Friday, July 29, 2011

Stupid America, clever America? I suggest clever is better.

My late father, as international a person as you could ever meet, used to say about the US that the United States contains the best and the worst. Today, the worst seems terribly visible. Stupidity seems to abound. Notoriety and popularity seems more important that knowledge and truth. Misguided belief seems more important than the scientific method.

For a living, I am a strategist. In simple terms, this means, I try to figure out where the best bang for the buck is. If you have five products and one is really a huge opportunity, it is common sense that you should be putting more resources against the big opportunity and less on past products – ones that you might be investing in from tradition and perhaps inertia.

If iPods are declining, and iPhones are increasing, then you should spend more management attention and advertising on iPhones. If offering a solution, something that solves a customer problem is better value for a customer, it make little sense to merely offer a product and be surprised that you have missed pieces of the puzzle.

Management matters. It means prioritizing the important. It also means dealing with the truth, because companies, like marriages, if built on lies, rarely last. Management of a country matters too. And so does political leadership.

The Economic Environment Matters

It should hardly be controversial to Americans that the economic environment matters. In the 1970s and 1980s, Japan’s success led to many discussions of industrial policy. Today, in the US, industrial policy is a term that is never used. What people seem to forget is that the sum of all the investment decisions, investment encouragement by government, and the regulatory environment create a de facto industrial policy. Denying that it exists means that individual policies may end up acting in opposite ways and making growth difficult. Believing in free markets and their power should not mean denying that government, laws, policies and regulations exist and have a cumulative impact upon the birth of businesses.
Stupid people deny government exists and has an effect. Smart people think about optimizing.

The Healthcare Example

Some parts of America today remind me of stupid companies I have worked with. As a foreigner, but one who did both his degrees in the US, I expect that writing this article will result in rude comments from many Americans. When I have commented to some Americans that I thought the healthcare system in the US was, on average, inferior to other developed countries, I have received comments that in their polite version suggested I return to those countries. But by the way, well known researchers like Michael Porter and Elizabeth Teasberg would agree, as would the CEO of one of the most successful healthcare organizations in the US, George Halverson at Kaiser Permanente that research shows the US system is incredibly expensive, wasteful and inconsistent.

But as a strategist with an international background, I know that countries, like companies, which only see their competition as being American always get into trouble. Like any large and successful country, many Americans wear a set of filters that often causes them to miss how the US looks from outside. Even worse, stupid Americans today, seem to arrogantly assume that other countries have nothing to teach America rather than recognizing, like clever Americans, that America has been the beneficiary, a melting pot of the best from other countries.

In discussions of American healthcare, I am continually astounded by people who tell me that the US has the best healthcare system in the world. Their evidence is always anecdotal. Actual research says that the US has wildly inconsistent healthcare delivered at high cost. They try to tell me that Canadians are constantly coming down to the US because they can’t get treatment in Canada. (The data says otherwise.) But what they miss, and one would hope for better in a capitalist country, is that the US spends roughly $2.5 trillion or 18% of GDP on healthcare and produces worse outcomes than other developed countries. Even if the outcomes were equivalent, that spending is about twice the percent of GDP of other countries who spend from 6-12% of GDP. What this means is that a more effective healthcare system comparable to international developed countries with universal healthcare would be one that cost around a trillion dollars a year less. It would be equivalent to a trillion dollar tax cut per year.

When you see the numbers in this light, perhaps paying attention to more effective ways of delivering healthcare might be much more important than negotiating imaginary deficit reductions in Congress or debating the merits of universal healthcare (which is according to most, a requirement for reducing total healthcare costs). And if you think the problem is bad today, consider demographics, the most predictable of sciences as a general rule. The bulge of the Baby Boom is getting older and more expensive for healthcare. The current method of delivery is projected to get even more expensive without dramatic change. But as things cannot go up for ever, failing to reform healthcare means we will lose much of what we prize in healthcare.

What do the stupid in Congress focus on? Trying to eliminate universal healthcare and programs to improve healthcare performance. Stupid.

Infrastructure Investment

For many years after the Second World War, the US was the preeminent economic power in the world. Today, the US is still important, but its relative power is less. The European Union, for all its flaws, is roughly the same size as the US. And in many areas, the European Union is as successful as the US. The quality of life is high. Everyone has access to healthcare. The social safety net is strong. Things are not perfect: innovation is not as easy in Europe. Some European industries and countries are weak. But Europe does many things well and there are lessons to be learned there.

