TIMnovate

The Rolling Stones: 50 Years!

By Shlomo  Maital   

   Last Sunday night, the Rolling Stones launched their worldwide tour in London, to mark their 50^th anniversary as a performing band. They first performed in 1962! 

  Lead singer is Sir Mick Jagger, 69, was joined by guitarists Keith Richards, 68, Ronnie Wood, 65, and drummer Charlie Watts, 71.

   The band had been due to start their concert, the first of their new worldwide “50 and Counting” tour, at 8pm “sharp” but did not appear on stage until just before 8.30pm.   The result?  They were not able to play their signature tune “I Can’t Get No Satisfaction”, as they had to end at 11 pm.   A BBC broadcaster suggested they should have violated the curfew and paid the fine – after all, their world-wide tour will bring them some $500 m. in income.  Tickets to the London show were costly:  the cheapest was 95 pounds, the most expensive, 950 pounds.

  According to press reports and the BBC, Jagger performed with huge energy, despite his age.  And it was not forced. He really does love to perform before live audiences.  The other band members seem to enjoy themselves too;  Keith Richards had a big permanent smile on his face. 

   As someone who just turned 70, I strongly identify with this band.  They teach us, that the way to stay vibrant and alive, is to find something you really love to do, and then keep doing it, renewing yourself, learning new things, trying new things, reinventing yourself and your products, but always always tackling life with passion and enthusiasm.  And if you lose that passion, well, find something else to do.  “Retirement” is out of the question.

     Jagger was an economics student, at the prestigious London School of Economics, when he began performing.    After the London concert, he said jokingly that he was surprised he was still alive (hinting at prolonged use of drugs and alcohol).   Perhaps having fun in life is an antidote to a great many unhealthy things.      

Poland’s Economy Excels!

By Shlomo  Maital       

 Consider Poland. This large country of 38 million people, and 313,000 km.² grew 4.3% in 2011, faster than nearly all other EU nations.  Its unemployment rate is lower than the EU rate (9.7%), and it attracted massive foreign direct investment in 2011 (2.8 % of GDP), much of it from Germany.  Poland’s GDP per capita is a surprising $20,731.  Its currency, the zloty, is about three per dollar, which means it is much like the Chinese yuan, undervalued, giving Polish exports a boost. 

  According to Marcin Piątkowski, a World Bank Senior Economist, Poland has made effective use of some 10 b. euros of EU funds.  Most of it was spent on low-tech, not high-tech, and the result was to make Poland part of Germany’s wider industrial ecosystem, with Polish factories and workers providing low cost manufactures, buttressed by the undervalued currency.  This is almost a Chinese model.  It stands in stark contract to, for instance Hungary, which had a property bubble and which is mired in debt, much of it euro and dollar debt that is hard to pay back. 

Poland is 34^th in global competitiveness, up from #44 in 2008.  It has no glaring weaknesses – its economy, govt. efficiency, business efficiency and infrastructure are all reasonably good. Poland’s sturdy independent farmers, who never gave in to the USSR’s kolkhoz collectivization, give Poland a strong collective memory of free markets. According to the IMD World Competitiveness Yearbook, Poland has predictable policy, a skilled workforce, competitive costs, good education, good labor relations, and access to financing.  And, of course, a big neighbor, Germany, that likes to invest in Poland because of its proximity.

  What we learn from Poland, is that each nation needs its own unique competitive strategy, tailored to its own advantages, history and culture.  Poland has found a good one.  You do not need high tech, or high R&D  spending, to thrive.  If you have a big neighbor, find how you can hitch a ride on its economy, find what it needs, make it efficiently and at low cost, and you can do well. It’s very simple.     

The Langer Lab: How An Egghead Lays Golden Eggs

By Shlomo Maital       

       Bob Langer

  Today’s Global New York Times (Nov. 26, p. 19) carries an article by Hannah Seligson, “Shepherding innovation from a university lab to the patient”, about MIT Institute Prof. Bob Langer and his incredible lab.  According to Seligson, Langer’s incredible lab ” has spun out companies whose products treat cancer, diabetes, heart disease and schizophrenia, among other diseases, and even thicken hair.  The Langer Lab is on the front lines of turning discoveries made in the lab into a range of drugs and drug delivery systems.”  Langer’s pathbreaking lab discovered new ways for drug delivery, helping millions of sick people.

   Langer has helped start 25 companies and has 811 patents under his name. More than 250 companies have licensed or sublicensed Langer patents. 

    Polaris Venture Partners, a Boston VC firm, invested $220 m. in 18 businesses that came out of the Langer Lab. 

