, and turns users off.

While Facebook started out on PCs, it's pretty clear that their future is mobile. But they've also admitted they don't know how to turn those users into $$.

The approach they're most bullish on is Sponsored Stories - where if a company buys the service, their ads show up in the right pane (on a PC), along with names of your friends who Liked it, and with that endorsement, the hope is that you'll Like it too. Facebook said they're now earning $1 million/day from these ads, with about half of that from mobile.

Even if this does create meaningful mobile revenue, it's not how Facebook becomes "big," or how social networking gets through puberty in a compelling way. Ads are just plain intrusive on a small screen; moreover, mobile click throughs need to go to mobile-enabled sites, which are more difficult to turn into actual sales for the advertisers.

Despite Google's brilliance, click through rates have declined from 5% initially to about 0.3% today. Google is still a success, but now with logarithmic (or less) vs. exponential growth.

If social media rely on ads as their primary revenue source, they will only make money by interrupting human interaction, not enabling it or enhancing it. It will however have the advantage of being not at all transformative, but at least it will be irritating.

I hope they are thinking bigger. I hope that Sponsored Stories sparks in the very smart minds at Facebook, Twitter, etc., ambition to innovate yet one more business model; one not based on the user's propensity to click random links, but instead attuned to the interaction between people, aware of what they care about, and savvy about how they will express it. Imagine how effective a company would be when armed with this kind of insight! Let's call this IP - Interaction Perception.

In fact, the smart approach would be to eliminate advertising altogether (reduce distraction and improve satisfaction) and focus instead on collecting data and creating algorithms that can (without infringing on privacy) assess and predict interaction, preference, and passion based on how we Facebook or tweet or tumblr.

Advertising is about creating urgent awareness (you learn something and are then compelled to act). The more savvy or sophisticated the consumer, the less effective ads become. Most ads suck at doing both - they at best accomplish awareness.

The type of contextual engagement that would be possible with interaction perception makes advertising obsolete. With IP, you could pinpoint exactly where your target audience tends to be when they're most likely to want your product, and literally place yourself at that location. You would know the 5 or 10 trend-creators for your product that you need to reach, and through whom you can create immediate and pervasive market penetration without ever "advertising."

foursquare for example creates incentives for people to announce their location, and then works with businesses to create special offers for frequent visitors. They can now identify "magnets" that bring people together, track traffic flow from place to place, determine brand preference, and much more. Today, foursquare is still using their knowledge to help merchants better target advertising/offers on their site, but this is just the beginning. While much of the insight today is location-centered, I'm sure this will not be the case tomorrow; they'll be able to get predictive enough to know when you need your next coffee, and potentially be able to vector a mobile coffee service to where you are. The possibilities are endless.

Unlike search, social networking is implicitly permissive. We never gave Google the right to track our behavior; we became angry when they started doing that and figured out how to disable their oversight. But we choose to publish what we're doing, with whom, and how we feel about it on Facebook/twitter/etc. Sure, some prefer to keep it private, but most don't - they want to share.

Social networking is about the only way to capture interaction perception - the problem is the "innovators" in social networking are too busy trying to sell ads, despite the inherent diminishing returns.

Rather than interrupt our experience with ads, why not infer and fulfill our needs with insight?

a rethink

If I were writing the President's speech at the Democratic National Convention:

My fellow Americans good evening. It is with pride that I accept your nomination to be the next President of the United States. It is with humility that I speak about what must come next -- both in the weeks and months before election day, and in the four years that we hope will follow.

The last three and a half years as your President have been quite a lesson -- we live in a complex, nuanced, and opportunistic society. We each have great expectations for ourselves and our country, but we each see it differently. This is the magic of America, and the challenge of America.

It was easy in 2008 to be on the campaign trail, blithely criticizing everything President Bush had done, and telling you how I would make things better from day one. It is easy because until you sit behind that desk, there is no way to understand how powerful and powerless you are.

Each of us seeks the Oval Office with the best intentions; this time the campaign is between Mitt Romney and me. I will tell you now that I believe 100% that Governor Romney is a person of honor, integrity, and with a profound desire to serve his country. He intends to do his utmost to take our country to a better place. He has articulated a number of policies and strategies that he will enact to accomplish this, and if we took the partisanship out of it, I imagine I might agree with much of what he wants to do, just as I believe he would agree with much of what I want to do.

But in the scheme of things, today’s elections are won not by extolling that which unites us, but rather by objectifying those who divide us.

This colors our approach and vision of campaigning, and causes each of us to pander to fractional but wealthy or influential interests with polarizing rhetoric. The only victim of this behavior is the citizen.

Thankfully, strategies, policies, 9-point plans, and campaign promises don’t amount to much once you get behind that desk. On the day I was inaugurated, I was raring to go, but at every turn, I found myself facing three things - incumbency, partisanship, and complexity. The system didn’t like change at all, and was very effective at resisting it; each side was bent on making the other look bad at all times; and if you did manage to get past these two, you had to appease so many people, cater to so many interests, and account for so many legacy obligations that there was no way to actually get something meaningful done.

Here is what I want to accomplish in my second term, and if you do vote for me, you must do so knowing that this is exactly what your mandate demands of all those who are elected to office this November.

If I were a Republican, I might stand here and say I want a government that is as small as possible; that all elected officials must be completely accountable for their actions; that we must only enact laws that expand freedom; and finally that we must reign in excess taxation.

My friends, I, a passionate Democrat, stand before you to tell you that this is exactly where my campaign and upcoming term will focus. Specifically, I am going to campaign for three constitutional amendments, and ask the American people to only vote for me if they believe in all three.

Amendment A: Election Reform

Elected servants take on a greater obligation than any private citizen, and must operate under more exacting rules. There are three parts to this amendment.

First term limits - Presidents will serve one six-year term; Senators up to two four year terms, and Congresspeople up to three two-year terms. Second, election finance - no private or corporate money may be used by candidates - once a candidate wins their primary, they are allocated a budget of fifty cents per eligible voter in their district. No additional money may be spent. Moreover, third party expenditures will be illegal - we will not allow any candidate to be corrupted by special interests. Third, the accountability - to mitigate corruption, once elected to the Presidency or Congress, the winners are required to publish all future tax returns until they die.

Amendment B - Legislative Reform

Our laws are overly complex, filled with hidden benefits for special interests, take too long to enact, and live forever. We will change this. There are three parts to this amendment.

First, legislative scope - Laws and bills must be written so that five randomly selected high school students can read and explain them in one day; they must only deal with one thing (no riders, addenda, etc.), and identify all sources and uses of funding. Second, duration - ALL laws (past, present and future) will expire after two years; this means that any law passed two or more years ago, comes up for renewal in 2013; but they can only be renewed after being re-written per part 1 (scope); if a law is not renewed, it is eliminated -- this means a lot of Congress’ time will be spent on this! Third, accountability - Congress must pass a budget every year; continuances will not be allowed; failure to pass a budget will result in loss of all wages and benefits for EVERY member of Congress.

Amendment C - Tax Reform

Our tax code is absurdly complex, and too frequently used as a means of catering to special interests. We will simplify the tax code (following part 1 of Amendment B) and make it very difficult to change. This amendment has three parts.

First, scope - we will shift to a flat tax with no (zero) deductions; it will be progressive and deducted at source for individuals, and include all federal income (tax, entitlements, etc.) in that one percentage. Second, personal - the tax rates will be 0% for those earning below $50k/yr, 15% for those earning $50-100k/yr; 25% for $100-200k/yr; and 40% for the rest. Third, corporate - this will be a flat 3.5% on gross income.

These three amendments will assure elected officials intent on public service; clear and active legislation; and a simpler and less costly tax system. I will publish the analysis that shows that the amendments will put more money in Americans’ pockets, reduce our debt, and restore honesty and integrity to the government.

I have decided to suspend my “active” campaign in favor of first publishing the clear and simple amendments and our analysis; and then only doing live and televised town halls to answer questions about these three amendments. I will not spend one more dollar campaigning against Governor Romney.

Does the economy matter? Does the deficit matter? Of course!

Can we fix them? Yes, but not if the White House and Congress continue as we have for the last 10+ years. Our behavior and partisanship are reprehensible.

It must stop. It must stop so we can do the jobs we were elected to do. It must stop so that elections can once more be about public service. We must stop so that governing can once more be about doing good. We must stop or our economy will not improve, and our debt will become untenable.

My fellow Americans - I seek a national mandate to enact these constitutional amendments because without them, America gives in to persistent and reprehensible partisanship; it gives up on one nation under God, indivisible, with liberty and justice for all.

I will not accept that. As President and your nominee, I will do everything to win this mandate, and I ask you to walk beside me, to pledge your allegiance to the United States of America.

Thank you

impossible??

You are what you measure. What gets measured gets done. These and other phrases are taught in most business schools around the world -- if you want someone to do something, pay them based on getting it done.

In sales, it's commissions -- if you don’t sell, you don’t eat; outside sales, many use MBOs (management by objectives). The process is slightly different, but the effect is roughly the same. The key is designing the measurement to ensure the desired outcome.

When students are measured based on test scores, the skill created is not understanding the curriculum, but rather knowing how to pass tests (an unhelpful skill in the working world). More insidiously, if schools are paid based on standardized test scores, an easy was to improve is to expel the poor performers. Sure the numbers look good, but is that really the right outcome? Are we measuring the right thing?

You need money to live, you work to earn money; like students who learn test-passing but not curriculum, adults learn how to game their system, how to interpret and translate their MBOs into the greatest income at the lowest effort.

Health care is rife with “gaming,” and like any other player in this game, (some) doctors are no exception. I was listening to Marketplace recently, and their fascinating show on billing codes -- every patient-related activity has a code assigned to it, and doctors must map their work to these codes to then bill the insurance companies and get paid.

To “clamp down” on rising costs, the insurance companies are reducing the $/code - so if lancing a boil used to pay $100, it now only pays $90. The result? Increased payouts, and more sophisticated gaming. Not exactly the desired outcome.

According to the show, 2.2 people are employed to do billing for each doctor in America. They even have their own conference -- CodingCon, where they “equip medical coders, billers and related healthcare professionals with best practices and tools needed in correcting codes from the start, avoiding claim denials, maximizing productivity and increasing practice’s bottom-line.”

Or, “learn how to not only overcome the $10 cut on boil lancing, but also add $100s more to your bottom line.”

The Marketplace doctor’s codistas have increased his revenue by 70% ("hundreds of thousands of dollars per year”). A codista at a hospital discovered that instead of claiming knee surgery and rehabilitation under one code, they could discharge the patient from surgery and then readmit them to the physiotherapy clinic downstairs, thus billing against two codes, and making much more.

How big is this? An additional $360B (yes, BILLION) per year is spent on the whole coding process - a concept that was introduced to standardize care and lower costs... We reap what we sow.

Net -- the best way for a doctor, clinic, or hospital to dramatically grow revenues is not by providing better care, adding more doctors, or serving more patients; it is by hiring more coders, and sending them to CodingCon.

We are what we measure, and what we measure gets done.

What if instead of student test scores and attendance, schools were paid according to how well their graduates did after they left that school? (Click for more info.) Now principals, teachers, staff, unions, etc. have a common purpose: the more prepared their students are for the future, the more money they earn. You’d better believe they will work together to ensure that their students are prepared for elementary (if a pre-school), middle, high school; or college/university, and the workplace. Attendance and tests are a piece of the picture, but the key measure is student preparedness.

The (state of federal) secretary of education’s only concern is tracking how students do after they graduate (something they, and the census system already does). By eliminating tons of redundancy and complexity, we should be able to educate all public school students at half the cost of today, saving $2-300B/year.

What if instead of procedures, doctors were paid based on how healthy their patients were? (Click for more info.) The job of health care is not to perform procedures, it is to assure a healthy community. This measurement would save $2-300B/year in coding procedures and such.

It is possible to create centralized (federal) funding with autonomy at the point of execution. The key is to ensure that the recipient of funds does NOT control how their performance is assessed or reported. Create the right measures...

For both education and health care, we can accomplish this with existing measurement systems and existing funding mechanisms. Not only would we achieve better graduates and a healthier population, we would do it for as much as half a $trillion less.

These are but two examples - consider the 39-year long war on drugs (metrics: arrests and interdictions). The result is $billions spent jailing street corner dealers (3 years in jail @$33k/yr for a $200 transaction) and intercepting tons of easily and inexpensively replaced drugs, with NO corresponding drop in consumption (constant for the last decade). If instead the last 39 years had been spent helping addicts, the war might already be over.

To quote a man of immense wisdom: “Impossible is just a big word thrown around by small men who find it easier to live in the world they've been given than to explore the power they have to change it. Impossible is not a fact. It's an opinion. Impossible is not a declaration. It's a dare. Impossible is potential. Impossible is temporary. Impossible is nothing."

motility

Tyler Cowen co-authors Marginal Revolution with Alex Tabarrok - it is a fantastic blog; I read it every day. In a recent interview, Tyler said that one of America’s biggest problems is a lack of economic mobility. People are stuck in their economic stratum because they don’t have access to better schools, particularly in their K-12 (primary & secondary) years. Sure excellent people will succeed no matter their background or school, but the vast majority are immobile because the only education available to them is not good enough to help them rise.

They’ve also written that the US government’s approach to stimulating the economy (spend $trillions) is ineffective. I agree, and think it’s for the same reason - immobility.

Effectively executing the latter, might also give us the answer to the former:

When an economy falters, we must increase the flow of money -- get people and businesses to spend, this creates monetary mobility. That movement of money causes goods to flow, inventories to be replenished, and people to be hired. It’s not just about increasing the money supply, the added money must actually do work -- if it is put in the bank or invested, the effect is diluted or eliminated. So, who is most likely to very quickly spend every penny they get? What also is the most efficient approach - where there is little or NO leakage of funds to bureaucracy or other interests?

