Hiatus

Almost four months away from blogging, as I've been rethinking the kinds of things I want to say. Having just traveled to Canada, I may have a few thoughts about that. Stay tuned.

Forget the Alien

An interesting post by Lance Mannion built around the threat that Rupert Murdoch might buy the Wall Street Journal. I don't care so much about that (what, is he going to make the WSJ more blindly pro-Big Business?), but Lance makes some interesting points about business along the way.

Most newspapers these days are run by the same type of business school grads who have done such a bang up job with every other industry in America.

What industry in America, you ask?

Exactly.

The basic premise of the school of scientific management (Can you believe they really used to call it that? Back in the 50s everything had to be a science.) is that it doesn't matter what different businesses appear to be manufacturing, producing, and selling; in reality they are all meant to be producing the same thing. PROFITS!

Didn't matter that this company seemed to make widgets and that company seemed to make paper towels and the one over the there seemed to be making shoes while the one back over here seemed to be making cars. They were all making PROFITS. At least they ought to be. And since they were all actually producing the same thing, the process for producing it didn't have to vary from company to company. They could all be run the same way.

Over time PROFITS came to be defined not as money in the company's bank account but gobs and gobs and gobs of money in the stockholders' portfolios and trust funds, more and bigger gobs every year---PROFIT isn't the money left over after you've paid the bills. PROFIT is an increase over the amount of money you made last year, so that it came to be thought that if you had a million and two dollars left over after you paid your bills last year, but you only had a million and one left over this year, you'd lost money.

More and bigger gobs of money have to be made every year.

And since it was discovered that stockholders don't actually know how to count high enough to keep track of the gobs and gobs of money they make (or lose), they are dependent on and very grateful to the people who promise to keep track of it for them, their senior managers, and they are happy to reward them with gobs and gobs of money.

Naturally, the senior management types began to take these gobs of money for granted. They started thinking that the point of it all was the gobs of money. That's what the businesses they ran did. Put money in their pockets. A company didn't make cars or shoes or widgets or paper towels. It didn't even make PROFITS anymore. It made management rich.

I say they thought this way. It wasn't, and isn't, so much a thought as feeling. And they have been well-trained in business school-speak so that they have all these words, mostly nonsense words, layers and layers of nonsense, they can marshal to get between what they "think" and what they actually feel so they never have to articulate to themselves what they are up to.

At any rate, the business of America became the business of keeping a certain power tie-wearing elite rolling in it.

With the raking in of dough becoming the defining principle of any and every industry, senior management went insane in their thinking about how money is made and how it works.

Now you don't need an MBA to know that you can't make money without spending money.

This stubborn fact is what has driven the management types out of their skulls. As far as they're concerned, every dollar they have to spend is a dollar they didn't make and every dollar they don't make is a dollar they lost.

There has to be a way of making that dollar back, they cried to the heavens. God, show us the way!

Then they thought, there has to have been a way that would have saved us from having had to spend that dollar at all.

What is it we spend so many dollars on?

They looked around them and they saw that, lo and behold, the thing a company spends the most dollars on is... the company.

It costs a lot of money to just house the company. There are rents to meet, mortgages to keep up, loans to pay down. You have to pay to light and heat and cool your offices, factories, and warehouses. Your trucks and machinery need fuel. You have to pay for the raw materials to make whatever it is besides PROFITS you're supposed to be making.

The main enemy of a company's making all the gobs and gobs of money its stockholders and managers expect to make is the company itself.

Ideally, then, it would be great if you could make money without actually spending it, which is to say it would be great if you could run a company without actually having to produce anything but money.

Enron came closest to realizing this dream.

But it is a dream. You have to pay your overhead, you have to pay for your raw materials. You have to pay people to do the work.

Those people...

They're the real expense.

Damn them! Don't they realize how much money they're costing us with their greedy demands to be paid for the work they do?

This sense of agrievement wasn't invented in the business schools. Labor has been despised by the owner class and their flunkies since ancient times. In the good old days, the owner class dealt with the problem by turning the workers into slaves.

Some modern day management and owner types still think of this an option.

Some day, they dream wistfully.

In the meantime, what we have is an economy run by people who fervently believe that it must be possible to run a business and make PROFITS without having to pay overhead, without having to pay salaries, without having to have to pay for materials and fuel---which is to say that they are looking for a way to run a company without having the expense of an actual company to run.

They hate having to make anything but PROFITS.

These types are now running the newspaper business.

And they hate newspapers.

They cost money to publish.

There has to be a way to make money out of running a newspaper without having to suffer the horrible indignity of having to actually publish a newspaper.