China has many problems, but it also has a high rate of growth. It is building cities for 300 million people over the next 10-15 years. Think about it. That’s like building housing for the entire US population. China, which clearly has significant infrastructure deficits, is investing around $3 trillion in infrastructure. This new infrastructure, like the infrastructure built in Europe after the Second World War, or in the developing five dragons of Asia (S. Korea, Hong Kong, Singapore, Taiwan, Japan) make doing business more attractive in these countries.

But what do see in the US. Bridges that fall down. Levees overcome by storms. Roads that are poorly maintained. Ports at capacity. Unrejuvenvated water and sewage systems.

While American innovation may be praised for developing an iPhone app that identifies potholes in Boston when you drive over them, it would be better if no such app were required. Postponing maintenance on roads does not mean postponing the repair cost one year. Rather it means that when you do repairs later than you should, the cost may be five or ten times higher. In a word, stupid.


I am a big believer in education. My parents sacrificed to put me in good schools. And I think it is fair to say that I have studied at some of the best schools and universities in three countries. I have taught strategy, international strategy, IT strategy and innovation internationally. But I never had to worry about wildly fluctuating school budgets and class sizes. Is there anyone is the US who really believes that you can run a school system with a wildly fluctuating budget?

If one were to design a revenue stream for schools, would it not be a good idea to make it predictable? “We are not going to teach advanced mathematics this year as it is too expensive.” does not strike me as a good educational policy. It’s stupid.

Market Forces

Look, I have an MBA from a well known East Coast business school. I think markets and competition matters. Communism did not work, but there strikes me there are a number of important points that are missed by those with a poor understanding of capitalism.

First, economies go up and down. And while allowing companies to go out of business because they have been out-competed does make sense, allowing recessions to turn into depressions does not make sense. Micro policy is not the same as macro economic policy. In the same, way allowing frequent financial crises, a characteristic of lack of regulation in the 19th century also strikes me as a bad idea. I am in awe that so many people in the supposedly capitalist US seem to have no knowledge of economic history or no recognition of the cost of poor or nonexistent regulation. In a society that prizes the individual, failing to regulate (e.g. via contaminated food or transportation that is unsafe) means granting a right to kill or maim an individual or cheat someone. This right has a huge cost to the individual, and also a large societal cost. Regulation that prevents such events is great buy for the person who would be killed or hurt and typically represents low cost insurance for everyone. The absence of trust in society is costly in many ways: the higher cost of police, more use of lawyers, security systems, deals that don’t get done, economic activity that is too risky to pursue. Trust is advantageous. It makes people clever and enables clever people to start businesses more easily. Which leads to job growth.

The recent recession has a result in an economy that remains in trouble. Consumer demand, which represents the majority of the economy, roughly 72% of GDP historically, is down because people are poorer – their houses are worth less – and the resolution of the real estate bubble means that people will be and will feel poorer for a long time. Government spending is being cut back by ill guided policy decisions causing firing of government employees particularly at the state level. Companies and individual are reluctant to borrow because of uncertainty and lack of consumer demand. Exports are a relatively small percentage of the US economy. And real estate construction, a major contributor to the boom years of the first decade of the century, is likely to be depressed for some time. So where is economic growth and employment going to come from. Certainly not from the stressed and poor, not from real estate and not for companies with factories operating below capacity or who manufacture off shore.

What the brilliant economist John Maynard Keynes pointed out is that economies can get stuck, below their optimum level of output. If they do, tax revenues go down and deficits balloon. You need to use government spending to stimulate growth. It pays for itself. And if increasing economic growth and reducing deficits were not a sufficient idea, the historically illiterate might want to remember that while Franklin Delano Roosevelt was saving capitalism by introducing previously radical ideas such as counter cyclical spending, infrastructure investment, bank regulation, and deposit insurance, fascism took over in Germany, Spain and Italy. Unemployment is never a good idea politically either.

So, what are debating? Cutting spending, which will do nothing for employment. And if that were not bad enough, we are not attempting to prevent the excesses of unregulated financial markets. How many times to you have to shoot yourself in the foot to understand you should change your behavior?

It’s stupid.