First who: In a shrinking economy, businesses will lower operating costs (layoffs, other efficiencies), grow profits through savings, and ONLY spend if they see sustained proof that customers are buying. They will not (and should not) create capacity when there is no demand. The result is profitability growing much faster than employment. Companies are NOT spending. They will only act when people buy. So not business.

People? If you already earn enough to meet your needs, any incremental income may not all get spent - you might save, pay down debt, or invest it instead. The richer you are, the less likely it is that a new dollar is spent. This money is least mobile. Poor people on the other hand, can’t afford to save money; they will spend whatever they have to subsist, if they get a bit more, it means they can afford to buy more necessities, not save more. There is also no overhead to their spending; they don't commission research, or conduct needs analyses, or consult McKinsey, they just buy food or clothing or whatever.

A thousand dollar bonus to someone earning $20K or less represents at least a 5% increase in income. If this person were the sole breadwinner of a family of four, they would still be $1,350 below the 2011 poverty line, and every cent would be spent. At that income, savings is not an option. There are 82.6 million people in the USA who earn $20K or less; giving each of them a $1K bonus would require a stimulus of $82.6 Billion.

When the lowest wage earners are spending money, their inertia creates a ripple effect that accelerates money flow, drives capacity creation and reinvestment, and thankfully (!) also enables the not-so-poor to buy new cars and drink mojitos in the Hamptons.

Then, how: Fighting the urge to form a task force, hold 735 meetings over three years, and create a 3,000-page manual, filled with absurd crap, let's just issue a $1,000 check to everyone who whose total W2 income (box #1) was less then or equal to $20,000.

In a commitment to failure, Presidents Bush and Obama chose and continue to choose a trickle-down approach with their stimuli, believing that giving $$$ to bigger companies will cause them to invest to create more infrastructure (manufacturing and service capacity), and in turn employ more of the middle/lower class.

Why? Perhaps because America doesn't like the idea of giving people a handout (though we have food stamps, welfare, jails, etc.). It is more palatable to give a business money because that feels less like charity.

But I don't think of this as charity as much as low-overhead-high-efficiency investment.This same view applies to education - the goal is simple, but instead of acting, we analyze; instead of inspiring students, we measure them; instead of empowering teachers, we oppress them.

This is not an argument against business, or the rich, or for charity; it is instead a plea for us to learn from nature, which teachers that the nimblest, most efficient, and most directly-aimed things prevail, ...and perpetuate.

social reality

I’ve received a lot of email over my last post :) - my thanks to all of you! Most questioned the alignment between advocating killing Social Security and community-related posts like this or this.

So...

I believe that the role of society is to care for those that can’t. When pre-humans began to coalesce into communities, they discovered that it was possible to specialize - hunters, child raisers, security-providers, shelter creators, etc. As these specialists became more efficient, wealth was created; in this case, it was the wealth of time and reflection and communication and innovation.

Over time, they used fire for cooking and protection, they used farming to grow and improve their diets; they used knowledge of the human body and medicine to reduce infant mortality and increase life spans; and the community was able to “support” caring for the ill and aged, learning, art, and other “civilized” pursuits.

This is the essence and power of society and community, ...and civilization.

Then why nuke Social Security?

Western society has “evolved” to the point where necessities (healthcare, education, infrastructure, security, etc.) cost too much, and our organizations (governments, corporations, etc.) are so big, inefficient, and pendulous that real change/improvement is impossible.

For more than a generation, Western nations have had to borrow massive amounts of money just to maintain status quo. Despite deep programmatic cuts, operating costs today are still much higher than revenues. Bureaucratic inertia + embarrassingly juvenile (apologies to the world’s youth) and avaricious elected officials have prompted credit agencies to put most governments on “watch,” and recently, downgrade America and Italy, among others. This plus the prospect even bigger dufuses being elected in 2012 assures a future of worse government, greater ineptitude, and growing (more expensive) debt.

What to do? Short of a total national reboot, we must prioritize at the program level, and make some tough calls.

What programs must remain, and which can be eliminated? I say education and healthcare for all are more important than Social Security. With an effective education (early childhood through post secondary), and the comfort of basic healthcare, we give people the building blocks to not just survive, but thrive. Eliminating a safety net like Social Security creates an impetus for people to care for themselves and their families, or else.

Unfortunately, the Republicans/Democrats/Tea Partiers are proposing small, inconsequential but politically palatable cuts to everything; if they do recommend the elimination of programs, they are small and budgetarily inconsequential. Our situation is far too serious and dire to tolerate this kind of futzing around.

To protect the essence of our society and the viability of our community, we need someone with serious cojones to step up, take the bold step of throwing partisanship, politics, and silly amendments aside, and lead.

flaunting the third rail

The third rail in many railway systems (tubes, subways, metros, etc.) is electrically charged, and fatal if touched; unless you’re contemplating suicide, stay away from it.

In American politics the third rail is Social Security (SS). The people most affected are the fastest growing segment of the population (older people); they have very strong lobbies (AARP); a lot of sympathy (we’re all planning to get old + Congress’ average age is 57); and they turn out in droves and vote in both primaries and general elections.

After reading Monique Morrissey’s testimony before Congress and talking to a few people I thought SS was a sustainable program, needing only minor rate increases, and that Governor Rick Perry’s Ponzi claim was specious. But...

SS beneficiaries receive significantly more than they + their matching employers invest; to make this sustainable, the system counts on a reasonable return on invested capital, a certain mortality rate, and more people contributing than consuming (i.e. disproportionately younger, income-earning population).

This is similar in design to a Ponzi Scheme, so it is reasonable for Gov. Perry to make his claim. Plus here’s Alex Tabarrok at Marginal Revolution quoting three Noble Laureates who agree with Perry, and argue that people are having fewer babies and living longer (= more older people, fewer SS contributors), and economic growth has slowed (a lot); all of which affirms that Social Security as-is is no longer sustainable and in a literal sense, fraudulent, especially to younger contributors.

The "fix" strategy is to pare things back a little - increase the contribution percentage, implement a means test, delay eligibility, and significantly reduce the amount of benefit paid. Does this make the return worth it for seniors? Can they live on this reduced benefit? Are Republicans right that it should be self-managed? Can the public do better on its own? I say, "Yes."

The President is fumbling the ball all over the place, has a largely vision-free and uninspired record thus far, and could very well lose the 2012 election. This is no time to be timid or take half measures. He could overcome his legislative impotence and take a bold step to redefine entitlement - he could propose that we face reality and sunset Social Security.

The first question in all of our minds - how will this affect me? Well, if you're:

1. Over 50: Three changes - increase in contribution percentage (+2%), a means test for recipients, and an increase in the retirement age (+1 year). You keep paying in, and you will receive what was promised until you die.
2. Over 35: You stop paying into the plan, and you get the current value of your historical contributions back in a locked, tax-deferred US Treasury Bond that you can access upon retirement. All your very important future contributions into this nest egg are tax deferred.
3. Under 35: Sorry, and thank you - your contributions will go towards your parents’ and grandparents’ retirements. You are encouraged to contribute towards your own retirement with tax-deferred deductions of up to 15% of your annual salary. You have the option of buying the same US T-Bonds, or a number of other tax-deferred instruments.
   
4. Federal employee: The same (#1-3) formula will apply to federal employees for their pensions - we will increase salaries slightly to compensate for this, but per the scheme above, times are tough, and we can't afford this benefit anymore.
5. Elected official: Historically, the President, Vice President, Congress, etc. received pensions to discourage, well... bribery. We will continue to offer this pension to elected officials as long as it is their ONLY source of income.
   

This is a long sunset - it will take about 40 years for those who are now 50 to die, at which point Social Security dies with them.

Advantages:

1. Take the government out of the pension business.
2. Screw everyone a little bit - spread the pain.
3. Create a palatable, self-managed savings scheme for American workers.
4. Offer tax-deferred T-bonds as a secure retirement investment, that are also a way for the Feds to raise money, put more of America’s debt in the hands of Americans, who have the greatest vested interest in ensuring its repayment.

This is a dramatic step to be sure, but real leaders face issues head on; they don’t patch things up and leave them for future generations to deal with. Will this be the only step in the “face and deal” process? Nope - MMO (Medicare/Medicaid/Obamacare) also needs to be rationalized, consolidated, and made available as a basic service to all Americans in a way that encourages well-being and good health vs. the current system which funds visits and procedures and tests, but that’s for another post :).

If President Obama has a hope of not just winning, but winning a decisive mandate, he must LEAD. He should not marry this to taxes for jet plane owners or any other silly ploy. He should set the precedent for proposing simple, clean legislation that deals with our most important problems one at a time.

Start with entitlements, show that you're bold enough to go where others have feared to tread, and that you have our nation's best interests at heart, with no fear of the political consequences.

feckless

Tony Karon argued yesterday that Israel's 'Diplomatic Tsunami' has arrived, I think he’s right, and it got me thinking about America’s foreign policy.

From Wikipedia, “a country's foreign policy... consists of self-interest strategies chosen by the state to safeguard its national interests and to achieve its goals within international relations milieu.”

For almost a century, America has been the world’s cop, the world’s strongest economy, and even the world’s authority on morality. From protecting Korea and Taiwan in Asia, to helping Japan and Germany with their post-war economic recoveries, to leading the world in communications and high tech and entertainment, to being Israel’s doting uncle, America has been a (really “the”) dominant force in shaping the world’s behavior.

America, the President of the United States, and the American Congress were regarded, respected, and feared as the pinnacle of freedom, integrity, power, and achievement.

When “powerful” is your norm, you assume infallibility and righteousness are forever yours. The most brazen example of this is the Bush Doctrine (aka National Security Strategy of the United States) wherein the American government empowered itself to preemptively strike any entity or sovereign state that it deemed threatening.

American foreign policy is/was not so much a diplomatic process as thuggery; using either the threat of, or the actual act of military or economic retribution to impose its wishes.

Wielding brute force will go to your head; when you have this kind of power, why bother with subtlety? Why waste time on nuance and wit when you own the most powerful one-two punch (US Military, US Dollar) in history? Sure it's dominant now, but time isn’t kind to those that drink too much of their own Kool-Aid; Davids are able to find slingshots, Goliaths are vanquished.

Ten years ago today, America was the victim of a horrible and criminal act, and it reacted with force and anger, some of which was directed against its own citizens, making us a lot less free than we’ve ever been. America is a more intrusive place to live today than it was on September 10, 2001.

That same act also robbed America of its integrity, as evidenced by three words - Guantanamo, Rendition, and Torture.

The American military is without equal in “traditional” warfare; the last time they were asked to fight one of those was 21 years and 40 days ago, and they were victorious. Since then, the “enemy” has been replaced with individuals and small groups of criminals who are inhuman, without honor, and lack any national affiliation. This is a law enforcement problem, not a military one.

Using the military to counter terrorism is like using a gun to kill a mosquito. You make a fool of the weapon, create a ton of random damage, and help the foe look agile and effective. Case in point - Afghanistan, ironically the same place where Americans helped the “locals” defeat the Soviet Union. American power does exist in reality, but in the eyes of the rest of the world, it is no longer mighty, nor is it feared. The thug mind assumed that every problem could be solved with the same weapon, and that delusion made a mockery of both the thug and the weapon.

Can we at least rest on achievement?

Going back to Karon’s article, taking its cue from Uncle Sam, Israel assumed that a powerful military and self-righteousness are all that’s required to maintain the status quo; but they didn’t count on the agility and effectiveness of the mosquito, which took the form of individuals and their desire for personal freedom and justice.

They did count on Uncle S to stand with them and “prevail” on the Turks, Egyptians, and even the Palestinians to respect and honor the integrity of Israel; and of course America did stand with its favorite nephew, but regrettably, with little effect. Nations (and worse, individuals) that once cowered are no longer bowed. They listened politely, but then followed their own beliefs rather than US "advice."

Why? Because today even America’s ability to get it done is suspect - the military will leave its last two theaters of operation without victory; the economy is weak and depleted; the government prefers ideology over strategy.

What was once a majestic and imposing and relentless is tired and fading. The “assets” that America has held dear for so long, it’s military and the all-mighty dollar remain, and remain strong, but only according to the definitions of the last millennium.

While the world moved on, America chose laurels and rest.

The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is rapidly fadin’
And the first one now will later be last
For the times they are a-changin’
Bob Dylan - The Times They Are A-Changin’

These are harsh words on this sad day; but this is also a day of reflection, when we contemplate not just what was lost, but how we've changed, and what we've become. Reflection must encompass the whole image in the mirror, not just the convenient illusion. Humility always prevails over hubris.

mastering apprenticeship

I did my undergraduate degree at the University of Waterloo in Canada. It is a fantastic school (I might be biased), and it contributed greatly to preparing me for what awaited me in the years that followed.

In addition to the academics and the social, thanks to their Co-op Program, I graduated with excellent work experience, zero debt, and a firm job offer. Combining the practical with the learning is a critical success factor for any educational system.

I can’t count the number of candidates I’ve interviewed over the years with a solid academic pedigree, but no sense of the working world, how to navigate it, get things done, add value in a team setting, and even to be self-motivated and driven. We’d take a chance on some, but there’s no substitute for someone who can hit the ground running with both school and street smarts.

Many colleges and universities are embracing co-op or similar approaches to better prepare their graduates for employment (I’d like to think Waterloo is a pioneer!), as now are some forward-thinking high schools.

I was invited to speak to the faculty of such a high school a couple of weeks ago - Saint Martin de Porres in Cleveland. It was an eye-opening experience.

Saint Martin teaches low-income students and is noteworthy for many reasons, the greatest of which is that EVERY student graduates (vs. ~50% for the rest of Cleveland); and every graduate in the school’s history has been accepted to at least one college or university, all with a >30% higher college persistence rate than the national average. ...Wow!

From the founder to the school head to the faculty, everyone is committed to (in my words) the ideal that every child matters; that they must embrace and nurture each student; imbue drive, resourcefulness and perseverance; and teach them to embody integrity, respect, and grace.