Publishing in their minds means the same as manufacturing meant in the minds of their fathers' generation of management types: Spending money that ought to be going into their own pockets.

Cut costs, maximize PROFITS!

The biggest costs at a newspaper, as in any business, are salaries and benefits, and the people making the most money and taking home the largest benefits are, after management, who don't count, money spent on managers is play money, the reporters and editors.

Get rid of them and just think how much money you could stuff into your...how much money you could save the company!

Newspapers really are in trouble. Big trouble. Not enough people are reading them. Advertisers are giving up on them. They do cost a lot to publish. Papers are folding right and left. Few new ones are being founded to take their place. Management has to do something. (I'm not going to get into here the ways management itself contributes to the problem or how their solutions tend to worsen the problems, except to say that because they don't see newspapers as anything but a means to PROFITS they don't know or care what makes them a viable product. They don't know what readers want to read. They don't even know how to sell them crap.) Unfortunately, what they've mostly chosen to do is what they learned in business school works for every business that needs to make more money.

Cut costs.

They say they have no choice. They probably believe it. They're doing what they need to do to save their newspapers. So they tell themselves. What they're doing is again what they learned in business school. Cutting costs reassures stockholders and potential stockholders. It tells them you are serious about making PROFITS. The stockholders are glad to know this about you and they reward you for your seriousness with more gobs of money. The management type sympathetically helping his old editor friend carry his things out to the car is making more money for himself every step of the way.

Editors and reporters need to go because they cost the paper the most money. Of course they are the main producers of the thing the paper supposedly sells, news. Without them you have nothing to put in your newspaper, which is to say you have no newspaper. You would think then that management who downsizes too much of its news staff would find itself in the position of an automaker who after watching all his spot welders leave the factory for the last time turns around and confronts a dead assembly line full of car parts that aren't going to weld themselves together.

But!

That car maker isn't thinking he can't make any more cars. He's thinking, ROBOTS! He's thinking outsourcing. He's thinking of desperate third world spot welders who will build him his cars for practically nothing a day. He's thinking slavery, although he doesn't know it because he won't let himself use the word. He's thinking, or he would think if he had the vocabulary and the honesty, let's move the whole darn shooting match overseas where I won't have to look at it and can almost imagine that we're not actually manufacturing anything except PROFITS.

And because the scientific management types who run newspapers are exactly the same scientific management types who ran the auto industry into the ground here, they're also thinking, ROBOTS! They're thinking outsourcing. They're thinking, there's got to be a way to move the whole darn shooting match overseas!

Of course this is insane and they know they're not insane so they can't be thinking this way. But they are. And they are insane. That's what greed and a thorough education in how to divorce reality from wish-fulfillment fantasy will do to you. We all know that you can't outsource the coverage of the local news. We know that there isn't a robot yet that can cover the county fair. They don't. In their heart of hearts they believe that it should be possible to gather and publish news without having to pay anybody to do it or pay them very much.

There's a lot here, and I'll let most of it stand for now. But the point is clear that U.S. business is not much interested in doing business. Instead, they want to reduce most relationships to contract compliance.

The ideal business model for today is to have a CEO, sitting in a palatial office, a few personal factotums to make reservations and pick up cleaning, a few flunkies with impressive titles who will get up in the middle of the night to talk to the subcontractors overseas, and a stable of lawyers to ensure compliance with contractors. This allows all revenues over the lowest possible costs to funnel into CEO compensation and investor-friendly profits.

This is not a long-term business model that can succeed, but it's what we're moving to.

Historical Accident, or Purposeful Intent?

Has anyone ever wondered why some things are tied to businesses, and others are left in the hands of individuals or government?

In Illinois, we're going through the periodic public transportation crisis, with threats of route shutdowns and service truncation. The agencies need more money from the government, and they need it now.

At the same time, like everyone else, we're reaching a crisis point in health care, with 15% of the population uninsured and many more under-insured. There's even talk of a national health care plan, in addition to the bizarrely populist plans advanced by the governor of Illinois (to be financed by magic).

But health care is tied to business. Ever tried to buy health insurance without a job? Expect to pay a lot and be covered a little.

Transportation, on the other hand, is not. Though one would think that employees being able to get to their jobs is at least as valuable as their health, business seems to have nothing to contribute (other than, in a very small number of cases, a pre-tax train pass program).

I understand that business took on health care as a benefit to attract employees, and that it was convenient to house it there due to risk pooling (even though this doesn't make as much sense for small business), but why is that so diametrically opposed to their interest in transportation issues? They seem very similar, so is this just a historical accident?

Chicago Matters, but does journalism?