    We need to study Bob Langer’s Lab very very closely. The reason?  What we call “technology transfer”, the process of transferring basic research done in universities to the marketplace, is misnamed.  What it really is, is a perilous journey across the ‘valley of death’, where there is a lack of money, management expertise, marketing channels…everything professors do NOT understand, to create a business.  And few professors are good at it.  Bob clearly is.  We should try to learn how and why. 

    Here are some of the inventions that have come out of the Langer Lab: 

• A tiny wafer that delivers a dose of chemotherapy, used to treat brain cancer;

• A miniaturized chip that can test for diseases. 

• A controlled-release polio vaccine, developed in the Langer Lab, financed by the Bill and Melinda Gates Foundation for use in developing countries.

• A method for regenerating tissue, used on wounded soldiers.

    What is it about Bob Langer that gets so many of his lab’s ideas across the ‘valley of death’?   “Very often, when you are going for real innovation”, Langer told the NYT, “you have to go against prevailing wisdom, and it’s hard to go against prevailing wisdom when there are people who have been there for a long time and you have some vice president who says, “no, that doesn’t make sense”. “   Langer puts no pressure on his students to start businesses. Half of them become academics.  But those who want to start businesses based on their lab discoveries get active assistance, advice, mentoring and help in raising money from Langer.

       I know a small number of scientists who resemble Langer, at my university, Technion. They are rare birds indeed. They are dedicated bench scientists, with a deep desire and ability to find ways to implement their discoveries, to change the world.  They find students who can and will do so.   I try to write about them and tell their stories, so that more professors might emulate them.   

The Age of Possibility is Increasingly Impossible

By Shlomo  Maital     

 Economists are wrong about a vast number of things.   One of our fallacies is the firm belief that freedom of choice is always ‘welfare-improving’ (i.e. makes us happier) and binding constraints make us unhappy.  As David Brooks notes in his latest NYT column (Global NYT, Nov. 17-18, p. 7), we have in the past generation entered the ‘age of possibility’.  This is an age where we are intolerant of “any arrangement that might close off our personal options’.  The result:

*  “The number of Americans living alone shot up from 9 per cent in 1950 to 28 per cent today”.  Not only are we “bowling alone”, as scholar R. Putnam wrote, we are living alone.   Responsible only for ourselves.  How great. How liberating.

*  “In 1990 65 per cent of Americans said children are very important to a successful marriage”.  The percent saying that today is only 41 per cent.

*  “There are now more American houses with dogs than with children”. 

  This phenomenon extends to Germany, Taiwan, Scandinavia, Brazil and many other societies.  Why is it happening? In part, you can blame global capitalism.

   The surest way people ‘bind’ themselves, says Brooks, is through the family.  But says Brooks, we are “entering a world where more people search for different ways [other than family] to attach”.

    To me, this is sad.  I’m convinced that for most people, especially toward their later years in life, having a warm and loving family to wrap around you is by far the greatest source of joy, comfort, inspiration and meaning.   And I strongly agree with Brooks that people are “better off when they are enshrouded in commitments that transcend personal choice—commitments to family, G-d, craft, and country”.  Indeed, I published an article precisely about this 26 years ago.*   

* S. Maital  “Prometheus Rebound:  On welfare-improving constraints”, Eastern Economic Journal, XII (3), July 1986, 337-344   

  70 on 70: An Adventure

By Shlomo  Maital

  To celebrate my 70^th birthday on Nov. 10, I went on a 70 km. (42 mile) hike in the Dead Sea Mountains, with my three sons and second-oldest grandson.  The hike took us just over 48 hours.  On the last morning, we rose at 4:30 a.m., had coffee and set out to climb Mt. Elazar, reaching the top just before sunrise.   During our trek, we had many hours of conversation together, lots of bonding (especially during and after some hard climbs), amazing campfire meals (all our boys are experts at “poyka”, cooking in a heavy iron pot) that included wine and cold beer, and incredible views in one of the most beautiful spots in the world.  We mostly walked in solitude, as very few other hikers chose to hike mid-week and in November.  Some hard training beforehand helped me complete the trek without undue hardship.  My family surprised me when everyone (our daughter, son-in-law, daughter-in-law and all the grandchildren, all dozen of them, the long the (very) short and the tall, [except for our oldest, who is abroad earning some money], showed up to spend shabat together at our home in Haifa.  My wife Sharona somehow managed to prepare great shabat meals for all those hungry mouths.  

