Another difference between China and the rest of the world

From Evan Osnos’ new book Age of Ambition, quoting the work of Yingiang Zhang and Tor Eriksson:

They found that in other developing countries, parents' education was the most decisive factor in determining how much a child would earn someday. But in China, the decisive factor was "parental connections”…Writing in 2010, the authors ranked "urban China among the least socially mobile places in the world."

This is another piece of what I previously referred to as China’s under appreciation for “anonymous exchange”, the idea that who  you know is even more important there than in the West.

Technology will fix some of this, as people discover the value of online reputation. Of course, your parents’ connections matter, but would they matter as much as getting a whole pile of five-star reviews from strangers?

 

What's worth reading in the news?

We like to think that, of course, keeping up with the news is important. “Citizens of a democracy need to stay informed about current events.” But how well informed are you after reading the news?

For example, let’s say there’s a plane crash and you spend a few hours that week watching and reading the most up-to-date accounts. Nearly all of that news will be speculation: about the cause of the accident, the number of casualties, how it might be prevented, etc. Eventually, perhaps years later, somebody will write up a thorough report of what actually happened. The whole thing will be summarized in a Wikipedia article that you can read in a few minutes — and you will be better-informed than you were for the hours spent on the speculation during the time of the event.

I wanted to get a rough estimate for how much of the news is like this. One way to tell is to compare the past with the present. Of the news you read in the past, how much of it actually turned out to matter? So I looked at a copy of The Economist from this date in 2007 to see how many of the articles actually mattered. Here is the section on Politics This Week, their summary of the supposedly most-important items of that week. 

• An investigation of Alaska political corruption. None of the people or events highlighted are relevant today, except perhaps the brief reference to Sarah Palin — who was a political unknown at the time.
• Black vs Hispanic race relations: could have been written yesterday, including the quote from “Presidential Candidate Barack Obama”, who it notes was outpolled by a crushing 46 percentage points by candidate Hillary Clinton.
• A sidebar about gangs in Los Angeles:  mostly still relevant.
• The US Attorney General is under fire over the questionable legality of a terrorist surveillance program. Not much has changed, though now the US political parties have switched sides over who is on the hot seat.
• An article about lending for student loans laments the overall political ineffectiveness and divisiveness of Congress, though again by now the parties have switched sides. Tuition costs keep rising and student debt is getting out of hand. Blah blah blah.
• Some cities are issuing ID cards for illegal immigrants. I’m not sure how this whole trend turned out, so it would be interesting to see a follow-up article.
• A discussion of Republican presidential candidates thinks Newt Gringrich has a chance at the nomination. Waste of time to read this.
• A Lexington discussion of the announced sale of the Wall Street Journal to Rupert Murdoch is as relevant a discussion today as it was then. That is, those who opposed the sale probably can claim they were right; ditto for those who thought it wasn’t a big deal.

The Economist is a pretty high-brow news source, so many of these articles are based around facts and trends that don’t change a lot. In fact, other than the speculation about the upcoming Presidential election, I’m impressed at how much is worth re-reading.

Still, were you better off reading this issue, or should you have spent your time on something else?

 

 

 

 

[podcast] The Second Machine Age

My favorite podcast, Econtalk, is always worth a listen. Here are my takeaways from this week’s interview with Erik Brynjolfsson of MIT and co-author of The Second Machine Age. His book has already been in my queue, and I’ll write more about it later.

[Sorry for the messy notes: I’m just putting the highlights here of some things I learned.  This deserves a much longer post]

• Driverless cars may take longer to be adopted in inner cities because they aren't allowed to "bend the rules", which is pretty much required if you're going to survive in those crowded, chaotic conditions.
  
• Measure the Consumer Surplus, which is about $300B/year. This metric, though difficult to measure, is arguably more relevant than GDP, because it more accurately reflects what really matters to people (how good is the "deal" I'm getting out of engaging in the economy?)
  • example: Wikipedia vs. Encyclopedia Britannica
  Better to teach statistics to high schoolers, not calculus
  
• Voltaire: work addresses (1) boredom, (2) vice, and (3) need

Drivers of change

• skill-biased technical changes
  
• capital-biased technical changes
  
• superstar-biased technical change

You must, must, must learn to adapt to new technologies.

That last point, about the importance of adaptation, is easy to ignore for most people because it’s so hard. Technology changes so quickly that even those who think they’re on top of it, you can miss the trends and fall behind.