You don’t have to be a genius to notice that there are a lot more people on the planet. And with successful economic growth, more resources are being consumed and more pollution is being caused. So, there are three choices:

1. Slow population growth.
2. Hope that things work out.
3. Manage the growth.

So, what do we do in the United States. We discourage family planning, which has the side effect of reducing women’s economic choice. (That’s not only morally unfair, it deprives us of the brains of up to half of humanity.) The stupid seem to assume that things will work out magically. Without getting into the traditional debate between Malthusian views that overpopulation will create starvation and the idea that technology can also solve overpopulation problems, perhaps there lies some middle ground. Policies matter. Markets matter. Changing the cost of polluting will change behavior. It’s stupid not to realize it.

People under-forecast the variability of the future. Management 101 teaches our difficulty in forecasting the future. We also have difficult investing in projects to prevent future outcomes. You only see the costs, but not the benefits. Even if the disaster occurs and is more expensive, solving the disaster demonstrates “leadership”. That’s stupid. Post facto leadership is way more expensive. Consider the cost of New Orleans if you don’t believe me, or the potential flooding disaster around Sacramento, California if levees break.

In a complex world, you have to make more complex decisions. And complex decisions are not amenable to propagandistic debate. If you don’t believe that science is the most important tool for understanding systems, then on what basis do you want to make decisions? The Bible? The Koran? Dianetics? The purported saying of the Spaghetti Monster? The word of some lunatic who has eccentrically calculated when the world will end? How you felt this morning when you got up? Polling data? Being stupid does not prevent disasters. Learning from data, research and models reduces the probability of disasters.

And if you have not understood that politically powerful companies prefer not to pay for their effects on the environment, then perhaps it is time to go back and read Machiavelli. The current situation is always supported by the powerful who have political voice. The future has few supporters. I am consistently dismayed by those who argue the idea that scientists are somehow not a reliable source of information, when companies with billions of dollars on the line are investing politically to defend their position. The process of scientific review is about validating and reproducing data that independent scientists have reported. Learning is better than a fixed opinion. Fixed opinions are typically stupid if they don’t take into account new information.
It’s stupid to think that unfixed climate change is not going to be the most costly event the human race could have avoided, bar nuclear or other apocalyptic warfare.

Energy Policy

The Industrial Revolution is the basis for the economic growth of the past 300 years. We have been living in an age of cheap energy with little recognition of the cost of polluting the environment. The US has built cities based upon cheap energy. It has, some have suggested, gone to war to preserve access to inexpensive energy.

So, where are we today. We have, as many have pointed out, facing the fact that developing countries want a higher standard of living. More meat. Better transportation. More use of energy. With historical technologies, this growth will inevitably result in more pollution, a hotter planet, more destructive weather and higher energy prices, and in particular more expensive oil.
In the short term, nobody wants their standard of living to go down because the cost of energy goes up. They don’t want to be unable to drive because gas prices are too high. So, we need to do something about, what seems to be a pretty inevitable problem. It’s cheaper to do it now than to do it later. If you don’t remember the oil embargoes by OPEC in the 1970s and their impact, you are being stupid.

And yet many feel we have a god given right to drive big cars and have big homes far from work. So, here’s the bad news. Changing infrastructure is really hard particular when the poor are affected or when a particular industry may have to change. It’s probably a fifty year problem but one that needs to be tackled aggressively. There’s lot of political resistance and government is going have to help manage the transition. It takes a long time to replace a fleet of cars. It takes even longer to change cities and transportation networks. Don’t get me wrong. I like a house with a garden, but in a higher energy cost environment, urban planning needs to change. You need higher densities to support public transit. You need new infrastructure to support electric cars. And by the way, these are typically the kinds of things that don’t happen by accident. They require government policy – regional urban planning in particular.

Denying this just means the cost of transportation will go up and the value of your house will go down even more than if incentive policies are put in place to manage the transition to a higher cost world .

It would be stupid to think otherwise.

The Debt Limit

The current debate over the debt limit demonstrates the inadequacies of most politicians. No other country has such a foolish law. If Congress has approved spending and tax policy, then it is a simple set of mathematics as to how much debt is needed. Approving the debt more than once, first through spending and revenue legislation and then a second time, is the ultimate example of overlapping and redundant legislation. That’s stupid.

Shooting yourself in the head from a financial perspective and risking an increase in the cost of borrowing is not something a normally intelligent person would do. It’s much more costly in absolute dollars if you are a country with trillions of dollars of debt.

If you want to ruin a country, think short term. Think only about the next election. Be stupid. There is no better way.