Powerful stuff.

But there’s more - every student is required to work for a local company in a four-student job-sharing team, where together they cover a full work-week throughout the school year (1.25 days/week/student).

Over 100 companies in the Cleveland area are Corporate Work-Study Program partners, and this year alone, will invest more than $2.5 million towards funding the school! ...Wow!

Saint Martin takes this program very seriously - in fact, a teacher told me that they have a (very real world) zero-tolerance policy if students fail to take their job seriously; they are a bit more tolerant of in-school lapses, but work is work.

So... not only does every student receive an excellent education, they also graduate with work experience; are savvy about the workplace and how to thrive there; and they benefit from their very generous employers who provide mentorship and career guidance.

Blending theory and practice (master/apprentice) is at the heart of true learning and life-preparation, and has never been more critical than in this day and time, when students (and especially minorities) are disproportionately unemployed.

This alone is noteworthy, but there's also this:

The students’ academic proficiency is undisputed (100% acceptance of graduates to college/university), but they accomplish that with 25% less class time than other schools! Recall that each student spends five (5) school days every four weeks (ave 1.25 days/week) at work.

That’s “lost” teaching time -- or is it?? When you personally experience the application of learning outside school, your desire and capacity to learn in school grows, as does your engagement in class. In other words, they have improved the efficiency of teaching and learning by removing the kids from the classroom and putting them to work! How cool is that!

While almost every teacher I’ve ever met is worried about the volume of content that must be taught in a very limited time window, the faculty at Saint Martin has been able to literally teach more in less time ‘cause their students are steeped in context.

An important lesson for all school leaders and teachers.

Inner city students are the most disadvantaged among us, and it is important to learn from schools like Saint Martin de Porres, who are changing this by caring for their students, being innovative and creative in how they prepare their students to be kick-butt graduates, and by ensuring the sustainability of the school.

Bravo

how can you be so obtuse?

Sound familiar? It will if you've seen The Shawshank Redemption, and recall when Andy Dufresne (protagonist) finds proof of his innocence, but Warden Norton (antagonist/scumbag) dismisses it. Andy "knows" he is innocent; the warden "knows" that all criminals are guilty. We are on Andy's side, and appalled that the warden doesn't even consider the possibility of innocence. In the end, the warden is vanquished and Dufresne is free, but both remain obstinately true to their beliefs.

I was reminded of this when reading The Science of Why We Don't Believe Science - a brilliant analysis on the strength of our belief systems, and why persuasion is so difficult. Psychologists use the term cognitive dissonance to explain it - when we are faced with conflicting ideas, we "reposition" things to reduce the discomfort. Like when justifying an expensive purchase - "Sure this is an expensive car, but that's because it's well-engineered, safer, and will last so much longer than that cheap clunker you just bought - you get what you pay for."

Unprovoked, most of us are somewhat open-minded, but when pushed, we forsake reasonable for defensive and obstinate, and that leads to bad decision-making.

As American politics kicks into gear for the 2012 elections, apparently *every* politician feels pushed and under siege, and none are capable of making good decisions. The abject disinterest in governing has never been more present than during the recent debt ceiling and FAA debacles. The good of the nation is/was forsaken for the good of the Party or the individual politician.

Why? Because politics is a zero-sum game - there is only one winner. It used to be that candidates would campaign on the merits of their vision, their ideas, talk about who they were as a person, and "may the best (wo)man win." But as politics has "evolved," they've discovered that it is much easier to make your opponent(s) lose than it is to show why you should win. Rather than being the best candidate, it's about being the one with the best opposition research and counter-marketing.

Bizarrely, this new breed of politician's cognitive dissonance causes them to actually believe that integrity and good is about partisan one-upmanship and not about service and governing.

How can they be so obtuse?

On Friday Standard & Poor's lowered America's credit rating from AAA to AA+; their analysis wasn't based on numbers (i.e. is America actually a trusted investment), but rather on the politics - can Congress and the White House stop the posturing and juvenile finger-pointing, and focus on running the country?

Is this a reasonable basis for judging credit-worthiness? Will a loan officer at a bank decide to lend money to a couple based on the numbers, or on whether they keep bickering all the time? I'm sure the bickering should be a factor, but am not convinced it is the ONLY factor.

How can they be so obtuse?

Having said this, the reaction so far from both the White House and Congress is partisan drivel. The ONLY thing politicians are capable of is showing how the other side is to blame for everything that's bad, and how they are righteous and good (there is no pressure to talk about compromise, leadership or governing). If immaturity and petulance were the only factors, America should receive a rating below that of Greece, Ireland, Portugal and Spain - maybe closer to that of Syria or North Korea.

A strength of democracy is that the fringes are attenuated by the center; and that effective partisanship impedes government overreach. A weakness of democracy is that it is possible for enough of the electorate to be swayed in the moment, that the most fringe voices are rewarded, and the more honorable and insightful are ignored.

Today the American public is as polarized as her politicians, no-one is considering the ramifications of the downgrade or our economic state, instead we are each bent on making sure everyone knows how screwed up the other side is, and how we'd be better off if they didn't exist. This is our cognitive dissonance, founded on our deepened commitment to the votes we've cast.

How can we be so obtuse? 

"Hope is a good thing, maybe the best of things; and no good thing ever dies." These are the last words spoken by Andy Dufresne in The Shawshank Redemption.

Does good come out of bad? I hope so. Has American been harmed enough by our politicians' failings to demand and expect more from ourselves than angry sound bytes? Not yet, but perhaps soon.

I was listening to a show on NPR asking, "What is life?" I agreed with the NASA definition - life exists when there is procreation and evolution. I was talking to a friend later about the unasked question, "What is humanity?" I think humanity exists when there is empathy and aspiration.

Survival requires community - we must have more empathy for our brothers and sisters, because the community prevails when the least among us survives and thrives. Success requires ability and desire - we must make our children more capable than we are, and we must imbue in them a desire and urgency to be greater than their parents.

Out of all that has happened recently, my hope is that we overcome our cognitive dissonance, and resurrect our humanity.

kill skills

It's easy to get caught in a rut - the greater the risk or threat of change, the taller the walls become, the harder it is to accept new things, and worst of all, the less aware you are of your self-imposed exile.

When change occurs in a team, or they are asked to rethink their business given new market conditions, rutted people will produce a PowerPoint presentation that references new market research, extensive analysis of Twitter feeds, and select customer quotes that proving that strategy X is exactly what's needed to achieve success.

X is of course the current mission restated with a new team name, new logo, renamed programs, and one or two tweaks that come with incremental budget requests - PowerPoint lipstick on the status quo pig. They will also revamp their "scorecard" with additional rows to reflect the tweaks, and of course the team leader will require a business manager to manage the growing "burden" of command.

Does this sound familiar? Have you looked back after a couple of years of genuinely hard work to see what was really accomplished? There will have been a TON of "busy" results that can be documented in scorecards and spreadsheets (thanks to the now entrenched business manager), but how have you helped the business?

In consulting with organizations, the first question I ask is, "What is your why?" Once we are clear on why you exist, figuring out how you will get there and what you will do are easy. This is a difficult discussion because even CEOs are in a rut of busy work that is assumed to be of value, but rarely mapped back to the why. I wrote a few weeks ago about an organization I knew with ~90,000 employees, and my belief that they could achieve the same results with 30,000 people. One reason is this organization has misplaced its why; there are many brilliant people who are accomplishing amazing things that have little or no contribution to the business and have nothing to do with their why. In fact, I bet fewer than 30,000 could accurately state their why.

The reason clients resist the why discussion is because it leads to evaluating every investment (the whats) vis-à-vis its contribution to why. Many of the investments were created for good reason, but do those reasons exist today? If the what is still meaningful, then its contribution to why must be clear; if it isn't, then why are we still doing it?

Whenever something new comes along (especially in large organizations), if there is an openness to try it, it will never come at the expense of something old. "Without incremental resources or funds, fugedaboutit!"

What just happened? The organization chose NOT to make a difficult decision. "This new what is great, it can and will help us achieve our why. Which of our current what(s) should we kill to do this?" The text in red creates tension, angst, the killing of sacred cows, and a lot of hand wringing and unhappiness, and that is always difficult.

The reason organizations fall into ruts, the greatest impediment to good business is an inability and unwillingness to confront every (existing and new) what with why? Rationalizing ruts is easy; making difficult trade-offs is not. The more you rationalize, the more ingrained your siege mentality; this mistrust makes you think you can't be dependent on "them," thus justifying redundant what's in your portfolio. This balloons rapidly - contributing to the 60,000 excess employees in the example above.

Leadership is not just about the salary, stock options and the big office. If you can't make tough decisions, you are not a leader; the skill to kill investments that don't contribute enough to the why is a fundamental criterion of leadership.

tech in ed - epic failure

Education today is designed to meet the needs of 19th century Industrial Revolution employer - “We need millions of assembly line workers, who are all similarly-skilled, and able to work for a simple wage.”

But children today want more, they have broader needs and expectations from their school - not the least of which is to be treated as individuals and to be engaged based on their unique aspirations and abilities. This is not possible if the least interactive and differentiated part of learning in today’s schools is the lecture, and the most interactive part is the homework. We are not only wasting the most valuable asset in the room - the teacher - but also flaunting the idea that you can create creative, critical thinkers in a one-way, generic teaching system. Real learning is a curated experience; humans - teachers - must be involved, but in an interactive and personalized way.

Technology’s role is NOT to mechanize, but to humanize. The most humane technology interventions in history are characterized by a simple truth - the target audience naturally consumed them. The telephone, television and browser are examples of this.

Sadly, a generation of school leaders, administrators, teachers and parents are now conditioned to view technology in the blandest way; from the slate to the blackboard to the whiteboard to PowerPoint to the SmartBoard, the ONLY improvement is mechanization. Teaching and learning NEVER changed. To-date the use of technology in learning has been a waste.

Successful teaching can’t be an act of oppression, it can’t be “pushed,” it needs to be “pulled” - the student must want. Talk to any teacher and they will say that student engagement is fundamental to success. Combine the best teacher with the smartest but disengaged student, and learning will NOT occur. But if the students are engaged, and if the teacher can meet them where they each are and work with them, any student can be successful.

This is our challenge, but in a system this complex (USA: 50 million students, 3 million teachers, 15,000 school districts, $600B/year), it must be done correctly.

The answer is not rocket-science. In fact, it's right in front of our noses. Look at children at play - watch them engage and interact in mediums of their own choosing - they have already know how they see, learn, play, and enjoy. My favorite example is Pokemon. Excerpt from student teaching?:

Most Pokemon aficionados that I know mastered the game in about six months. Mastery implies a full understanding of the Pokemon vocabulary, ecosystem, evolutionary paths, strengths and weaknesses of each character and appropriate strategies with which to select the right Pokemon and win battles, etc.

Moreover, each child also learns to interact with their peers, learn tricks and techniques from each other, and of course battling to achieve supremacy in the game.

Finally, for particularly tough battles, students need to also do research online to uncover cheats that they can use to achieve status.

How often do you see average students achieve this level of skill this quickly in Algebra, Grammar or even simple Fractions, forget Organic Chemistry, Biology, or a foreign language? Animated cartoons, simple re-playable simulations, pervasive, easy-to-use, child-friendly, long-battery-life devices are the basis for Pokemon's success.

This can be translated into mainstream learning. Technology can inspire children to want to learn.

We can't ignore the role of the teacher - they are essential to connecting with students based on their specific interests, abilities, and learning needs; and to being the human connection that all Brain Science tells us is crucial to effective learning.

Technology should liberate teachers from the burden of generic lectures and enable them do what they're best at, what they came to do in the first place - engage students. But we have to do this practically, knowing that they have 30 students and 50 minutes per class.

What if we took the current education standards in a given school system and created short (< 10 mins), animated lectures of each concept(s) with a simple assignment to test comprehension? The teacher could assign these lectures to students as homework, have them "play" their homework and complete their assignments, and automatically receive "reports" on how each student did, and what they understood before class started. In class, the teacher would group the students based on their comprehension, and work directly to inspire, and bridge their learning gaps.

Of course there is much more to this approach; but in the end, it helps accomplish three things:

1. Recognizing and accommodating the way children naturally think, learn and play.
2. Empowering the teacher to directly engage students and help them learn.
3. Eliminating the child abuse of forcing young children to shoulder 20lb (10kg) backpacks filled with dated textbooks.

It can be done at a substantially lower cost - American public schools spend more than $5 billion/year on text books - this approach would cost much less, if for no other reason than most kids already have the devices (smartphones, MP3 and game players), and that all learning content should be open-source.

He who learns but does not think, is lost! He who thinks but does not learn is in great danger. ~Confucius. Bold school districts and teachers unions need to step up and lead our children into safety.

pro child-labor

What's the return on investment of education? Why bother? Why especially in poor communities? Just because I/you/we believe education is a silver bullet doesn't mean it is. As a skeptic, I can find many examples of education shooting blanks or even causing harm.

If I'm a parent of a family living in one room in a shanty town or village, why should I bother wasting my kids on education? How is grammar going to feed us? How are fractions going to heal my sick baby? How is history going to clothe us? I need none of this; it's a waste of my children's time and life. Go away.

Today UNESCO released The Hidden Crisis: Armed Conflict and Education, which states that: "Armed conflict is robbing 28 million children of an education by exposing them to widespread rape and other sexual violence, targeted attacks on schools and other human rights abuses."

Their agenda for change includes: "tougher action against human rights violations, an overhaul of global aid priorities, strengthened rights for displaced people and more attention to the ways education failures can increase the risk of conflict."

UNESCO is asking for US$2 billion to cover current budgetary shortfalls, and changing the proportion of humanitarian aid that goes to education (currently only 2%). All worthwhile goals, aimed at giving "them" what we have. But as Einstein famously said, the definition of insanity is doing the same thing repeatedly, and expecting a different result.