The real reason for the 40-hour work week

Why do Americans work Monday through Friday and take weekends off?

Labor unions say we should thank the rise of organized labor in the early 20th century, whose tireless efforts on behalf of workers forced selfish capitalists to give their employees a break.

Henry Ford, in an article published in World’s Work Magazine in 1926, says his company switched from 6-day/48 hours to the modern work week in order to give workers a break. Many people still quote Ford as the visionary who paid his workers extra so they could afford to buy his cars. [see this excellent account from Ooomf, reprinted at TNW]

But I have a much simpler explanation: Henry Ford paid his workers more, and gave them weekends off because he didn’t want them to work for his competitors.

Google gives its employees free food. Will future labor historians look back and thank the visionary Google management for putting people above profits? Or is it just a clever way to keep employees longer at the office? If you have free food at the office, why go on a networking lunch with somebody from outside?

Most employers really do care that their employees have relaxing leisure time, but even if they didn’t, a 40 hour work week is a good idea if for no other reason than to raise the stakes for your competitors.

Are public schools better than private?

The Atlantic has a short interview with University of Illinois - Urbana-Champaign professors Sarah Theule Lubienski, and her husband Christopher A. Lubienski: “a new book argues that public schools are actually academically superior”.

I don’t have the book (The Public School Advantage- Why Public Schools Outperform Private Schools to be published in November 2013), but the authors wrote a 2006 paper that seems to conclude the same thing. Essentially they use a large dataset to argue that, while private schools do outperform public schools overall, the advantage disappears when you account for demographics of the students.

This would indeed be interesting if it were true. But a quick look at the paper makes me wonder about some obvious mistakes in methodology behind the  headline-grabbing “conclusion”.

• 150K public students (96%) vs. 6500 private students (4%)
• 2K Catholic, 2K charter, 1K “Christian”
• Of 6,000 schools overall, only 150 are “other private”.

Since almost all of their data from private schools is from religious schools (mostly Catholic), shouldn’t that be the headline? This is NOT comparing your local school with the $20K/year highly-selective boarding school that many people imagine when they think “private school”.  As the study itself points out, there are many reasons parents might shell out extra money to send their kids to a school, but religion is a big one that, if anything, would trump "academics” in a lot of cases.

As always, my conclusion is to wonder how useful it is to know in aggregate whether something as variable as education is better done one way or another. What matters is what’s good for your kid. Trying to make a generalization about education systems based on a database of thousands of schools is like trying to predict the value of your home by looking at trends in US real estate. Who cares?

Charts of RAW data

The Density Design Lab at Politecnico di Milano just released a cool new (free) web site, called RAW, for very simple data visualization. It’s roughly similar to products like Statwing, Tableau Public or DataHero, except this one gives you the entire d3.js source code on GitHub.

I made the following chart using some data downloaded from Charles Murray’s excellent book Coming Apart, that has income and college graduation information for every US zip code. I simply selected the spreadsheet data right in Excel, then copy/pasted it – as is – to the RAW web site. A few clicks later and I had this:

 

The rectangles are US cities with more than 15,000 families organized by state. The size of each rectangle correlates with the median family income, and the color represents the percentage of people with college degrees on a spectrum from blue (lower percentage) to red (higher percentage). That big brown square on the middle bottom is New York City, with a high median family income and a substantial percentage of college grads. The California cities on the far right are bluish-green because they have lower diploma percentages.

Pretty cool, huh? I have a long wishlist for additional features (additional chart types, labeling options, etc.) but you have to admit this is a pretty easy way to do impressive data visualization for free, with only a few mouse clicks.

Krugman on Microsoft and Apple

Paul Krugman is mostly correct:

Back in the 80s, Microsoft and Apple both had operating systems to sell; Apple’s was clearly better. But Apple misunderstood the nature of the market

He argues that Microsoft "won" in the 90s thanks to network effects it exploited when Apple's superior product was not opened to more hardware vendors. Similarly, the iPhone had an early technical lead that is sustained through network effects due to its large base of developers. Steve Jobs' controlling nature resulted in products that do some things very well and reliably, but quickly become difficult or cumbersome when you stray from whatever he thought was good for you.

My take: Complexity breeds sluggishness when promoting anything new. Apple misses plenty of niche markets they might have colonized with a more flexible approach, but they maintain agility to add new things to the existing platform -- and see them adopted. Whether this is a sustaining advantage depends much on their ability to continue picking market winners. During the 90s they lost their sense of which products were worth pursuing, under-investing in things like Quicktake digital cameras, for example, while over investing on existing products like Mac hardware (Powerbook) or OS features (OpenDoc) that proved to be less important.