I'm watching Chicago Tonight this evening, which is the nightly news program on our PBS station (nightly, that is, when they don't show WNBA games [??]). They have been featuring a series on immigration policy as their Chicago Matters topic, and tonight they got around to dealing with, well, I'll recreate their blurb:

The Skills Gap and H1B Visas
Airs Tuesday, May 29, 2007

The United States may be the world's business leader but, increasingly, American companies have to turn to the rest of the world to find the talent that's in short supply at home. We'll take a look at which Chicago area companies are looking abroad to find the employees they want and need and how an immigrant community of highly skilled professionals fits into the fabric of American life.

Am I the only one who reads this and feels that the conclusion has already been written? What we saw was not a dispassionate, objective look at a very important topic, but a story spooled directly off the pro-business press release factory. I wrote to their forum to toss in my thoughts, and I'll recreate that here:

This evening's story (Tuesday) was quite disappointing in that it fell into the standard A-B (small) - A - B (tiny) format of so many news stories. A lengthy initial part, telling us that companies are having trouble finding qualified workers and we need to jump on the H1-B train, was followed, not by statistics or industry groups, but by one fellow who has had trouble finding work. Then came more discussion of why it is vital to get overseas workers, finishing with one more comment by the same unfortunate fellow.

What I did not hear in this story was any mention of salaries, an examination of how the H1-B visa recipients are undercutting the labor price in these areas. Far too often, reporters allow the pro-business contingent to say, whether we're talking about skilled or unskilled labor, "they do the jobs that Americans won't or can't do." What is almost always omitted is the phrase, "at the price business wants to pay."

Between offshoring and the importation of labor, we are lowering salaries and, perhaps more importantly, suggesting to young people that there is no future in studying certain areas. If the company featured in your report wants to attract CS-EE workers (and there are plenty out there), they can do what has traditionally been the way to attract talent: they can compete for it by offering higher wages, better benefits, a better environment, and so forth.

But they don't want to do that, not while they can work the system to hire people who will work for less in return for migrating to this country. Who benefits from this is clear - less clear is the price that is paid in lower opportunities for citizens who have paid the requisite dues, and the future costs of the brain and experience drain that will accrue to other countries.

I'll finish by elaborating on the first paragraph. So many "in-depth" stories on the news have that format, or more commonly, the A-B-A format. It's prevalent in any story of any complexity, most often a medical story.

Say we have a three-minute story on how, say, soy milk reduces the incidence of cataracts. (I'm not suggesting that's true, of course, but it does fit into the stock [product/drug/treatment] [reduces/improves/eliminates] [affliction/disease/crippling self-esteem] story line that these all go by.) About 2:10 or so is spent on following an average patient as he/she describes the fear of cataracts, then the hopeful tag line by the reporter ("but there may be hope"), the interview with the doctor who decided to give this a try, another interview with the patient as he/she talks about how easy it is to drink soy milk, an interview with the Soy Council representative, and maybe another quick couple of sentences by the doctor. Then there is, perhaps, 20 or 25 seconds with the stick in the mud doctor who points out that there is no causative reality here and that years of clinical trials will have to be conducted. However, we finish with 20 - 30 seconds of the patient playing with his or her grandchildren or dog or golf clubs.

What interpretation will the oft-distracted viewer take away from this story? Chances are, it won't be the warnings by stick in the mud, but SOY MILK = FEWER CATARACTS.

And that is precisely the impression that the viewer will take away from the WTTW piece, that American business is desperate for workers that America simply can't produce, and if we want to stay strong ("the world's business leader"), we better make sure that we hang on to the superior people from other lands who will do that work (or, better yet, move the work to where they already are and bypass the whole ugly visa issue altogether).

Risk Transfer

I have stated before that I think the definition of civilization is the reduction of risk. The recent history of risk is quite interesting, especially as it relates to power in society and economics.

The Capital Asset Pricing Model of the early 1960s was a major step forward in the world of finance, allowing people to price assets while taking risk into account. Once this became socialized, largely through MBA programs, businesses had a useful tool to assist them in creating financial portfolios.

As an example of what could be done, consider a retail company. They pull in a huge amount of cash at Christmas time; if they are at all good at managing their supply, they won't pay that out until well into the folowing year. So they sit on a huge pile of money for several months, and they want, obviously, to get some return on that. They could put it all in a high-flying tech stock, but risk losing a good portion of it. They could put it in a bank CD, but get a lower return than necessary.

What they do is hire an MBA as CFO, someone who through modern portfolio management techniques can generate a safe and certain return. It will be more than the CD, and the risk will be managed virtually out of the cash.