Yes - 28 million children aged 5-12 are not in school, yes this is a crime, and yes it will result in bad things (disease, starvation, rape, war...). BUT - building more schools isn't the complete answer, nor is training more teachers or distributing textbooks or laptops.

Philanthropy is the least effective way to affect change. The best way is for the community itself to change because it values that change over existing subsistence priorities. This is the crux of sustainable transformation.

To get kids into schools, the parents need to be convinced that it is the right thing to do. Not "right" based on some abstract morality, but right based on what they care about, they need, and they value. This is what matters most; what we believe is irrelevant.

Parents will compel their kids to go to school if it enables survival of the family. If you can't directly and immediately connect to that, parents will choose other subsistence (food, shelter...) needs over education - you would, I would. Moreover, the "ROI" of education happens after graduation - that's at least a decade out! If you're starving now, that kind of future is meaningless.

We in the wealthy world delude ourselves into believing "if you build schools, they will come," or "it's so obvious - why don't they understand it?"

Ironically, we're clothing our ignorance in empathy, and believing that empathy will save the wretched from their ignorance!

We must give parents something they need now in exchange for their children's attendance:

1. School as a farm. The students will learn innovative farming techniques; they will plant and harvest crops; they will be required to work the farms in exchange for being fed and bringing food home for their families.
2. School as a factory. The students will learn innovative production techniques; they will create and produce goods that we will sell; they will be required to learn factory-work, in exchange for being fed and bringing goods home for their families.
3. School as a clinic. The students will learn about health care; they will assist in providing services to the injured and sick; they will be required to clean and cook and feed patients; in exchange for being fed and bringing food and medicines home for their families.

Yep - this is putting 5-year old kids to work. CHILD LABOR - get used to the term; learn to like it.

Children are not in school because their parents value subsistence over education. "In exchange" for being fed and bringing food home every day, these children will also happen to learn literacy and numeracy + skills that can help improve their family's health and standard of living. BUT if they don't get fed and bring food home, they will not have reduced the family burden sufficiently to warrant their parents' commitment.

We suffer from the desire to assuage our own guilt and feed our intellectual egos by over-engineering things. The issue is not education, it is survival. Education is nowhere near the top of Maslow's hierarchy for a reason. It's not important enough when you and your kids live on 500 calories/day, with dysentery and AIDS.

This feels dastardly - railing against child abuse/sweatshops/etc. is ingrained in us - but we're wrong.

If UNESCO is serious about getting 28 million kids in school, they need to first employ them, and then educate them. Let's spend money on that.

cojones

Anyone who has run a business will say you can create bottom-line impact (grow profits) by cutting costs, but that this is a short-term fix; if you can't grow your top line (sales), the business is at risk. And if you keep cutting and cutting, your top line will eventually shrink as innovation, product quality and customer service decline.

When looking at where to cut and where to invest, you focus on how the business will look 3-5 years out and make your choices strategically. Which engines have been around a while and have fat in them? Which will create future value? Which ones were important, but have now outlived their usefulness?

Good leaders will make the tough calls, making big cuts in some programs, investing significantly in others, and killing some outright.

Bad leaders implement death by a thousand cuts, trimming each department by 5 or 10%. They will have done no real thinking, conducted no real analysis, and certainly made no real decisions. They are afraid to to be bold.

The same holds true in government - President Obama and Speaker Boehner have on opportunity to achieve strategic and sustainable impact through their budgets, but unless things change in the coming weeks, they will shirk it in favor of being safe. A plague on both their houses!

In 2010 the Feds took in $2.162 trillion, and spent $3.456T, creating a deficit of $1.294T. The best Obama/Boehner have come up with is a paltry 1.7% ($60B) reduction in spending. Worse, most of the proposed cuts do nothing to prepare the country for tomorrow, enable growth, reduce unemployment, or create a more self-sustaining economy. For shame!

Four programs account for 60% of the 2010 Budget - Social Security: $695B + Defense: $664B + Medicare $453B + Medicaid: $290B = $2,102 Billion. All-up (Fed + State) spending on Education is ~$600B for 2010.

If I were in their shoes, I would:

1. Grow the Top Line (increase income): simplify the tax code, eliminate ALL deductions:
   -- Business tax: flat 3.5% on gross receipts
   -- Personal flat tax: 0% below $50K, 15% between $50-100K; 25% from $100-200K; 40% above $200K.
   This includes all Federal deductions (tax, Social Security, Medicare, etc.). States that tax must adopt a similar model. For 2007 (most recent year with comparable personal and business data), this would have increased net Federal income from $2.3 trillion to $2.7 trillion.
2. Rethink Defense: in 2009, America spent $664B - more than then next 22 countries COMBINED! We need to move away from being the planet's cop, and simply protecting the United States with the following cuts:
   -- 2011: budget capped at $500B total by phasing out ALL American military forces abroad
   -- 2012: $400B capped with cuts including reductions in nuclear arms.
   -- 2013: $300B cap
   -- 2014+: Cap = 10% of total Federal income (which per #1 above = $270B in 2007, or roughly 2.5 China's budget.
3. Redefine Social Security: Introduce legislation to add a means test + change the eligibility age to 68 in 5 years, and 70 in 7 years. Yes, this a bait and switch for many taxpayers, but one ameliorated by #4 below.
4. Eliminate Medicare/Medicaid, replace it with Universal Health Care ensuring health, medicine, dental and vision care for all Americans. As with the rest of the developed world, the costs will be shared at about 65% federal and 35% businesses. Insurance companies will suffer (yes!); some employers (particularly small businesses) will also take a hit (though their taxes (#1 above) will actually go down); most large companies will actually save money because this insurance will cost less than what they're paying now. Employees will have more disposable income, greater job flexibility, and of course be healthier.
5. Cut Education: Add a 28th Amendment to the Constitution, federalizing education, consolidating the nation to 50 school districts (one per state), and 3 years later consolidating further to one district. This would save $225 billion in district payroll alone. Enact a one-time $100B capital improvement program + $25B for a complete national curriculum with teaching resources.
6. Change Culture: do you know what LOBA is? It stands for "Lower of Budget or Actual" - this is how government budgets are set, and effectively how people are measured - your budget next year is the lower of what you did spend or were supposed to spend. The motivation is to spend everything you are given whether you need to or not. Per my post on simplicity, we should measure government employees on their ability to spend well, reward outcomes vs. process, and prioritize fewer, simpler objectives. By changing the culture, we can create a system motivated to spend less and do more vs. the opposite. This eliminates the need for the thousand cuts.

Difficult times require drastic changes. If the Republicans are to be believed, America is headed for bankruptcy, and will become the next Greece. These six changes would create a culture of lean efficiency, shrink or cut programs that are outmoded, and invest where it makes sense to enable future growth.

We need leaders who can guide this nation through the tough times ahead, and prepare the United States for sustained prosperity in the future. Legislators who waste time trying to save $50-100 million on trivial initiatives are afraid and useless. We have serious problems, and we need serious people to solve them.

President Obama, Speaker Boehner - let's see what you've got.

team trumps

Jack Welch's Straight From The Gut is the management bible for many business leaders. Welch talks in the book about his 20-70-10 rule: no matter the company, 20% of employees are stars, 70% are adequate, and 10% need to be fired.

GE and others rightly put a lot of energy into hiring - the selection process is long, painstaking, and rigorous - in the hopes of recruiting the best. A good HR person will tell you that a successful team needs many different skills and experiences and personalities, and that the team's achievement is rarely based on any one person, but on the group's ability to achieve. Sadly, they fall short in advising you about how to hire this great team; instead they push only for superstars.

If you're only hiring one kind of "best," how do you then sustain success if you can only reward 20% of these ultra-ambitious "best" appropriately?

Many have adopted Welch's model; one company I know assumes that two out of ten are stars, and one is a dud. They have about 90,000 employees, which means 9,000 need to go; and with a fully burdened cost of $250k/year/employee, the 10%ers theoretically cost them $2.25 billion last year.

But this is a successful company, run by smart and capable people - I cannot believe that these 9,000 are truly that much of a drag. When "team success" is disincented in favor of individual success, we have a failure in leadership, not in employee quality. If the manager did a good job of recruiting and hiring, every member should be valued, not just the top 20%, and if there really is a 10%er, that is a critique of the manager more than the employee.

This might surprise you, but Welch, like most senior executives has a rather large ego (yes - it's true!). They achieved what they achieved because they are good at what they do and competitive as hell. The 20-70-10 model appeals to them and their egos. But once you grow beyond a sole-proprietorship, the team becomes more important than any one contributor - you could be the best chef in the world, but if the buyer bought crappy ingredients, or the servers are slacking off, or the cleaners aren't cleaning, your success is at risk irrespective of your talent.

This why Michael Jordan didn't win his championships until he had a great team around him, and why despite his enormous talent, LeBron James couldn't win a championship in Cleveland.

Short term success is possible in a climate where teammates must compete with each other, but pretty soon all these "great" and "ambitious" people realize that it's not worth it to claw at each other and they slack off. They re-prioritize their lives (remember "work-life balance"??), become less obsessed with work, and focus on their own lives. Now the gym memberships, vacations, long lunches, etc. become more important than shipping a product.

While the employees are getting healthier, the company is getting fatter; when teams perform poorly, output per unit declines, and more people are needed to achieve less.

With the right management approach, it is possible that that 90,000 person company could achieve the same revenues with 30,000 people. 60,000 X $250K = $15 billion incremental profit -- hmmm...

Measure and reward everyone based on how the team does; in most start-ups this happens naturally - their salaries are a small piece of the pie compared to the value of their stock options. The focus is on making the stock price rise, not on looking better than their peer. In large companies where the stock price is not rising as quickly, salary and bonus matter more - unless you reward people based on the team's performance, your message is "for you to succeed, your peer must fail." That's just wrong.

Prioritizing team success over individual success creates sustained and more efficient achievement.

Is this a management failure? A manager's job is to execute the wishes of their leadership. The leader's job is to orchestrate sustained success for their organization. Once you get to a certain size, managers are forced to be insipid sycophants.

The real 10%ers are leaders who can't transcend their own egos to prioritize the team over the individual.

a notre sante

In the face of the Republican onslaught against the Health Care Reform Bill, here's a speech I'd consider if I were President Obama.

[The Oval Office]

My fellow Americans, good evening. Almost 30 years ago, President Reagan delivered his first speech to the nation from this very desk in the Oval Office. His speech was about the economy, and the tough times ahead. I wish I could report that tough times are coming to an end, but I can't. Turning our economy around is my highest priority, and today I wish to focus on our health and how it affects the economy. To paraphrase President Reagan, I regret to say that Americans have never been more unhealthy than they are today - there is no comparison in our history; this despite the fact that we spend more on health care than almost every nation in the world.

I recently asked for a health care report card, and here are some high (or low) lights. You won't like it. I didn't like it. But we have to face the truth and then go to work to turn things around. And make no mistake, we can and will turn it around.

The incidence of obesity, diabetes, cancer, heart disease, and others is highest our history. Today more American children are at risk of chronic health issues than ever before; we spend more per person on health care than ever before; and we waste more per person on health care than we can afford. Focusing on our children, 14.5 million (over 20%) live in poverty; over 16.7 million live with anxiety and depression and do worse in reading and math because there isn't enough food to eat. More than 1.5 million American children are homeless, resulting in a lack of safety, comfort, privacy, reassuring routines, adequate health care, uninterrupted schooling, sustaining relationships, and a sense of community. And things are not improving; two million children will be affected by the housing crisis and resulting foreclosures; and in 2000, 39% of children lived in low-income housing, by 2009, it was 42%.

These are shocking numbers, as are their consequences.

Children who begin life in difficult circumstances are most likely to end up struggling throughout their lives, most likely to run afoul of the law, and most likely to become a burden to society to the tune of about $500 billion per year. It breaks down to $160 billion in increased health care costs, and $170 billion each in increased law enforcement costs and lost economic productivity.

Setting aside the moral obligation to ensure that every child in this country has shelter above their heads, is well-fed, healthy, and well-educated, can we afford the economic impact of sick and impoverished children? I know the incoming Congress pledged to cut our budgets by $100 billion, and I'm very interested to see where they propose to make these cuts. But I'd like to up the ante - let's find a way to save $500 billion/year! With deficits ballooning and rising defense and social services costs, I challenge our Congress to make a real and sustainable dent in our budgets, with an impact that will last for generations.

Many will claim that America has the best hospitals, doctors, and nurses; the best technology; the most innovative researchers and the best treatment options available in the world. I agree. There is no better place to be than the United States if you need any kind of medical help, provided you can afford it. But as we've seen, millions of our children can't.

The definition of health care is the prevention, treatment, and management of illness and the preservation of mental and physical well-being through the services offered by the medical and allied health professions. I believe we have the best management and treatment system in the world, but we fail when it comes to prevention and preservation.

Why? As with many things, it comes down to money. The current health care system from pharmacology to treatment to long-term care gets paid when you get treatment. Their success is dependent on your ill-health. Let's think about that for a minute - if you don't go to the doctor, he or she doesn't get paid. If you don't need any medicine, the pharmacist and the pharmaceutical companies don't get paid. For them to be successful, you have to be sick.

Now you might say that being healthy favors the insurance companies, and I thought so as well, but it's not the case. People who are healthy don't buy as much insurance, and don't contribute to rising costs, which help justify premium increases; people who are unhealthy buy more. Insurance companies might prefer not to pay claims, but they realize that they have to keep the machine running - the more people visit doctors, go to hospitals, and seek treatment, the more they can keep raising premiums and growing profits.

Last year, we passed the Health Care Reform Bill, which aimed the state of our - your health care. While it does help, we must do more to address our children's struggles, and to improve the overall state of our economy.

So I challenge us all to find ways to save $500 billion a year, every year by investing in prevention and preservation for our children. From pre-natal to early childhood to young adults, by providing every child with free health care and a great education, we can not only save $500 billion/year, but also lower unemployment, decrease crime, and increase income taxes; all of which will help accelerate our path towards a stronger, healthier and wealthier country.