By the way, I disagree with Daring Fireball on one point: although technically the Mac did ultimately succeed, that was the halo effect of iPod, etc. If Apple had focused just on the Mac, it would have remained a tiny niche.

Comparing China and 70’s high-growth Japan

Interesting chart via Financial Times Alphaville from a presentation by C.H. Kwan at Nomura's Institute of Capital Markets Research:

The right-hand column (ICOR – incremental capital output ratio) shows how extremely unproductive China’s capital is compared to Japan, South Korea and Taiwan during their transformational expansions. And that Chinese capital productivity has actually worsened in recent years:

It's hard to look at the Chinese government's approach to development and wonder how that can be a sustainable way to grow. When 48% of the economy is capital investment, much (most) by centralized, all-powerful bureaucrats, the word "bubble" seems too bland to describe the inevitable crash.

Decentralization in the ancient world

The Terra Cotta warriors of ancient Xi’an are an impressive legacy of the early centuries BC, and they better be: during that period, something like 10% of the Chinese population was involved in Big Government-sponsored construction projects, including those tombs for the Qin Shi Huang, the first Emperor of China. The Great Wall, the Grand Canal, and many others are distinguished high points of Chinese civilization, and all of them were built by a powerful central non-elected government.

The Chinese legacy puts to shame the comparatively modest monuments that sprang from the market-based democratic economy of Ancient Greece. From the long viewpoint of history, this seems to show the advantages of powerful centralized governments.  A thousand years from now, nobody will remember the achievements of our greatest corporations, but who will forget the government-sponsored Apollo moon landing (or today’s Mars Curiosity probe)?

Or will they?  That’s why I thought this Econtalk podcast interview with Josiah Ober was interesting, because it shows that in fact Ancient Greece was a thriving, economically successful place that in general was almost certainly far wealthier than anything in China at the time. The legacy they left behind, while not visible like the monuments of the Qin Dynasty, is far more influential today.

From Ober’s Princeton/Stanford Working Paper, Wealthy Hellas.

Here are three reasons to believe that, compared to other ancient societies, Hellas was wealthy:

· Premise 1. The Greek economy grew steeply and steadily from 800-300 BC, both (a) in its aggregate size and (b) in per capita consumption. 

· Premise 2. By the fourth century BC Greece was (a) densely populated and (b) remarkably urbanized, yet (c) living standards remained high. 

· Premise 3. Wealth was distributed relatively equitably across Greek populations; there was a substantial “middling” class of persons who lived well above bare substance, yet below the level of elite consumption.

A few more claims:

• 30% of Greeks lived in cities with populations greater than 5000 (versus only 10-12% of the later Romans)
• 25-35% of the population lived on imported grain (evidence they were producing important trade goods)
• The Gini index of 0.7 corresponds favorably to 1472 Florence (0.788) or 1998 USA (0.79)

Many other fascinating thoughts throughout.

Mike Daisey and the fight to keep people in crummy jobs

I listened to the riveting This American Life podcast retracting its January episode "The Agony and Ecstasy of Steve Jobs", featuring the dramatist Mike Daisey, who misrepresented himself lied about the conditions under which your iPhone and iPad are produced.

For the record, I was always skeptical of media claims about worker exploitation in Apple factories. But that’s no great insight; I'm skeptical generally of the media, especially when I know a little something about the subject. Still, the discussion about journalism versus theatre shouldn’t distract us from the final question that producer Ira Glass asks in the episode:  as somebody who owns these products, should I feel bad?

From the transcript, here's the reply from a reporter whose own article has fueled the flames that Daisey started:

Charles Duhigg: So it's not my job to tell you whether you should feel bad or not, right? I'm a reporter for the New York Times, my job is to find facts and essentially let you make a decision on your own. Let me, let me pose the argument that people have posed to me about why you should feel bad, and you can make of it what you will. And that argument is there were times in this nation when we had harsh working conditions as part of our economic development. We decided as a nation that that was unacceptable. We passed laws in order to prevent those harsh working conditions from ever being inflicted on American workers again. And what has happened today is that rather than exporting that standard of life, which is within our capacity to do, we have exported harsh working conditions to another nation.