A company like Wal-Mart has other ways of managing risk, largely due to their size. Their vaunted supply chain techniques, in which they sign hardball contracts with their suppliers, allows them to know quite accurately what their cost of goods will be, regardless of commodity price changes.

But these successes in managing risk proved very seductive to the people in charge. If you can manage financial risk and commodity risk, why can't you manage away every other sort of risk? How, then, can you create a company in which all risk factors are as close to 0 as possible?

The easiest way is to find methods of transferring the risk to others. This is similar to the way that farmers use the commodity exchanges to reduce their risk, by signing contracts to sell their goods at a future price - these contracts are put into the commodity market system where they are bought and sold. In other words, people who are willing to play the game can, while the farmer guarantees return for the year (I know I'm disregarding the supply risk to the farmer, whether from drought or pests, but that seems unavoidable except through technology).

Gambling works the same way. Those who are willing to take on risk, the players, who do so for entertainment value (and at least some hope of an unrealistic return), accept it, while the risk-averse casino owners (or lottery operators, etc.) make a steady profit.

Let's take a simple look at how business worked before, say, the 1980s. The entrepreneur took on the risk of starting a company; at some point the risk was shared by taking the company public, so stockholders assumed the risk; and some of the risk, a fairly small amount, was taken by customers and suppliers (though that risk was mitigated by various laws regulating business).

There was no sense that employees should have any particular risk for working at the company, other than occupational hazards (again mitigated by workplace safety laws) and some risk of job loss if the company went out of business.

Over the years, some companies would reduce their risk by shifting it to other entities. For example, some businesses would release toxins into the environment. They wouldn't have to deal with the cost, others would. Then came the EPA to assure the neighbors of factories and plants that they would not have to risk their health just because they lived downwind.

All of these risk-reducing laws and regualtions, laws concerning fraud, breach of contract, workplace safety, environmental regard, were seen by most people as a good thing. The occasional libertarian or business advocacy group would come along, point to a few cases where the regulators over-reached (sometimes hilariously - who remembers the publicized OSHA ladder regualtions?), and argue that business was being strangled.

Few people took any of this seriously. That someone, generally government, was looking out for the "little guy," was considered a mark of an improving society.

Then came Ronald, "The Great Communicator", "Government is bad," Reagan. His election in 1980 represented a major philosophical shift in the relationship citizens had to the government. This was the point at which risk became, not something to be reduced through collective action, but an unacceptable drag on the prosperity of the nation if assumed by corporations and government.

But the risk didn't disappear just because we refused to acknowledge it. Getting rid of workplace regulations didn't lower the risk of accident or dismemberment, it pushed it back on to the employees. A company that wanted to open a new plant didn't have to put up the money for it if they could talk government into financing it.

In fact, risk is pretty much constant in the short term. Oh, there are times when a medical or technological breakthrough might create a major jump in the reduction of risk. For the most part, though, risk is always there. The past 25 years has seen a major shift in risk from institutions to individuals.

If a company provides health insurance to its employees, it assumes the risk of rising costs. Now, every year brings a reduction in benefits, an increase in costs to the individual.

If a company guesses wrong on the next hot product, no problem, just lay off a few thousand employees, regardless of performance, and their bottom line will right itself.

If a company forgets how to make money in their industry, file for bankruptcy, blow away union contracts, destroy shareholder value, and emerge a leaner, stronger business, no matter how many people were hurt in the process.

The uneasiness that people feel right now, despite the so-called strong economy, results, I think, from the ever-increasing risk they are forced to take on. It isn't so much that corporate fat cats are well-compensated, it's that they are removing any possible risk from themselves (and their great-grandchildren) as they push it on the rest of us.

And it is unavoidable. There is no class you can take, no field of study, no industry you can get into that will insulate you from the uncertainty. Any job that depends on education can be outsourced to the lowest bidder or offshored to the lowest-wage country. There is no safe haven, and the average person knows this, and grows restless.

Basic Precepts [II]

I believe in democracy and the free market.

What I don't believe is that they are necessarily correlates, that is, unlike a lot of what is said today, they do not "naturally" go together. The basic idea that underlies democracy is "one person, one vote." Everyone, whether Bill Gates-rich or homeless-poor, gets (in theory) an equal right to have a say in our government. No one has more of an effect on choosing our leadership than anyone else.

Free-market capitalism, on the other hand, is "one dollar, one vote." Bill Gates gets 40 or so billion votes, I get a lot fewer. The goods and services available to me will have a lot more to do with what Bill wants than what I want.

So why are these two systems inevitably linked? Because in one area, that of individual choice, they are similar. We choose whom to elect, we choose what to buy. For people who pride themselves on having a right to choose, this is quite compelling.