To close, once again in the words of President Reagan, my fellow citizens, let us join in a new determination to rebuild the foundation of our society, to work together, to act responsibly. Let us do so with the most profound respect for that which must be preserved as well as with sensitive understanding and compassion for those who must be protected.

We can leave our children in poverty, with an un-repayable massive debt and a shattered economy, or we can leave them liberty in a land where every individual has the opportunity to achieve their greatest potential. All it takes is a little common sense and recognition of our own ability. Together we can forge a new beginning for America.

Thank you and good night.

real service

During elections, candidates will tell you that their primary motivation for entering politics is to serve. They are called to a higher purpose, and wish to devote their time and energy to public service. Hmmm... I'm thinking "No..."

Paul Krugman's latest OpEd suggests that the only motivation Republicans have is to benefit wealthy people at the expense of the poor. Krugman thinks the new Republican House is bending their own rules to repeal the Health Care Reform Bill "because it would cover the uninsured — and that’s something they just don’t want to do."

In the wake of the killing spree in Arizona, Democrats also feasted on the militaristic attitude of Republican campaign tactics aimed at stirring their base into a frenzy of fear and anger and frenetic action at the thought of a Democratic leadership. This story was almost as big as the actual shooting - "political rhetoric caused that idiot to arm himself and shoot people." Of course the Dems sought to mark the Republicans as the instigators. For shame!

Both sides are seeking to paint their opponents as evil, misguided fools, ostensibly in the hopes of getting them to see the truth, and come around.

But I think we're being naive - Democrats and Republicans exist neither to create a gay loving, baby-killing Socialist state, nor to create a redneck, gun-toting military state. They simply wish to win; to beat the other party and win.

It turns out governing is almost like the tax they have to pay for winning. I used to wonder how politicians ever work together following campaigns that have so much vitriol. Imagine for a minute that Sarah Palin had run for Congress in 2010, and been voted Speaker of the House -- how might she have "partnered" with Nancy Pelosi to create a bi-partisan Congress? To steal a quote from one of the best movies of all time, "Inconceivable!"

Hence the benignly-titled "H.R. 2: Repealing the Job-Killing Health Care Law Act." It aims to paint the opponent as "job killers" in the lead up to the 2012 election. It isn't about governing or improving health care, or even about creating jobs, it serves only to position one side as job creators and rescuers of the American worker, and the other side as misguided wrong-doers. A good marketing strategy at least.

Surely not all politicians are bereft of the desire to truly serve? Will voters ever prefer a genuine commitment to representing the electorate? Will there come a point in our future when people look back on idiots like Palin and Pelosi and wonder what the hell we were thinking?

Survival (or getting reelected) is the basest of motivations - the system requires politicians to be in constant campaign mode or they die. We live in a very connected world; to rise above the noise and become the preferred candidate, you need to raise and then spend a ton of money promoting yourself and de-positioning your opponent. The economics make actual governing an afterthought.

Can we fix this? What if we limit the President, Senate and Congress to only ONE term, and also ban private campaign spending. Each candidate gets a fixed amount of public money to spend on their election. This might make a difference, but it doesn't eliminate the D vs. R vitriol.

What does? The real problem is not the candidates, it is the electorate. They choose not to engage, hold their representatives accountable, or take the act of voting seriously. Until the right to vote is not given but earned, it will be squandered, and the voters will continue to suffer.

deFUDdle

Back when I worked at IBM, if we didn't have the "winning" solution, our strategy was simple - we used FUD. It was brilliant, and worked more often than you might think. FUD = Fear, Uncertainty and Doubt. The idea was to push the customer's emotional buttons, poke holes, create scary what-ifs, do whatever it took to force a delay, redefine the problem, or whatever so that we were in a more favorable position.

The Republicans FUD skills are renowned. They are able to create a sense of tension in the electorate in ways that routinely befuddle Democrats. Take health care - they did a brilliant job of associating the reform bill with "bad for the economy" and "a perilous step towards socialism" - fantastic! First, I'm willing to bet that most of us don't even know the definition - according to Webster, socialism is a: a system of society or group living in which there is no private property; b: a system or condition of society in which the means of production are owned and controlled by the state.

Is there any real risk that America turns into a socialist country through health care reform? Hardly. There is no correlation between the government providing a service and the elimination of all private ownership, but it's a fabulous way to create FUD. The first people to oppose socialism are our much-vaunted Congress, who let's face it, enjoy private ownership of a lot of stuff, some of which was funded by special interests and the tax payers(!); they will do everything in their power to preserve the fruits of their avarice. So - socialism is an absurdity.

What about "bad for the economy"? Again - there are many ways to make numbers mean what you want. You only have to look at this NY Times article about law schools using misleading data to shore up their performance numbers (graduate employment rates, etc.) to help improve their rankings, and you can see how universities ("reputable" universities) will lie.

When it comes to the economy, there are two things that matter most - I want a good job, and I want to take home more money than I am now. But then here's one pretty diabolical piece of FUD: taxes are bad. Well... I don't think it's that simple. How much tax do you want to pay? As little as possible - right? Me too. Thus the resonance with the Republican push on lower taxes. It makes total sense - or does it?

Do my taxes really matter or is there more to this?? Put another way, the real question in my mind is: how do I maximize my net earnings? What I really care about is how much I take home at the end of the day, the nature of the deductions from my earnings are less important than the value I get for those deductions and whether the net amount I'm taking home is going up. <-- Does that make sense?

If it does, then it's not really about taxes is it? Why not make it about personal profitability? Profits being what you get to keep in your wallet after all your expenses are paid. So if there is a change to our economic system that costs me more in tax but lowers or eliminates another (bigger) salary deduction, and after all that I end up ahead, why should I care?

According to this (well worth a read), the American health care system is the most expensive in the world; in 2006, we spent more than $6,700 per person on health care, compared ~$3,500 for most Western nations. The cost is actually higher since every other Western country has universal health care, and about 10% of Americans don't have any coverage at all, so the $6,700 is actually closer to $7,500 per person.

Digging a bit deeper, 70% of Canadian health care costs are borne by the government vs. 46% in the US; the Canadian system costs about $3,700 per person (just about half of the US cost), and yet Canadians live longer and have a lower infant mortality rate - these are the two primary measures of national health care effectiveness.

Bottom line: Canadians spend $3,800 less per person for better health care. If you're American, you might think - yeah but my employer pays my share - what do I care? Well - if personal profitability is your goal, then you will know that you are paying EVERY penny of your medical insurance costs, whether it is in taxes, payroll deductions, a lower salary, or lower prices at the store. No matter how you cut it, the $3,800 difference DOES come from your wallet, and means those of us who live in the USA earn that much less every year, and die earlier to boot.

Even if the US decided to spend $4,500 per person (for every person), that's still a savings of $2,200 for each of us plus the knowledge that no-one gets left behind. Every person in this country gets access. Every person also gets to pad their wallets a bit, and rarely is that a bad thing!

But how to communicate this? It's a pretty complex analysis, and given the state of education in America, I'm not convinced that every voter is going to understand it. Think back to the last person that had a tough economic message to share with the populace - President Ronald Reagan in is first address to the nation from the Oval Office in 1981 - a brilliant speech.

If President Obama had addressed the nation in just this way - not talking to politicians and special interests as he did in his attempts, but talking to the American people, sitting in his office, and not standing in the House; if he had applied simple metaphors as Reagan did, perhaps each of us might have been able to look forward to an extra $2-3,000 in our wallets in 2011.

curativity

Being charitable is an essential part of humanity. The definition of society is a community formed to (among other things) help those who can't help themselves. Humans are inherently giving beings.

According to the National Center for Charitable Statistics, as of August 2010, there are 980,000 nonprofits (that filed IRS returns; there are 1.6 million registered .orgs) in the United States alone; they earned $1.74 TRILLION, and have $3.89 TRILLION in assets. That's an average of $1.78 million in annual revenue, and $3.98 million in assets per organization.

Obviously the "big" foundations skew these numbers with their $multi-billion endowments, but still - $5,637 per American resident was donated in this last (economically tough) year. Impressive.

About a year ago, I received an email from Paul about giving - what's the motivation, why do people do it, etc.? Most people give money to relieve guilt or to (as Paul put it) "make a spectacle of themselves." You only have to look at how philanthropic organizations solicit money - guilt is the essential ingredient in .org marketing. Almost every advertisement or solicitation you see will in some way make you think, "there but for the grace of God go I."

In good times, this works well - those who have respond, and help those that don't. Tough times are often (sadly) also marked with major disasters (earthquakes, tsunamis, hurricanes, etc.), and in these times, people will rally in support of these causes, taking money away from their normal nonprofits, and their beneficiaries can be left with nothing.

Back to the numbers, I'm most shocked by the almost one million nonprofit organizations - surely there aren't this many societal issues that Americans alone wish to address? Surely there aren't a million Americans who are skilled at managing philanthropic organizations? And ...surely there aren't a million+ people/potential employees skilled at eliminating societal problems??

Most nonprofit founders have either personally experienced, or observed a "problem" first hand, and are now compelled to do something about it. This is a great thing - the motivation to help others not suffer as much as you did or saw is truly heartwarming.

But as an old friend once said, in business as in life, you must put the right tool in the hands of the right person. The wrong tool in the hands of the wrong person creates unwanted results: if you give a dentist a jackhammer, dentistry will not occur (!).

We give because we care; we give because we feel guilty; we give because we can. But how do we know the ones to whom we are giving "can"??? What's the assurance that these 980,000 nonprofits have the ability to not just make a symptomatic difference in the moment (palliative care), but actually do work that creates real and sustainable improvement, that eventually eliminates the need for that nonprofit altogether?

There is no assurance - this is the problem. Rarely do the people that form nonprofits have the skills and experience to solve the problem. They may not even have the skills or aptitude to effectively operate a nonprofit. More often than not, their core skills are empathy and fund raising. These are both important, but not enough to get the job done. This is where the whole point of giving is at risk.

You might be asking yourself "what's wrong with hiring the people that can do the job?" Nothing! Except - most people who have the expertise/talent/experience to contribute to the solution and can afford to work for a pittance are already trying to set up their own .orgs! Hence the almost one million separate organizations! Irony abounds.

To Paul's question, I think this is why people make their giving visible - they recognize that motivating others to give is the only real difference they can make.

To the question of how you fix it - how to make giving curative and not palliative? I suggest two acts - first - raise the bar so that actually setting up a nonprofit is incredibly difficult. Second - the big foundations should use their marketing muscle to showcase successful interventions (ones that create sustainable improvement); and then show givers how they can contribute their time and money to helping proven interventions scale through the existing channels vs. setting up their own .orgs. "This is working - here's proof - help make this work in more places!"

Happy New Year everyone - here's to a curative 2011!

endurance

Is "good" an absolute or does it change over time? We are creatures of habit and tradition; in general what was true yesterday is true today and will be true tomorrow. This especially applies to the things we value, and while most "goods" do and should endure, there are some that don't, and some that shouldn't.

Often these "goods" are benchmarks or measures that say things should be done tomorrow the way they were done yesterday. But is "good" good enough this time? For example:

1. We expect medical interns to work extended hours because the doctors that came before did. This despite studies in the New England Journal of Medicine, and other publications that prove that this does not improve learning or develop skills, and worse, actually harms patients!
2. We want our kids to do as much or more homework than we did, despite studies that show that it does not lead to meaningful learning. We believe in measuring student performance in the same way we did a generation ago, despite the data that shows that the ability to do well in a test has no correlation to success in the world or to personal achievement or happiness.
3. We base current business models on the past despite the fact that the (business) world has changed fundamentally, what worked yesterday is absolutely not guaranteed to work today, and that the world tomorrow will be different yet again.

We fear tomorrow but know and understand yesterday, so by measuring tomorrow based on yesterday, we are admitting that tomorrow matters less than yesterday. This is not leadership; it is instead a classic example of traditional MBA thinking - administer micro events based on historical trends, and assume the bigger picture will take care of itself.

Leaders who think this way should neither lead nor think.

What happens when a business model comes along that is fundamentally different from what came before? Google's model was brilliant - they turned the end user into the product and the advertiser into the customer. Microsoft turned the application developer into value-added "pull" for their products, and used these external "solution developers" as the sales machine that just dragged Microsoft along. The "establishment" scoffed at these two companies, as they did at Southwest Airlines, PayPal, Skype, Napster, ...and even the once radical notion of using ball-point pens in schools. Forsooth!

But the establishment (teeming with MBAs) does a bit more than just scoff at these upstarts; they actively subvert them by portraying them as untenable, wrong, evil, unproven, charlatans, etc.; they lobby against them through governments, press, and public. This is how incumbents attempt to hold on - by suppressing competitors vs. improving themselves. Just read this article to see that even the market-watchers (supposed innovators) get into the game of decrying those who are challenging the status quo.

A couple of weeks ago, Steve Wozniak said that Google's Android will become the most pervasive smartphone operating system. EVERYONE (media, competitors, Apple-haters) jumped on this assuming he meant that Apple's iOS will lose, and the iPhone is doomed. They compared this to Apple's "loss" to Microsoft in the personal computer marketplace (Windows still enjoys a ~90% market share vs. Mac/OSX and others).

Really? What is the basis for measuring "win" and "loss"?? Narrow minds define winners based on market share - and it's true, from that point of view, Android is more likely to win, because it's free to the manufacturers and they're not limiting the design criteria all that much. But is that really winning? Is Mac/OSX a loser in the PC market because it has less share than Windows? What computer are you using right now? What do you wish you had?

Outside of sports there are very few places where "winning" is clear-cut. In war - the "winning" side does get to write history the way they want, but let's face it, no-one would call America's invasion of Iraq a "victory" despite the fact that they technically won. Take Windows and PCs - it's fair to say that Microsoft "won" and continues to win the PC war but at what cost? Their success put them in the cross-hairs of a number of governments who feared their market share and pervasiveness as threats to competition. This cost Microsoft $billions, and even worse, altered the very nature of the company and its approach to doing business. This is not a "win," but this is the fate of share "winners." Hmmm...