   What I want to share, about 70 on 70, is this:  From the dual vantage points of age (three score and ten, in Biblical terms) and height (Mt. Elazar), it is so clear that in later life,  what brings true joy and serenity is the family, the shining faces of the babies and grandchildren, the loving faces of the children.   Family is the supreme value.  Protect and cherish it.  

China’s Incredible U-Turn: Can It Be Done?

By Shlomo  Maital    

 I’ve just returned from a Workshop at the huge Shanghai Zhangjiang Science Park, in Pudong, Shanghai.  This massive park houses some 200,000 workers (2/3 have college degrees), thousands of companies, many startups, several incubators, and generates $30 b. in GDP.  With the help of 21 experts, I ran a Workshop to map the park’s innovation ecosystem. 

   The scale of the place is amazing.  It could house all of Israel’s R&D workers, with room to spare.  It has deep pockets, with the backing of the national government.  The incubator building where the Workshop was held is spanking new, with a lovely atrium, parquet floors and 12 stories of offices. 

    In a remarkable coincidence, the two biggest economies in the world chose their leaders, within two days (America, last Tuesday; China, last Thursday).  China’s next President Xi Jinping, and probable Prime Minister,  Li Kequiang,  will attempt to implement a major U-turn.  After the current leaders Hu Jintao and Wei Jaobao led China through the global crisis, with only a minor slowdown, the next leaders will try to move China up the economic food chain, toward Created in China and Innovated in China, as China’s wages rise making “Cheap China” more and more expensive.  This is a difficult goal.  China’s society is rule-based.  China’s ruling elite holds the place together by a massive public security operation (which costs more than the external defense spending).  How can you get an entire society to be more innovative, when it is taught to follow the rules from an early age?  Yet, it is happening. I met entrepreneurs at ZJ Park, who are no different from Israeli or American startup youths. 

  China’s scale is mind-boggling.  China created 39 m. new college grads in the past decade, and now produce 6 m. every year. 8.9 per cent of the population have college education, (or 117 m. people), up from 3.6% in 2000.  According to the BBC, by the end of the 2020 decade four of every 10 college grads in the world will be Indian or Chinese.  China is also aiming at producing 22 m. vocational school grads, building its vocational education system to supply well-trained factory workers.  By 2020, 29 per cent of the world’s college grads will be Chinese , compared with 11 per cent for the U.S.   This massive quantity of college grads will in itself generate quality – with that many college-educated people, at least some of them will doubtless be highly creative and enterprising.

    America focuses on China’s cheap manufacturing as a threat.  It should focus instead on China’s enormous historically-unprecedented effort to shift from low-cost manufacturing to high-value innovation.  We will watch the two new leaders closely, as they lead China in an incredible unprecedented U-Turn toward creativity.     
 

Should Obama & America Leap Off the Fiscal Cliff?

By Shlomo  Maital   

  Today’s Global New York Times has a column by economist Paul Krugman, advising newly-re-elected President Obama to … jump off the fiscal cliff. 

  What IS the fiscal cliff and why should Obama leap off it?

    “The United States fiscal cliff is the effect of a number of laws which, if unchanged by Dec. 31, will result in tax increases, spending cuts, and a corresponding reduction in the budget deficit beginning in 2013.  The Congressional Budget Office, an objective source,  estimated in May   that allowing current law to take effect would reduce the deficit by a net $560 billion in 2013, roughly half the $1.2 trillion 2011 deficit. But real GDP growth in 2013 would be reduced to 0.5% versus 1.1%, with a high probability of recession during the first half of the year (a 1.3% GDP contraction).  The reason for the recession is simple:  The huge falloff in public spending (and demand), with no compensating increase in demand or spending from any other source. ” 

    Krugman thinks Obama was wrong to give in to the Republicans in 2011, when the Budget Control Act was passed, raising America’s debt ceiling but chaining Obama to draconian spending cuts in 2013 if the deficit was not cut.  This time, he advises Obama to call their bluff.  The Republicans’ business supporters will blink first, he claims.  They know that if Obama really does leap off the fiscal cliff, which will happen if no new legislation and no new budget is passed,  business will be the first to suffer (along with the rest of Americans and the whole world – when the world’s biggest economy dives, so will the world’s economy). 

  But if you listen to House Speaker John Boehner, he is more determined than ever to sock it to Obama and not give in. 

   Can the world tolerate this kind of political brinkmanship?  Is it responsible for America to bring its own economy to the very edge of the cliff, together with that of the rest of the world?  Is this behavior acceptable for the nation whose currency is still, and for the foreseeable future, the world’s money?

