Category Archives: Economics

TED talk: A Growing Threat to Democracy

About a third of the way into this talk from last year’s TED global the speaker says:

Have you wondered why politicians are not what they used to be? It’s not because their DNA has degenerated. It is rather because one can be in government today and not in power, because power has migrated from the political to the economic sphere.

The audience laughs at the DNA joke, but then falls silent. The speaker, Yanis Varoufakis, who was Greece’s finance minister during last year’s Greek financial crisis, has a very serious point.

Over the last three months, in the United States, in Britain and in the Eurozone, we have invested, collectively, 3.4 trillion dollars on all the wealth-producing goods — things like industrial plants, machinery, office blocks, schools, roads, railways, machinery, and so on and so forth. $3.4 trillion sounds like a lot of money until you compare it to the $5.1 trillion that has been slushing around in the same countries, in our financial institutions, doing absolutely nothing during the same period except inflating stock exchanges and bidding up house prices.

So a mountain of debt and a mountain of idle cash form twin peaks, failing to cancel each other out through the normal operation of the markets. The result is stagnant wages, more than a quarter of 25- to 54-year-olds in America, in Japan and in Europe out of work. And consequently, low aggregate demand, which in a never-ending cycle, reinforces the pessimism of the investors, who, fearing low demand, reproduce it by not investing.

the economic sphere has been colonizing and cannibalizing the political sphere to such an extent that it is undermining itself, causing economic crisis. Corporate power is increasing, political goods are devaluing, inequality is rising, aggregate demand is falling and CEOs of corporations are too scared to invest the cash of their corporations.

So the more capitalism succeeds in taking the demos out of democracy, the taller the twin peaks and the greater the waste of human resources and humanity’s wealth.

I’ve been a fan of TED for years now because it tends to highlight a combination of truth, concern, science, arts, and of course it’s namesake acronym, Technology, Education, and Design (TED).  I like talks that shake me up a big and make me think. This one does that.

The source of this is at the following link: Yanis Varoufakis: Capitalism will eat democracy — unless we speak up.

A Physicist’s Deep-Dive into Who Controls the World Economy

ownership-networks-smallIn this TED talk, physicist James B. Glattfelder looks at who controls the world economy, focusing first on ownership as a complex system. He says, in his introduction:

“We spend billions of dollars trying to understand the origins of the universe while we still don’t understand the conditions for a stable society, a functioning economy, or peace.”

Network Analysis of Economics as a Complex System

He uses analytic techniques from science to look at the ownership of global corporations and control of the economy.

So we started with a database containing 13 million ownership relations from 2007. This is a lot of data, and because we wanted to find out who rules the world, we decided to focus on transnational corporations, or TNCs for short. These are companies that operate in more than one country, and we found 43,000. In the next step, we built the network around these companies, so we took all the TNCs’ shareholders, and the shareholders’ shareholders, etc., all the way upstream, and we did the same downstream, and ended up with a network containing 600,000 nodes and one million links. This is the TNC network which we analyzed.

So he goes from there to control. How much control is how concentrated?

Disturbing data with disturbing conclusions

The talk is from 2012. It looks at the phenomenon of the great recession, the 2008 world financial crisis. But he goes into the underlying structure, and the enormous problems related to concentrated ownership and control in a very few hands.

If you want to compute the flow in an ownership network, this is what you have to do. It’s actually not that hard to understand. Let me explain by giving you this analogy. So think about water flowing in pipes where the pipes have different thickness. So similarly, the control is flowing in the ownership networks and is accumulating at the nodes. So what did we find after computing all this network control? Well, it turns out that the 737 top shareholders have the potential to collectively control 80 percent of the TNCs’ value. Now remember, we started out with 600,000 nodes, so these 737 top players make up a bit more than 0.1 percent. They’re mostly financial institutions in the U.S. and the U.K. And it gets even more extreme. There are 146 top players in the core, and they together have the potential to collectively control 40 percent of the TNCs’ value.

And what does that mean for the long-term stability, and peace, in the world? You decide. First, watch this 13-minute video. And by the way, the original is on the TED site as Who Controls the World.