Now let's look at the "loser." Apple seems to have done ...adequately despite their "poor" market share. Looking at their stock price, market cap, share of PR voice, future prospects, etc., I don't know about you, but they seem quite viable for a loser. How do their competitors look?

Perhaps NOT having a dominant market share was the best thing for them? It allowed them to diversify their efforts beyond the PCs, into music players, music services, and other consumer devices. Not being committed to one category or product-type let them be open to cannibalizing their own products, be innovative, creative and driven. When your market share is very high, your tendency is to preserve it vs. usurp it - you only have to look at the music industry to see how well this plays out.

I'm not saying they had a master plan and things turned out exactly as intended, but I am saying that Apple approaches the world differently than its peers, and stays true to its intention despite market pressure/ perception/ etc. This is a mark of leadership and vision. I don't believe for a second that they want to be the most sold phone in the market - I think they want to be the best phone, the best experience, and the most fun. Rather than volume, their obsession is impact or effect.

Are there absolute performance characteristics that will always be "good"? How about:

1. Are you competing on price or value?
2. Do your customers choose you in the face of cheaper alternatives?
3. Are your products more important than your ethos/values ...your "why"?

Arbitrarily deciding that X is good just because it worked a generation ago or even yesterday is naive and doomed. Absolute measures of "good" should be about who you are, and why you are. These are the enduring "goods."

clarity

Our governments (especially elected ones) are mired in the never-ending cycle of getting reelected. This leads to the never-ending cycle of creating polarizing issues that place candidates on the side of a cash-rich and moron-filled fringe who will donate $$$ to the campaign; and even more insidious, the never-ending cycle of creating ever more pointless laws, oversight, and pandering to feign congressional value-add.

Lest this be a rant on the depths to which politicians have sunk, let us take another tack. How does one help government be less ...pendulous?

Why not reboot the country every century or so to eliminate incumbency, any laws written by Congress, the tax code, all departments, etc.? Let us revolt and create a new system with a clean slate!

Whether we like it or not, some governments are already there with bankruptcies, and others are close behind. If the US national debt continues to grow by more than $4 billion per day, it's seems pretty certain that a reboot is impending.

I would design the next government around very clear and specific boundaries; being explicit about what government will and won't do for its citizenry. Here are the five things my government would do (and NO more):

1. Education - Free, and starting at age zero (yes, zero), to where the student has completed their undergraduate certificate (2-year/4-year), or until about age 22.

   You start organized education at birth because we know it makes a HUGE impact on a child's development. You also do this to ensure that every child is well cared for and nurtured. The fruits of this are more independent (economically, physiologically, and psychologically) children/adults; less youth crime and hopefully less adult crime; healthier kids ('cause they'll learn about health, eat better food in school, etc.); and hopefully things like less teen pregnancies, gang activity, etc.

   This will require more teachers, more classrooms, etc. It will also require an education system that imparts knowledge in practical facets of life (how to prepare for and participate in a job interview, communication skills for the workplace, diet, fitness, banking, parenting, birth control, etc.) - these must all be mandatory for every student. It is through these last that we make the rest of the system less expensive.

2. Healthcare - full coverage for all residents from pre-natal to death, including medicines.

   Prioritizing diet, preventative care, and a mindset of quality service for all is fundamental. The system should be completely free to all residents of the country (IMO it should be free to anyone that needs it, irrespective of status), and include medical, vision, dental, prescriptions, etc. Elective work for purely cosmetic reasons will not be covered. This implies there will no longer be a health insurance industry, physicians, nurses, etc. will likely make less money as most will be federal employees.

3. Security - from creating laws, to enforcing laws, to civil and national defense.

   First - the primary motivation for Congress should NOT be to create new laws, but rather to ensure that the existing Code be well-adhered to, and that the citizenry be incented to better behavior. There should be one law-enforcement body in the country spanning local, regional, transportation, organized crime, etc. There will be an emergency response system that includes fire departments, ambulances/paramedics, nature-related calamities (weather, volcano, earthquake, etc.), and any other type of civil support. All of these capabilities will be linked and operate as one unit.

   National defense will focus on protecting the nation from others, not proactively engaging any nation in armed conflict. Since the system is rebooting, there will no longer be mandatory minimums, or idiotic wars (drugs, etc.) on anything.

4. Civil Service - core professional/infrastructural services plus employment for those that aren't easily employed in the private sector.

   This is the most complex organization, and one most at risk of untamed growth. It delivers all national services to the country, including infrastructure (roads, rail, , airports, ports, etc.); utilities (energy, water, etc.); foreign and economic policy; and things like election systems. It also includes an employment machine aimed at those unemployable in the private sector; the work done will span a variety of public service/peace-corps/disaster relief-type services. If you wish to earn a living, you must contribute. There will be no welfare system.

   Limits on the size and scope of this organization will be one of the most critical and contentious pieces of legislation that the new government will write. The core set of services performed will be enumerated in the new Constitution, along with a mechanism to control budget and organizational size. Amendments to this part of the Constitution will require a mega-majority (at least 75% of Congress).

5. Taxation+ - a simplified (progressive flat income tax mechanism to cover the costs of #1-4, basic government operations, and a bit extra for an emergency fund. There should be no sales tax, state tax, or local tax - just a simple income tax. The "+" connotes other forms of economic oversight like the SEC.

Yes, these are expensive and complex undertakings. Fundamental to this is a Constitution that rewards government (and government officials) for being as small as reasonable and no smaller.

To help rein things in, the government is NOT allowed to give money away (bailouts, unemployment benefits, social security, welfare, etc.), it is also not allowed to pay for things like food and shelter. It encourages a simpler service delivery model - one police force across the country; one school system; one healthcare system, etc.

Human nature is such that when a thing is given, it is expected (entitlement); and when you get one thing, you also expect related things. For example - if you get food stamps, you aren't as desperate to work because you know it's available; then you wonder why there aren't "home stamps" so that you can "afford" better accommodation. Thus begins the dependency-cycle.

A system where people willingly abdicate responsibility to society is not acceptable.

If you've read this blog at all, you know I believe a fundamental precept of society is to care for those that can't. But every parent knows that you also have to teach your children certain lessons; they have to fend for themselves, not always look to others to bring them food from the kitchen, or walk them to school, or whatever. At some point, they must be pushed out of the nest and allowed to fly on their own. This is also a form of caring for those that can't. It is more difficult to do, so society instead throws money at it. Wrong.

People need to take responsibility for themselves and their destinies; if you're living hand-to-mouth now, why bring a child into the world? Why not heed what you were taught about family planning and contraception, and take advantage of the healthcare system (free contraception) to prevent bringing one more child into your already difficult reality? Today you might want to have children because Social Services is more likely to care for you - that's the wrong incentive.

Similarly, if you have a job and are worried about how a disability might prevent you from keeping food on the table and a roof over your head, invest in insurance to reduce your risk. If you wish to change careers and need training and some help tiding you over, save or borrow what you need - it's not the government's role to help you with that.

Systems that promise everything for everyone are not sustainable. Almost every government on the planet is facing a significant budget squeeze; whether we like it or not, a reboot is in order. Let's not repeat the same mistakes in the next cycle.

If there is absolute clarity about what government will and won't do, people will use what's given (education, healthcare, security) and find other means bridge any gaps - this too is in our nature.

googlets

How do you measure success? How does your employer? Three measures a commercial company might use are revenue, share price and market capitalization. The three are connected, but the first guides the other two.

Initially, revenue or the promise of revenue sets the company's value; if they achieve success and cash flow, the name of the game is growth. Once established, year-on-year improvement becomes that much harder, and share price growth comes with ever increasing market scrutiny.

Few companies achieve a position of market dominance - but those that do face an even steeper slope. The toughest part is the transition from underdog to leader - people will now root for the other guy, governments will keep a closer eye on you, and all the while, you've got to keep up that year-over-year performance (despite a growing denominator) and remain compelling to the markets.

When the company is starting out, there is pressure on the employees to build the product, close the first sale, make payroll, pay off debts, etc. It's a productive pressure, everyone is in it together, and while the risk of failure is ever-present, you knew it would be like this when you joined.

When the company first achieves consistent growth, the pressure changes, it's a much better place to work. Progress is visible and customers are enchanted; sure everyone is working hard, but it doesn't feel like it - there is an energy of vindication, of growth, and of optimism - you've made it over that hump, and things are looking good.

Then seemingly out of the blue, success changes from a happy surprise to an expected duty; people want to see you fail; what was passion is now work; what was energetic is now draining; what was once a team is now a group of competitors fighting over an HR-imposed compensation scheme - some call this maturity, others just say it sucks. At all levels, the company is, well, less happy.

I've read a number of articles (1,2,3) about Google recently, and it feels to me like they're now just about out of the happy phase; their behavior is that of a mature company.

In phase 2, you want to win on your merits; confident about your product, you simply want an even playing field and the opportunity to participate. You know how good you are, and damn it, they just need to see it so that they can catch the fever as well!

In phase 3, growth is harder, more doors are open to you, but winning is tougher, the competition is fiercer, and expectations are much higher; so you grasp at other kinds of straws. You ship products before they're ready, make poor decisions, and use other (not merit-based) means to win.

Google is doing all of these things.

But why?

They are incredibly successful in their core business; they have dominant market share, their margins are unheard of, their reputation is solid, and they still have perhaps the most talented workforce ever assembled.

But their mission has shifted - they've gone from wanting to get better every day to wanting to grow bigger every day. Their success is no longer in their control (you own your improvement, you don't own customer preference), nor is it particularly inspiring.

Why have they allowed themselves to get this way? Is it greed? Ego? The fear of being a one-trick pony?

I think it's all three. Besides recent product mishaps (Wave), complaining publicly when they're at risk of losing deals, the abysmal policy choices (Net Neutrality with Verizon), and even the opening of a think tank (isn't this function the very essence of Google?), I think one of the most telling reasons for their current state is their recently-published code of conduct.

I admit, I started reading it and got bored. This is not the sign of an energetic, passionate company, it smacks of lawyers and HR departments, a company gone "corporate."

ASIDE: The best and most easily remembered set of principles I've ever read (IBM):

Respect for the individual, customer service, excellence.

"Don't be evil" (Google's motto) is an admonishment. When I first heard it, I wondered: "Why? Are you afraid you actually are evil and need to keep reminding yourself not to be?" Why not "Be Great"??

I admire and respect Google, I think they have helped shape a completely new landscape for people and business everywhere. I say this not to kowtow to them, but to recognize that brilliance in some areas does not equal brilliance in all areas. I think Google will continue to be successful, but I believe their leadership is preventing them from achieving quantum success.

Could they have avoided their recent pitfalls? Yes. They should (given their incredibly talented workforce) have realized that growth and winning do not equal success.

Burdening one success with the creation of others is not always the best strategy.

Instead of trying to accumulate all sorts of new products and businesses under one roof, they might have been better off spinning things like Gmail, or Google Apps, or Blogger or YouTube off into little independent Googlets, each free to evolve, grow, and achieve without being beholden to, or held back by the mother ship.

Of course they can "help" each other, and cross-pollinate, but that doesn't require them to be in the same organization. It can be easier for a new entrant to ride the giant's coattails, but that comes with rules and constraints, some of which can prevent sustainability or confine the addressable market. Google's quest to amass size is failing them.

There is strength in being one great thing; there is wisdom in seeking to build other great things; and there is wit in being the one to eventually replace your one great thing.

Google has an amazing talent pool, a powerful market presence, and a big wallet. The Googlets can take advantage of all three from the outside; they can create value and impact, and even help revitalize the workforce.

Size does matter. A business has a right size; it takes a real leader to understand that and to stay true to it. The stock market has never been a good judge of greatness and achievement; it knows so little about you or your business - why allow them to prescribe your path to happiness?

collar blues

Arbitrage is defined as "attempting to profit by exploiting price differences of identical or similar financial instruments, on different markets or in different forms."

A simple example is the buying of a currency in one market and selling it in another for a slightly higher price; success is knowing the prices in various markets and having buyers and sellers therein. Arbitrage thrived when communication was limited and it was difficult to know what each market was doing. As time and space have shrunk, arbitrage has had to evolve.

As one form of arbitrage was threatened, others grew. It began with the ability to safely and economically ship goods across oceans, combined with countries with predictable governments, cheaper workers, and easy access to ports - thus was formed outsourcing 1.0 - manufacturing. Improved telecommunications then lead to outsourcing 2.0 - services, which prevailed in countries with forward-thinking governments and cheaper, better-educated workers.

We all know that countries with lower costs of living were able to provide help desks, call centers, etc. to countries with higher costs, and both sides won. Western companies lowered expenses, reduced payrolls, and returned more to their shareholders, and "Eastern" companies created markets, employed people, raised local standards of living and returned more to their shareholders.

But... The East is able to provide these services to the West because they have a large, well-educated (better-educated, really) workforce who is used to getting paid much less than their Western counterparts. As communication opened up the possibility of outsourcing, it also opened the East to the salaries and lifestyles of the West, and as their "tide" of awareness and achievement lifted, so did their "boat" of expectations.

Thus people costs in the East are rising, margins are falling, and with the recent recession, the people costs in the West are falling and margins are rising. I'm not saying that the arbitrage opportunity is lost; I'm just saying the margins are shrinking, and growth in BPO (Business Process Outsourcing) is slowing.

I was having lunch with Pierre de Vries a few days ago, and among other things, our conversation went to a question that has been bugging me of late - whether a more educated society is more advantaged [more on this in future posts], and whether "white-collar" jobs add more value than "blue-collar" jobs.