It’s easy for me, sitting here with my latte in my comfortable urban apartment, to pontificate about “the rights of workers” as I head off to my cushy high-tech management job. But I don't like one part of Duhigg’s argument: who’s the  "we" that decided certain working conditions are "harsh" and others are acceptable?

Laws didn’t end harsh working conditions; people did. Like many in high tech (or for that matter, Duhigg or Daisey), I often work 60+ hours per week. My company “forces” me to endure weeks of painful travel, separated from my family. Do you feel bad for me? No: because I know the risks, I know the alternatives, and all-up, I enjoy what I’m doing. I see it as a step toward something better for me and my children.

America’s employment laws did nothing to protect me (or you) from the harsh working conditions of the past. My life today is better precisely because of that awful labor of my ancestors, who saw it as one step in an opportunity to build a better life for their family.  Rather than fight for laws to ensure their children could have a crummy (but safe!) job in a factory, they fought to ensure their kids never ended up in a factory at all.

Why assume that we latte-drinkers are more capable of deciding tradeoffs than the thousands of unskilled laborers who line up every day begging for a job at Foxconn?  When "we as a nation" made unskilled jobs  impossible to justify in America, we didn't count the votes of those whose alternative to a factory job was much worse.

Of course, the twists of fate can be cruel and there are Bad People who will exploit the powerless.  Labor laws are one tool that can bring immediate relief.  But it’s too easy to focus only on those who directly benefit -- the existing workers, who of course are grateful -- and lose sight of those who now have no opportunity at all. By forbidding, for all time, Americans to work at jobs that are no more worse than what my grandparents endured, many of today’s unskilled workers have been shut out of the labor market, their opportunities “exported” to places where there are fewer restrictions on how unskilled people can earn money.

Higher wages won't solve the problem. Many kind-hearted people will notice that labor is a small fraction of the cost of an iPad and suggest that Apple “do the right thing” and pay the workers more. That sounds like an easy solution, but it carries its own tradeoffs.

An above-market wage makes it harder for workers to bounce through the industry. Workers who thought of this job as a stepping stone to something better may find now that it already is better. If this unskilled job pays like a skilled job, why bother with further education? For that matter, why encourage your younger cousins to make an investment in school if they can do just as well (maybe better) at the factory.

Note that above-market wages don’t just trap you in a dead-end industry; they give more power to your current employer. Sure, a tough employee or industry union would shift the power temporarily, but eventually Foxconn will notice that it can do the same work elsewhere for less money. Or worse, your higher-than-market wage might be in a company that, through no fault of yours, is not keeping up with the industry and has to lay you off.

I'm not saying that people shouldn't be paid well, especially if the work is hard. But it's impossible to know the "ethical" price for labor when you take into account all the hidden costs, including the missed opportunities for people who are trapped in jobs paying more than they're worth. Isn't it better to let people decide for themselves?

You can’t exploit robots. Ultimately, those of us who want to end harsh factory labor are on the right side of history because whether Foxconn’s labor standards meet your personal definition of “humane” or not, those jobs will eventually disappear. In fact, people like Mike Daisey are accelerating the pace at which it becomes cost effective to replace unskilled people with machines because the tiny amount of labor remaining in the assembly line isn’t worth the bad publicity.

Let’s hope the workers today can rack up enough 60-hr-week overtime put away enough savings before that happens.

Back to Ira's question: should we feel bad about how the iPad is produced?

This is where my experience in the industry leaves me bristling at the moral arrogance of those who imply Mike Daisey is “the voice of our conscience”, or conversely, that there are some evil Apple managers out there who “look the other way” at despicable behavior. If you've been to a factory, or worked with a high tech manager who does, you know: we all care. Fear not, armchair urban TV watchers: your sense of justice is no higher than those who are actually working and managing the business. If somebody like Daisey makes them seem evil to you, listen with healthy skepticism.  We high-tech managers are humans too; we don't exploit people for fun or profit -- and it's presumptuous of you to think so unless you meet us.

If you truly want to help the people who make your iPad, don't forget the ultimate goal is not menial factory jobs, however well-paid or protected. Our ultimate goal, like those of these Foxconn factory workers, or my grandparents -- should be to find something better for themselves and their families.  Anything that takes away from that goal is not a fair trade.

 

Coming apart from my children

Americans during my lifetime are becoming unequal and divided, not by class or income, but by something much more serious: a difference in values and interests. This has been my own experience, and now Charles Murray details the problems in his latest book, Coming Apart: The State of White America, 1960-2010, (well-summarized in a Wall Street Journal essay).