Infographic: Does Big Business Control the World?

The infographic here reminds me of the 1970’s movie Rollerball, in which the world was controlled by seven corporations: food, energy, entertainment, transportation, etc. It seemed at the time, when I saw it, like a reasonable guess at the future.

But then there’s the change led by technology, which seems to splinter the world and allow for millions upon millions of individual business and smaller companies. So who knows?

I like the collection of related facts in this infographic. 

The Best-Ever One-Word Answer to A Critical Entrepreneurship Question

In one of the best moments of our regional angel investment event last month, keynote speaker Diane Fraiman was asked to name the biggest obstacle to entrepreneurship in Oregon. Her answer (the first emphatically-delivered word of her answer):

Diane Fraiman, Voyager Capital

PERS

It’s been more than a month since and I didn’t take notes so the rest of this post is my opinion, not Diane’s. It wouldn’t be fair to pretend to be quoting. Diane is a partner at Voyager Capital in Portland. She has a great track record and the respect of every entrepreneur I know who knows her, or of her. And this is a sensitive subject because of politics, unions, and public priorities. So don’t blame her for anything except the first word of her eloquent answer. 

PERS is the public employee retirement system. I relate it to public schools, teachers’ unions, political power brokering, and, to my mind at least, chronic budget problems for public schools. Budget problems that are rooted in the so-called tax revolt of 20 years ago, politics of voting blocks, campaign financing, and talking points. For a couple generations, people on both sides of the public employee and teachers’  unions negotiations made compromises that postponed problems for the future. And the future they avoided, back then, has arrived. 

PERS relates to entrepreneurship in a community because it connects to the problem of declining quality of public education. When the quality of education suffers, entrepreneurs go elsewhere. And the entrepreneurs who might move in choose other places where their children and their future employees have better education in public schools.

It’s not a simple issue. In our community, teachers are getting laid off and schools closing, and the average number of kids per classroom is way up. But some say the teachers who aren’t getting laid off get better than market compensation. Others say the administrative costs have skyrocketed. Some people believe that restricting funding forces institutions to be more efficient. And I know employers who tried and failed to hire administrators from the local school district because they — the would-be administrators — were getting about 1.5 times market compensation. There’s no room here for knee-jerk reactions. 

I don’t claim to know much about this topic and I don’t want to engage in a political debate. But I do think people who let public education slide should be aware that declining quality of schools affects the entire community, not just kids and parents. It hurts job creation, startups, economic growth, housing values, crime, and all those other hard-to-quantify facts that make one town in the U.S. a better place to live than another. 

I wish more people would realize the far-reaching impact of communities failing to maintain the quality of public education. And I’m glad Diane Fraiman added that into a conversation around communities, startups, and angel investment. 

(Image: courtesy of Voyager Capital)

Pop Quiz: Greatest Challenge in Workforce Planning

According to this infographic, summarizing more detailed research, the greatest challenge is finding and hiring the right people. Which I think would have been true last year, five years ago, and 20 years ago too.

The greatest uncertainty: the economy.

I got this infographic today from the Compliance and Safety Blog:

Why Not Grant Visas To Promote Startups in the US?

Vivek Wadhwa’s column on the Washington Post site is titled America’s Irrational Immigration Fear. He goes into the background about visas for entrepreneurs and technology innovators, and some of the problems involved. It’s good background information, based on a July 18 report from the Brookings Institution. Here’s a summary of the findings:

Report authors, Neil Ruiz, Jill Wilson, and Shyamali Choudhury, concluded that the government could be stifling innovation by limiting H-1B visas and not taking into account local demand for highly-skilled workers. Demand for these visas has far exceeded supply nearly every year for the last decade. Additionally, the government has been indirectly taxing U.S. R&D and innovation by imposing hefty visa fees, which range from $1,575 to $4,325 depending on employer size — plus $1,225 for expedited (read: timely) processing, according to the report.