Before we get to that, I'm sure you've noticed a trend over the last couple of generations. It used to be that goods manufactured in the East were of inferior quality, and their only buyers were those with no other choice. That changed very quickly - today goods made in Japan or Korea are considered to be of better quality and reliability vs. what you get in the West. The same thing happened with BPO - initially, you hated it when the call was answered by someone with an Indian accent because you weren't getting the same experience as with a Western call center; but now, their ability and capability have improved to the point where it's not as big an issue, and eventually, the outsourced call center will be preferred to the Western one.

As we have gotten used to the idea of some business processes provisioned "over there," the East is looking for new sources of growth - about 5-7 years ago, medical services began to be outsourced; today outsourced legal services are the new vogue; this in addition to successful outsourcing of software engineering, accounting/tax preparation, and design services to name but three. Outsourcing 3.0 is pure white-collar, and the acceptance of these services by the West is less and less an issue, which opens the door to even more white-collar provisioning.

A commodity is created "when a product becomes indistinguishable from others like it and consumers buy on price alone." From clothing to appliances to cars to help desks to accountants to radiologists to lawyers to ophthalmologists to... you?

When something becomes a commodity, the cost per unit drops, and the price per unit drops - that good or service is valued less, and those that do it are therefore valued less.

Doctors, lawyers, accountants.. What is more precious today? Having someone do your taxes, or knowing a really good, trusted contractor who will help make sure your house stays standing and in good repair? What is more valuable? The car or a great, trusted mechanic?

A successful economy requires sustained value creation combined with growth in unit value. If the worth of the thing being created is declining, the economy declines. A successful economy also requires that most of its constituents (citizens) be sources of value and not merely consumers of social services. For generations we've been led to believe that a doctor was "better" than a plumber. Our parents may even have discouraged us from pursuing these "lesser" vocations in favor of the "desk" job.

Can you have a purely white-collar economy? No. Consumers consume things - those things need to be created and provisioned. Let's go a bit further - you only have to start with lawyers to see that many white-collar jobs are actually self-fulfilling prophecies. As they become commodities, their value will diminish, and (hopefully), their role in society will diminish (speaking specifically of lawyers and tax accountants :-)).

There's a theory that white-collar jobs have more "leverage" than blue-collar jobs - that they earn more, create move value, etc. Doesn't that also mean that disproportionately more white-collar jobs implies greater unemployment?

Might we see less and less white collar jobs in the West and more and more blue-collar jobs over the coming generation? Is it likely that we will want to outsource white-collar jobs???

The extreme conclusion (of course this won't happen) would be that America (for example) becomes the agriculture and manufacturing capital of the world, and India and China become the white-collar services capitals. Each consumes the other's products, and needs the other to survive, but power resides in control of scarcity, which will depend on what is more commoditizable. Now this can't happen because it's not practical for someone in Beijing to wait for a plumber from Buffalo. But you get the picture.

I believe our value mechanism needs to shift to the point where we recognize what so many already know - white or blue, economic success resides in the scarcity of what you do, and not whether you need to clean your fingernails at the end of the day.

local heroes?

The US Department of Defense can't account for $8.7 billion out of the $9.1 billion intended to help rebuild Iraq. Bell, California city officials were forced to cut their salaries by 90% because they were found out (the worst offenders were the city manager ($787,000/yr) + assistant city manager ($376,000) + chief of police ($457,000/yr) were all forced to resign). Also in California, while spending for K-12 education rose 22% over five years (from $45.6 to $55.6 billion), actual classroom spending fell from 59% to 57.8% of the budget, and 38,000 school teachers have lost their jobs; California has a $20 billion deficit. Where is the money going?

There is profound inefficiency in the American education system - California alone has over 1,000 school districts. First - why are so many districts required? Surely one is enough? With 1,000 separate district organizations (each of which has an average $55m budget), surely there is waste, fraud and excess staffing? With 1,000 districts, surely a percentage of them have leaders that are abusing the system, and siphoning money away from students and teachers? With 1,000 districts, surely there would have been a way to fire 38,000 bureaucrats, retain 38,000 teachers, and give tens of thousands of students a better education?

"They" say that we should keep the Federal government small, and leave as much work as possible to the states and below. Most politicians will argue that this is the key to success, but where's the proof?

While local government is theoretically more in tune with local needs, the price you pay is significant. By definition, a decentralized model with redundancy at every level is actually more government not less. Look around the world today and you see a dearth of great leaders and great managers. The more distributed government is the more leaders and managers and honest people it needs; and let's face it, there just aren't enough of those to go around. The result - bad management, shortsighted thinking, poor budgeting, massive inefficiencies, wasted money, wasted time, wasted lives, wasted air...

When the system is this fragmented, it is also impossible to ensure accountability - imagine how big, how pervasive and how resistant to "influence" the oversight organization would have to be to police the whole country's fiefdoms? The theory that local elections serve as the "cops" is laughable - just look at the "wonderful people" that keep getting reelected in local and regional (and federal I suppose) elections). It's too easy to hide, and people are too disengaged to pay attention. In the end, elections are not the best way to do anything other than win a popularity or fear-based contest.

The 8.7 billion dollar throwaway by the DOD means this isn't just a local problem; there are massive failures at the Federal level as well (this is but one).

Is there a way to prevent fraud and abuse and just plain stupidity? No - being unscrupulous is part of human nature (or better said, trying to get away with something you know to be wrong is human nature); and you only have to look at the Darwin awards to know that there are a whole lot of less-than-bright people that grace this planet, and many of those seem to be drawn to politics.

The arguments against federalizing everything are many - too much distance from people and local issues, too much bureaucracy, too much excess spending, and my favorite with budgets that big, any screw-up is sure to just as gigantic (at least locally it's only hundreds of thousands of dollars or millions, and not billions).

I don't buy that. Saying that this alternative sucks less so let's do it is not the way government should work, and it's certainly not the way citizens should be served.

My first instinct was to say we should accredit government workers - they must be trained and pass an exam to be judged "Competent to Spend the People's Money" (or CSPM ;-)). But that's a non-starter - just look at the fact that 90+% of politicians are lawyers (who had to graduate from university and pass the Bar), and how incompetent they are.

I wrote something a few months ago that I think might have merit - I was talking about how we incent or mandate a balanced budget:

Quid pro quo. If we're punishing Congress for excessive spending, we should also reward them for good behavior. Every year that there is a budget surplus, all Federal employees will receive a bonus of X% (1 or 2%?) of the total surplus, divided equally (same percentage of salary). When they've also retired the gross deficit, the percentage should double. There should be no cap on this - the better they do, the better they do.

But how do we prevent fraud? Two things - first, if everyone's pay is dependent on a more efficient system, maybe that creates an incentive to play better. Second, if the number of agencies is reduced profoundly (reducing the 14,866 school districts to 50 + 1 (for Washington DC) for example), then maybe it's possible for the GAO to police all of them? And what if the GAO is also similarly incented to find bad behavior and eliminate it? For example - one incentive I might consider for the GAO is they're penalized if a behavior is reported in one year, and remains just as bad in the next, and they're rewarded if it improves (their bonus pool could increase by a percentage of the improvement).

It should be noted that there are a ton of federal organizations that do have a local presence, and are able to tune their efforts according to local needs - it's just a matter of policy.

The three steps to reduce bad behavior - consolidate so that fewer more qualified people are doing the work; create a pay structure that rewards fiscal responsibility and improved service for the citizens; and motivate the oversight organization so that it wins if the citizens win.

Sadly - the easier way to do it - trust the citizens to vote well - hasn't worked...

culling the herd

According to the Census Bureau, in 2008, Education America (public primary/secondary) spent $593 billion, of which $582 billion was revenue-based, and $11 billion was borrowed. Of the revenue, 48.3% was local, 43.7% State, and 8% Federal.

<ASIDE>This represents $10,259 per pupil, which means that from K-12 and assuming the costs don't change too much, the state will spend $133K per child during their 13 years in school. If offered, I wonder how many parents would just take the money and leave their child in the dust?

One of the biggest casualties of the recent economic crisis is of course real estate prices; close behind are consumer spending and individual and corporate income (and hence income tax). The first is the biggest contributor to local revenue, and the latter two are the biggest contributors to state revenue. None of the three is forecast to return to pre-recession levels anytime soon, which means that the source of more than 90% of Education America's funding is at risk of being much less generous for the foreseeable future.

Since salaries and benefits are the largest chunk of education budgets, the states and districts are looking to nuke jobs. According to a recent Newsweek article, unions require that they respect tenure in this process, which means that urban/underserved students are the worst-affected, as younger teachers (with less/no tenure) tend to work in those schools.

The effect of the budget cuts is therefore a greater division between the haves and have-nots.

There are so many things wrong with this picture, I don't know where to begin. Education is often an early target for cuts because it doesn't directly affect voters. No-one pays attention to the fact that this is the surest way to perpetuate bad economic times and an increased future reliance on assistive public services (welfare, unemployment insurance, the whole legal system, supported healthcare, etc.), and hence a heavier burden on state and local budgets.

Paul Guppy of the Washington [State] Policy Center published an article last month that is worth a read:

• Student populations in Seattle and Spokane have declined over the last 30 years while adjusted education spending has doubled.
• Despite increased funding, almost 1/3 (half when looking just at minority students) of public school students drop out.
• Only 59 cents out of every dollar goes into the classroom!
• Average teacher pay (with benefits) in Spokane for example is $81k for a 10-month year; administrators in Spokane earn $107.670 in salary and benefits.
• Washington State has 101,700 public school employees, but less than half are teachers!

I'm guessing Washington State is not unique, that these data would be similar anywhere in the USA. A couple of things surprised me: teacher pay isn't horrible, but administrator pay is so much higher (though I suspect that's a full-year vs. 10 months); less than 60% of the budget goes towards the classroom; and more than half the employees are NOT teachers.

BUT - when you hear about layoffs, more often than not, it's the teachers getting nuked - hardly surprising given that the administrators manage budgets and hiring/firing.

So what to do? First there are 14,866 school districts in the United States, about 300 of which are in Washington State. Each district has its own administrative and operations machine, curriculum system, fund raising system, unions (both teacher and public service employees), and goodness knows what other redundancies.

I know that the Constitution (by omission) gives the States power over education, but why does Washington State have to have almost 300 districts? There's nothing in the Constitution that says that education must be that local? Maybe this was reasonable back in the horse & buggy days (literally), but surely modern roads and communications have obviated the need for that level of localness? Why not just have one district? Surely that's better for Washington students?

The 2008 Education budget for Washington State was $11.6 billion, and 66.2% or $7.7 billion was for wages and benefits. Since we know that there are more administrators than teachers, and that teachers get paid less than administrators, we can safely assume that more than half the payroll $$ go to administrators; let's call it half ($3.85 billion) for the sake of argument. Now let's say we are able to consolidate 300 districts into 1, and that that results in a 50% reduction in administrative staff (It should be higher, but...).

The result? The 2008 budget goes from $11.6 to $9.7 billion, saving $1.9 billion. Even better, there would be one consistent education system across the state, sharing curriculum, process, policy, etc.; and of course one consistent student experience.

Extrapolate this to the whole country (with the same assumptions), the budget would go from $593 - $492 billion, a savings of $101 billion, and we would have 50 school districts instead of 14,866.

This isn't innovation, simply process improvement. It does not require a Constitutional amendment. It simply requires that every state receive some percentage of local taxes (real estate), but in the end spend less money.

I would NOT suggest the savings go back into education - we should instead pay down the state deficits.

If we wanted innovation, I would put together a small (10 people) think tank, lock them in a room for three months, and task them with the following:

1. Design a primary/secondary education system where every child's success is assured, and where each child is treated equitably.
2. Prepare every graduate so that they are equipped to deal with an ever-changing future.

3. Do this with a budget of $2,500 per student per year, growing at the inflation rate.

I'd like to believe they'd emerge three months later with a plan, and also be able to say, "With the budget you gave us, we'll be able to set aside $500/student/year as a fund to cover us in tough times."

In today's world the 14,866:50 consolidation is political suicide, and the think tank's heresy. So why not do one and then the other?

expectations

Does a customer have a right to be served? Is there a law that requires every customer to be catered to? Does that law make sense?

It's true that there have been occasions in history where people were not served [see picture on the left] because of some kind of visible difference. It also happens today, case in point being this eight (yes, 8) year old girl, Evelyn Towry, who was arrested and handcuffed by the Boise police department at the request of her school principal because of her autistic behavior and I suppose they (full grown adults) felt physically threatened by her (yes, 8).

But I don't think the law makes sense. The existence of anti-discrimination laws doesn't always create the right outcome. In both cases not only were the perpetrators evil and wrong, but law enforcement was as well! Exactly what protection did the victims get? When we have too many rules, it becomes too difficult to enforce any of them, and the level of specificity creates too many loopholes, allowing fundamental wrong-doing to be forgiven.

Don't get me wrong, I'm not agreeing with the jerks that denied service to black people, or abused a poor eight-year-old child. Both parties should have been/be severely punished. In my opinion, people (white and black) should have boycotted the former's restaurant, and the latter all need to be terminated - the teachers, staff, principal and police officers should all be out on the street (and ideally not allowed to ever procreate again, but I suppose some might consider that harsh).

When does it make sense to exclude a customer? Seth Godin wrote about a failure heirarchy (I like this idea a lot) - it argues that you have to live up to your intentions and expectations, and that failure is critical to success. Part of this license to fail comes from choosing the right customers.

Roger Kay claims that Apple is firing its customers and that that's wrong. His view is that Apple should be much less exclusive in its dealings and be open to all types of customers. I don't agree.

When you build a product (say an item of clothing, you "optimize" it for a certain gender, a particular body-type, and sometimes even for certain skin colors - and that's acceptable. If you've ever eaten at the Carnivore in Nairobi, you know that they don't care about or cater to anyone other than meat-eaters. Aston Martin does not cater to poor people. etc. So why does Apple have to serve corporate clients?