   Stay tuned.  Whatever happens, it will be messy and very risky and unpleasant.  

What Romney Never Told You, Why Business Is the Problem & Not the Solution
By Shlomo  Maital  

   Dead money

  Among the many things candidate Romney never told us, is this:  Business is not the solution to the jobs and unemployment problem, it is more likely the problem.  Here is why.

   Companies all over the world, especially American ones, are sitting on mountains of cash —  retained earnings, or undistributed profits, which they simply refuse to invest or spend.   The reason, The Economist says, is four “grey swans” (dangers we know about, unlike black swans, which come as a surprise):  the euro crisis, the Mideast instability, slowdown in China and America’s fiscal cliff. 

   Firms in the S&P 500 held $900 b. in cash at the end of June 2012, 40 per cent above the level in 2008.  American firms’ savings (unspent profit) comprise a bigger fraction of the nation’s total saving than in Germany or China. Apple, for instance, holds hundreds of billions of dollars in cash profits abroad, where they are sheltered from tax.    Japanese companies’ liquid assets total a staggering $2.8 trillion.  “Dead money” (unspent profits), a term invented by the Bank of Canada Governor Mark Carney, amounts to $300 b. in little Canada.  “Put your money to work,” Carney admonished, “if you can’t think of what to do with it, give it back to the shareholders.”

   General Electric alone has $85 b. in cash stockpiled.  Nor will they spend it. “It’s not burning a hole in our pocket,” said GE CEO Jeff Immelt. 

    Why would businesses invest, if they can already produce all the stuff they can sell?  Why would they invest, if they are pessimistic about future scenarios?  Romney never mentioned this, never mentioned that the lack of investment demand is in fact the largest brake on the US economy (and other economies), while government spending and consumer spending are the only things holding the economy up.   Did he have a magic wand for persuading businesses to begin spending their cash?  If so, he never revealed it. 

    Economic momentum is the product of the amount of money times the rate at which it circulates. By keeping their money out of circulation, businesses are slowing the economy’s momentum.   Why not apply a special one-time tax on cumulative retained earnings (as much as a third), while offering a huge tax credit for business capital formation?  

   Somehow that dead money has to be revived.  I wish someone had asked Romney that question, how to do it, in any of the debates.

What We Can Learn from Bangla Desh:

The “Little Land of Big Things”

By Shlomo  Maital

   Bangla Desh (the Country of Bengal, or Free Bengal) is a very poor country that rarely attracts attention (except when there are floods, famines or other catastrophes).  It was created in 1971, when it fought and won independence from Pakistan, at a time when many doubted it would survive as a nation.  Pakistan in turn was created when the British left India in 1947 and maliciously fashioned, out of one united country (India), two separate ones, Hindu and Muslim, guaranteeing conflict for generations.  Pakistan’s two separate parts, West and East,  eventually saw the Eastern part split off as Bangla Desh.  Thanks, Britain!

  Without fanfare, notes The Economist, Bangla Desh has now lifted itself out of what Henry Kissinger called “basket cases”. (See Briefing, Nov. 3, 2012, p. 19).  Its GDP per capita is still a very low $700, in part because its population, 150 m., is extremely dense, packed into a small amount of land.  But here is evidence of its progress.  

• It is a democracy, having returned democracy in 1991.  Between 1990 and 2010 life expectancy rose by 10 years, and it is now 4 years longer than that of India, even though India is twice as rich.  That improvement in health has been as great among the poor as among the rich. This is one of the most dramatic improvements in human health in history
• More than 90% of girls are in primary school, a higher percentage than for boys. This rate doubled since 2000.  Infant mortality was halved between 1990 and 2010.Since 1990 Bangla Desh’s GDP has risen by an average of 5% yearly. Moreover, that growth has been accompanied by massive poverty reduction, from half the population under the poverty line in 1990 to less than one third in 2010.

Why has this happened?  According to the Economist: a) family planning, b) rural development (pushing growth outward from the cities); c) BRAC, or Bangladesh Rehabilitation Assistance Committee, an NGO that has an expanded role beyond microfinance and is now the world’s largest NGO.

  Bangla Desh has the lowest labor costs in the world — $35 a month.  It still has massive problems.  But it is angering that the world pays attention to it, only when it suffers catastrophes.  Other countries with similar difficulties can learn much by benchmarking Bangla Desh.  I believe even my country Israel can learn from its poverty reduction measures and NGO’s and from the impressive way it has empowered women.   

    Consider visiting Dakka, Bangla Desh, and the countryside, when you’re next in Asia.  We can learn a lot from it.