The short video here (Vivek in the middle) talks specifically about the H1-B visa, but the high point is Vivek suggesting we should have a “startup visa” that allows entrepreneurs to come into the country. I second that motion. 

(In case you don’t see the video, click here for the source)

Infographic: Small Business and the US Economy

Palo Alto Software’s marketing team prepared this infographic from information provided by 10,000 users of its LivePlan web application for business planning. So that’s not a random list of small business owners, but it is a list of people who have wanting to plan a new business, or grow an existing business, in common. So that, to me at least, makes this information pretty interesting.

You can click the image for the larger size.

Tipping Point Trumps First Mover Advantage

Two interesting milestones: a note last week that Ebook Sales Surpass Hardcover in the U.S. coupled with the fact that digital music overtook physical media for the first time in 2011, something I expected since 1998. In both cases what surprises me is not that it happened, but how long it took. And what interests me is who makes the money on timing these trends. Because it sure wasn’t the first mover. 

I posted about this in Who Makes the Money on An Inevitable Shoe Dropping earlier this week on the gust.com blog. I was an early adopter in both these markets. I bought the Rocket eBook Reader in 1999. I bought the Diamond Rio mp3 player in 1998. Both products were first movers, innovative leaders, but they were brought out well before the right time. Both were discontinued years ago. And, I think but can’t prove, both were business failures. 

What does this tell about first-mover advantage? The ebook reader finally took off roughly 10 years later when Amazon.com and Apple converged on it with hardware and content. The mp3 player took off just a couple of years after the Diamond Rio. 

What happened? The tipping point happened. And the first-mover advantage didn’t. Why not? What do you think? 

Crabgrass Theory of Tech Startups

I’m fascinated by Fred Wilson’s recent post he called The Darwinian Evolution of Startup Hubs, on his AVC blog from late last month. This is so much like my own sense of how it was, beginning with the first semiconductor companies appearing in what was then called the Santa Clara Valley in the 1950s. I was in elementary school then, in Los Altos, CA, where all this was happening. His summary:

In my mental model of Silicon Valley, the first ‘tree’ was Fairchild Semiconductor (founded in 1957) which begat Intel (founded 1968) which begat Apple (1976) and Oracle (1977), which begat Sun (1982), Silicon Graphics (1981), and Cisco (1984) which begat Siebel (1993) and Netscape (1994), which begat Yahoo! (1995) and eBay (1995), which begat Google (1998) and PayPal (1998), which begat YouTube (2005), Facebook (2004), and LinkedIn (2003) which begat Twitter (2006) and Zynga (2007), which begat Square (2010), Dropbox (2008), and many more.

I’ve compared this phenomenon to crabgrass. One plant generates others nearby. I think it must have been like this with auto makers in Detroit and steel in Pittsburgh, but that was well before my time. This is certainly what we saw in the Silicon Valley:

If you drill down a bit deeper, you see that the founders, investors and early employees generate a tremendous amount of wealth from these big successes. The later employees don’t make as much wealth but they do learn a ton and make enough money that they don’t need to work for someone else and so they strike out on their own and are often funded by the folks who made the big money in the prior startup. That’s how the seed drops from the tree and starts a new tree growing. This continues on and on and on.

Tree, crabgrass, seeds, and seedlings; sort of the same thing. And I’m seeing what he describes in the growth of other hubs too:

This darwinian evolutionary model of startup hub development is not limited to silicon valley. We have seen it play out in other places, most notably Boston, and increasingly in NYC. It is also playing out in markets like Boulder Colorado and Austin Texas and many other parts of the US and many parts of the world.

Fred Wilson’s VC firm is called Union Square Ventures, and Union Square, in Manhattan, is right in the middle of the growing New York high tech startup hub around Soho and the Garment District. Some call it Silicon Alley. And I’ve also seen this happening in Austin, and, although I don’t know Boulder, I do see Brad Feld’s Boulder influence spreading.

The big follow-up question is what can anybody do to break the cycle and speed it up and get some other location onto the same path. What starts it? What are the factors? 

And how do we get that here (wherever here is)?

(Image: bigstockphoto.com)