But there are many differences between the two systems. In one vital area, rationing, they are completely different. Markets act as rationing devices, with price used as the mechanism (maximal profits occur at a certain price/production point; it is rare that that point allows enough production for everyone to "get one"). Democracy, at least in its classic formulation, is not rationed, not governed by price.

It would appear that if there are goods and services that we feel uncomfortable rationing, they shouldn't be subject to the market. Health care is a good example. There is a lot of talk about how Canada's system rations health care, leading to long waits for certain procedures. But the U.S. system just as surely rations, but conceals it within the cloak of market mechanisms.

We have two systems in the U.S., then, which are not entirely compatible. To determine where we might be heading in the future, it's natural to ask whether the two systems can get along, or whether one is on the rise at the expense of the other.

Need one ask? Attempts to inject some form of democracy into, say, corporate governance are almost inevitably beaten down. Politics, as has been chronicled everywhere, is infected with the influence of money and large corporate interests. Governments are filled with the spirit of privatization, in which elected leaders admit that they cannot properly manage the complexity of, for example, a parking garage, and turn it over to private companies that will utilize "relentless efficiency" to make parking a wonderland of fun (and give everyone a pony!).

When one system is forging ahead, it is natural to wonder if there's an inevitability to that; do people want the free market to take precedence over the ideals of democracy? Or are there powerful forces pushing us in this direction against the true preference of the American people?

For the past 25 or so years, the message has been, government is bad, the market is good. This is believed to have been originated by Ronald Reagan, but he just made it popular. (Always interesting how many people are eager to associate themselves with an institution that is so blitheringly incompetent, including Mr. Reagan himself.) We have a whole generation of citizens who have been inculcated with the idea that public works are doomed to failure from a cost-benefit standpoint, while private industry supplies us with all that is good.

But the goals of private industry are not always the goals that we would choose in a perfect society. CEOs do not even profess to be great leaders of the masses, confining themselves to the upward motion of profits (and, quite often, personal enrichment). It seems to me that much of the trouble that the average American sees in the future results from the idea that the market is king, and that democracy, as expressed so imperfectly by elected officials through government, is outmoded and unnecessary.

I don't think we know that's what we're doing, however, and that is what is so profoundly troubling about where we find ourselves.

Basic Precepts [I]

It would be unfair, I think, to jump in and start commenting on current events without giving you, Gentle Reader, some idea of what beliefs I have that underscore that commentary. So I plan a series of Basic Precepts posts in which I try to convey a sense of the ideas that inform my thinking.

Civilization is social order promoting cultural creation. Four elements constitute it: economic provision, political organization, moral traditions, and the pursuit of knowledge and the arts. It begins where chaos and insecurity end. For when fear is overcome, curiosity and constructiveness are free, and man passes by natural impulse towards the understanding and embellishment of life.

This is the first paragraph of The Story of Civilization by Will Durant. It is as good a summary of what man has been striving for over the last centuries, but it is long. For me, civilization is more succinctly defined as the actions and institutions we have created to reduce risk.

From earliest times, all of the most basic inventions of humankind have been designed to reduce risk, from the finding of permanent shelter to the reliable production of food to division of labor to the creation of communities and so forth. Society itself, and all its derivations, exist primarily to give a sense of security to all people who fall within the group (I am not unaware that the creation of weapons, to choose one example, increased the risk to outsiders - the notion of community as "common" is something we struggle with today).

Therefore, everything that we do today as a society that increases risk to sizable segments of that society needs to be examined closely. When an administration suggests putting Social Security at risk, making it market-based, we should question the wisdom of that thinking. When we go to war without a clear idea of our objectives. long- and short-term, it is fair to wonder why. When we allow jobs and careers to be sold to the lowest bidder without an understanding of what will replace them, it is necessary for us to identify what this increase in risk will accomplish.

The greatest single gift that has been bestowed upon us is the civilization that we inherit and the desire to increase it (and become more inclusive as to its application). It is a grave concern when we reject that gift.

Greetings

Who is Androcass?

I am an American, Chicago-area, software developer.  I believe in the American system, but see how it has become corrupted and perverted by greed and stupidity.  I want the world to work the way I know it can, but am increasingly despairing of it getting there.

I don't want this blog to become a discussion of arcane details of television shows, or a link to my MySpace page where I try to sell you my new album, or odd ramblings about life in suburbia.  So I will try to confine myself to topics I deem important, and I will try to have something interesting to say about them.

I will try to negotiate the uneasy waters between writing for myself (thus making this blog a series of rant-y diary entries) and writing for a (possibly imaginary) audience.  I'm not sure how to do that, so that will be interesting for me.

If you are here, welcome.