Not only do I think they should avoid corporate customers, I also think catering to this clientele will cost Apple it's margins (profitability), as well as its reputation. As a commercial vendor, Apple will have to build products with specific features (security, manageability, interoperability); it will have to test products with greater rigor to ensure compatibility with applications built by 3rd parties; it will have to build a more extensive sales, service and support engine; and it will absorb a much greater change management burden to ensure that commercial clients are "whole" when then do upgrades, etc.

Even in the consumer space, Apple is going through some struggles with product quality. Now imagine if they'd sold the iPhone4 as a commercial product, and their antenna issues caused companies to lose business - there would be lawsuits galore ('cause let's face it, they're flush with cash, have a huge market cap, and are in some categories, dominating their markets) claiming lost income due to Apple's product flaws.

I think Apple was brilliant to deliberately step back from the commercial business (and think they should move away even more concertedly); it enabled them to dramatically streamline their business and operating model. As a consumer goods company, their only obligation is to the consumer. This allows them to:

1. Confine their sales channels (their stores, other resellers, the web).
2. Implement the most basic upgrade/switching support - easy to move from one Mac/iPod/iPhone to another, but not much else.
3. Focus their engineering efforts on specific and Apple-chosen consumer capabilities (aesthetics, music, photography, etc.) versus responding to features their corporate customers demand.

Corporations don't like as rapid a product update cycle as Apple is used to (it's too expensive and difficult for them to upgrade that often); they want a lot more "personal" care and feeding than Apple would want to fund; and they're a lot more particular about standards, compliance, interoperability, and a host of other things.

Further to #2 above, today the barriers to change are much lower in the home than the office (it's waaaay riskier and more expensive for corporations to upgrade or switch). Apple's success is predicated on a rapid innovation rate and the only market segment able to absorb that kind of re-purchase cycle is consumers. Why go after a market that can't keep up with your business?

By treating everyone in the same way - as mere consumers with disposable income and a sufficient degree of panache to be able to pull off owning an Apple device(!), Apple is able to go after the market that is most able to buy and buy often. Their customers' expectations are set and set clearly. If a corporation does wish to buy their products, they essentially have to do it as consumers.

By setting expectations correctly, Apple is not only able to remain focused while lowering their cost of doing business, they are also able to maintain their premium pricing, while creating an ever-more loyal fan/customer base who readily forgive Apple's mistakes and eagerly await their next Apple purchase. That's why a business should have the right to choose its customers - it allows it to set, live up to, and succeed based on clear expectations.

good business

If you hire someone to do something for you, how do you control quality and outcomes? Do you outline the expectations, milestones, and deliverables explicitly? Do you track progress regularly? Are you careful to negotiate well but equitably?

If you're the vendor, would you rather the definition of success was in your hands or those of the people that hired you?

Say someone came up to you and said "I want you do this job, I'm not going to tell you how, I'm not even going to tell you what success looks like, you have to figure that out for yourself, but I will pay you a ton of money. Oh and by the way, I'm almost never going to check up on you." Would you be interested? Well - duh!! You get paid and you get to say what you have to do get paid, and they may not even check that you actually did the work - how sweet is that!

Does this happen often? Yep, and especially in governments and other ultra-large organizations. Two examples come to mind - first, the use of contractors in Iraq and Afghanistan:

According to a recent Wartime Contracting Commission report, there are about (the exact number is not known) 240,000 contractors in these two theaters.  The commission states that the greatest opportunities for improvement include focus on the "leadership, culture and accountability" of the agencies that do the hiring, the process for defining contractor requirements, performance and cost-effectiveness, and visibility into and accountability of subcontractors. This can't be good...

This NY Times article on a Pentagon-funded Afghani warlord is classic - the US military has anointed an illiterate highway police officer with more wealth (gets paid $2.5 million/month!!), and more power than any democratically elected or appointed official in the region! First, I'd put money on this guy and his army going against his current "benefactor" at some point very soon. Second, how does accountability work when your vendor has more power than the local government, and is protecting your employees (soldiers) and property?

Literally $ billions are spent on these contracts, an untold number of random people become wealthy and powerful, and yet there is almost zero oversight and hardly any expectation of actual performance. Let's not even think about what happens to these "made men" a few years hence (think: Taliban, Saddam Hussein, etc.).

The second example is the No Child Left Behind Act - while conceptually a good thing, it is hampered by the weird jurisdictional dance that the Feds have to play with the States and local governments on education. The concept was good - let's figure out a way to push schools to graduate every student, and also improve what is taught.

Using the only power they had (money), the Feds paid for outcomes, but left it to the States to define those outcomes, define their baseline, and define how to measure progress. The results speak for themselves - students got dumber, money got wasted, everyone was more frustrated.

When the measure of success is a specific test, and all the actors (school administrators, teachers, parents, students) know it; then with their short-term brains in full gear, they also know that passing that test (vs. actually teaching/learning anything) is all that matters, nothing else "counts," helps them get paid, and all else falls by the wayside.

Another classic example of wanting to do something, having the best intentions (as with the Pentagon above), but making an absolute mess of execution.

To their credit, though they haven't rescinded No Child Left Behind, the present Department of Education has implemented a new approach (Race to the Top), though again the performance measures are flawed. Measuring teachers based on student outcomes is a failed strategy, and will ultimately create poorer graduates - let's hope they fix this before it creates irreparable damage.

Are there ways to avoid these outcomes, or at least improve one's odds of success? There are no absolutes, but here are some things to consider:

1. Think before you act, and then think again. If your first (and only) thought is "I'm going to pay someone else to do this," you're going to fail. Before the "how" you've got to know "why" you're doing something, and then "what" you will do. The "why" helps you clarify the goal and the desired end-state. The "what" helps you map your approach to the goal, and test to make sure it does get you there; then you can worry about "how."
2. Own the outcome. Just because you've hired a vendor to do the work doesn't mean you don't own it anymore. No matter what happens, you own the "why," the "what," and the choice of this particular "how" as it relates to the goals you need to achieve. The larger the organization the more likely the people who made the decision will be in different jobs when there is a reckoning - that doesn't absolve the organization of responsibility.
3. Separate performance from measurement. This should be obvious but it isn't. If the people you're paying are also measuring the results and reporting them back, there is NO realistic expectation that you will ever get the truth. Consider the simple fact that they get paid if their results look good, and they get paid more if their results look better...

These are pretty universal, and any well-run business will operate this way. It seems though that the bigger you get, the dumber you get...

all for one...

When something becomes too big, it is or is perceived to be domineering and dictatorial. America was formed in response to an overbearing Britain. To quote the Declaration of Independence: But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.

Brilliant.

In writing the constitution, the framers were mindful of this, and built a structure intended to prevent a federal government from ever getting too big. They did this by separating power in two ways - federally with three "independent" branches (executive, legislative, judicial), and overall with federal, state and local governments (or more appropriately - federal and not federal).

But today these layers are so tightly connected that they can't really act independently - the state and local governments are so economically beholden to the Feds that there is no practical checks/balances capability (biting the hand that feeds gets toothless pretty quickly).

I favor a (benevolent) central model vs. a local/state/federal model. The American system is redundant, inefficient, and with a dearth of great (even good) leaders (but a surplus of great egos), suffering from bad management and egregious excess. In tough time, the more layers you have the less revenue each layer is able to collect; the less each layer is able to raise, and with bad management, the more the whole system (not to mention the citizens) are at risk.

Creating a central government would of course require a serious Constitutional amendment, but is closer than you might think. If this had been a slightly deeper and more protracted recession/depression (Detroit plans to literally shut down parts of the city because it's too expensive to service them (street lights, police patrols, trash pickup, etc.); elsewhere schools are closing, teachers laid off, hospitals are cutting back, state employees are furloughed, it's endless), I bet a dozen States would have declared bankruptcy and ceded control to a higher power, ultimately creating the United State of America (note the singular).

It's not just America - Greece, Spain and Portugal in the European Union are all struggling. The "Northern" Eurozone (Germany, France) and their taxpayers will bear the brunt of bailing them out, and while they agree the bailout should happen, there is also resentment. "Why are we always sending € billions to them?? All they ever do is go on strike and take vacations!" In the United States we have angst against Wall Street, the automobile manufacturers, and even consumers who can't manage their own debt; think of how New York and Texas will feel if they have to bail California out.

What happens if the United States or European Union fails? What then?

We need a different approach to government.

Most people don't like centralization, believing it results in bloat, bureaucracy, declining services to the citizenry, and worst of all, the risk of an unchecked power running roughshod.

I agree :-) -- BUT - I'm pretty sure we already have this in our current Federal/State/Local government model???

The Constitution delineated Federal responsibilities based on specific portfolios (foreign policy, treasury, military, etc.) combined with omission (what's left is state or local). This was fine when things were easily separable, and there was physically no way for a central government to reach and connect to every corner of the land. Neither is true today. Not only are there overlaps in purview, but the physical portfolios are so intertwined that changes in one have ripple effects on others, and most critically the citizens.

Is there a way to create a government system that achieves both the efficiency and equitability of centralization with the effectiveness, local empathy, balance and accountability of de-central? I wrote about federalizing education, where the Feds were responsible for "the what" and the schools (local leadership) "the how." Extrapolating this to the larger context:

The What - Centralized Laws, Mandate and Funding. This body will set:

1. Rights - create the fundamental laws and principles that should govern the land
2. Vision - define success, identify the "customer," the desired outcome, and how it will be measured, and most critically, have a long-term perspective
3. Funding - raise money and provide financing; $$ per outcome, penalties for non-performance, bonuses for exceptional performance
4. Oversight - policy and remediation; clear process to track performance, and manage poor performance
5. Synchronization - look across programs to create leverage, economies of scale, manage interoperability

6. People-focused - they serve at the pleasure of the citizenry

The How - Decentralized Service Delivery. These bodies will be:

1. Focused - suited to one task (middle school, building bridges, public transportation, hospitals, etc.)
2. Public or Private - could either be government owned with federal employees or private
3. Local, regional or central - organizational structure and span based on need (TSA = central, road builders specializing in cold weather = regional, school = local or regional or national)
4. Outcome-driven - compelled to deliver per the metrics and oversight above
5. Creative - not constrained by "tried and true;" free-market approach to problems and opportunities
6. Customer-centered- their customer is the central government, whose customer is the citizenry

Is it this simple? No - but I think simplicity + decoupling funding and oversight from execution is how a government should be run.

balanceation proclamation

"Who's responsible for this mess!?!"

This question makes most people except politicians and psychotics (hmmm...) nervous - they are impervious to the concept of responsibility; they're good at laying blame, but have this remarkable ability to shake accountability.

The Emancipation Proclamation was a landmark moment in American history - it recognized the rights of a people theretofore viewed as property. Just as America has a human rights framework (based in part on the Emancipation Proclamation and the Declaration of Independence), surely there should be a more rigorous governance framework for the country?

I can think of three (vain) efforts at Federal political governance - the voters (elections and term limits for the President); the players (separation of powers); and the outers (GAO and the media). But each has failed - the voters are simply not smart enough to know what's going on, too partisan to vote based on actual performance, and too removed from the failures to "get it"; the players are overly self-centered and inbred; and the outers are in the former, employed by the politicians, and in the latter, too obsessed with sensationalism to make a difference.

What is the legislative equivalent of the Emancipation Proclamation? I was having a conversation about changing the mission in Afghanistan with some friends and the proposed 1% increase in income taxes to cover war costs. I think this is good, but not enough - let's take it further:

As of 2009 the gross (cumulative) American national debt is just under $13 trillion - or just over 90% of the country's entire GDP!! By the end of 2010, it will roughly equal the US GDP - this is horrible! Worse, Congress feels ZERO accountability; and since virtually NONE of their equally guilty predecessors have ever been spanked, and many actually rewarded by being reelected, they are convinced they will never have their feet held to the fire.

What if we changed that - what if we created another proclamation - the Balanceation Proclamation, which mandates a balanced budget? Simply, if the budget exceeds income, Congress must raise income taxes to cover the overage. Every taxpayer/voter must immediately feel the pinch their representatives cost them (the IRS should document your hit in your tax return). This would help the voters more directly tune into and respond to bad behavior, require Congress to proactively defend their actions within their constituencies, and generally make Congress pucker just a little bit.

But what about economic depressions, when only the Feds are in a position to stimulate the economy, and taxes will impede growth? The easy answer might be "tough," but society is responsible for those that can't help themselves, and we can't ignore that. My compromise is that the Proclamation have a clause requiring a two-thirds majority vote in both the House and Senate to secure debt-financing solely to stimulate the economy and avert or mitigate a depression - it cannot be used for any other purpose. Subsequent budgets must set aside funds to pay back the debt as quickly as possible. In the ideal case, this would be funded by the federal surplus emergency fund, but given our current debt, that won't be a reality for many years.

To help the outers, legislators (and political parties) may NOT receive contributions from anyone (individual or organization) that benefits from the spending that caused the deficit. For example, if the budget included new subsidies or credits for oil exploration, or if there was a new war, Exxon or Chevron, and Halliburton, Blackwater, Lockheed or Boeing, etc. would respectively be banned from any political donations for the duration of the benefit plus six years (Senators serve six year terms).

Quid pro quo. If we're punishing Congress for excessive spending, we should also reward them for good behavior. Every year that there is a budget surplus, all Federal employees will receive a bonus of X% (1 or 2%?) of the total surplus, divided equally (same percentage of salary). When they've also retired the gross deficit, the percentage should double. There should be no cap on this - the better they do, the better they do.

Today Congress exhibits the worst kind of partisan behavior, with almost zero focus on the electorate, and excessive focus on self-aggrandized power brokering. This is so because the incentive system is broken - success is getting funded and reelected, not actual public service.

The Balanceation Proclamation would reward good behavior and punish bad. If the country does well, they get paid; Congress will be incented to serve the citizens and fight for programs that help their constituents; but they know that excess spending will directly harm their electorate.

This just might be the way to help them "focus."