 

To see just how different Americans can be from one another, the book includes this quiz, which will take you about 10 minutes to answer:

Coming Apart by Charles Murray - Quiz

Here are my results:

Question	Description	My Score
1	Neighborhood	7
2	Family job	4
3	Town population	7
4	Family income	5
5	Factory	6
6	Painful job	3
7	Evangelical	2
8	Political	4
9	Dumb friend	0
10	Cigarettes	0
11	Military	0
12	Nascar	0
13	Pickup	0
14	Beer	0
15	Fishing	1
16	Restaurants	4
17	High school letter	2
18	Kiwanis	2
19	Parade	2
20	Uniform	0
21	Greyhound	1
22	Movies	1
23	TV	0
24	Oprah	0
25	Branson	0
	TOTAL	51

According to the book, my score classifies me as a “first generation upper-middle-class person with middle-class parents”, which anyone who knows me well could confirm.  My wife, on the other hand, would score pretty close to zero if she weren’t married to me.  Our kids are already well-removed from “the other America”, and would know almost nothing about it if not for their grandparents.

I still treasure the friends and values I learned from my small town, Midwestern upbringing. Although I’m happy with the wonderful experiences in my life now, I think it’s a tragedy that my own children don’t understand that world anymore.

Worse than a robot

I’m back in the US for a few days, a good time to order items that I can’t get in China, and that means borrowing the address of a friend to accept delivery. Since I come often, I try really hard not to wear out my welcome with these friends by making the pickup process as simple as possible.

This time I needed wanted a new iPhone 4S, which can have unpredictable arrival times, so I ordered it several weeks in advance. My friend happened to be out when the truck came, and I got an email notice offering to hold it instead at the main FedEx shipping center. Perfect! I thought: I’ll pick it up right after my plane arrives, early in the morning  with no need to intrude on my friend.

Seemed like a perfect plan until the lady at the FedEx counter asked for my ID. Of course I have my passport/drivers license, but the package was delivered to my friend’s name, and as the lady explained to me: “FedEx policy requires that the name on the package match the ID of the person picking it up”.

Well what I can do? I’m obviously who I say I am -- she sees my ID -- and I have the correct tracking number. It’s clearly my package. But policy is policy, according to the  counter lady. My only hope is to get my friend to call FedEx and change the name on the delivery. I explain that it’s early in the morning, my friend did me a favor by accepting delivery in the first place, and I don’t want to impose.  Sorry, she says.  “It’s policy”.

“Wait,” I say. “What’s to stop me from calling FedEx myself?”  I know the tracking number, the address of the original delivery, and I have an email that FedEx sent to me. Rather than ask my friend to call, why don’t I call myself, pretend to be the friend, and the problem is solved, right?

The counter lady hesitates. I have a good point, she admits, but now that she’s on to me, she says, she still won’t let me have the package because she’ll know it was me just faking to be my friend. The only thing I can do, she insists, is call my actual friend and get her to dial FedEx herself.

But that’s a hassle for my friend, who will have to drop what she’s doing to make a phone call, look up the tracking number, sit on hold.  I really don’t want to impose.  Too bad, says the counter lady. “Policy is policy”.

I called Apple. The person on the line was very friendly and accommodating, but Apple’s IT systems and FedEx IT systems are separate, so it could take as long as 24 hours before word of the different name on the address trickles into the FedEx office. The Apple person offers to speak directly to my FedEx lady, who replies “Nope: it’s policy”.

Finally, after too much time wasted already, I excused myself and went outside. I called FedEx and said I want to change the name on the delivery. No problem, they said. A few minutes later I went back to the counter lady, she looked up the entry and sure enough it’s okay to accept delivery from “Richard Sprague”.

Ugh.  What a waste.

This counter lady adds no value. By sticking so firmly to the rules, she was making herself into an automaton, the perfect job for a robot. Unlike a machine, though, she can’t work twenty four hours a day, and she needs to be paid.  So she’s actually worse than a robot!

If, on the other hand, she had used a little common sense -- the kind that is far more complicated to program into a robot -- she could have realized that my story makes complete sense. I am showing her a real ID, and I’m happy to give real additional contact information in case --against all logic--I am a criminal who somehow stole this tracking number, faked the email I showed her, and now is going through all the trouble of coming to the FedEx office -- in person -- to pick up a delivery of a brown box that has no indication of what’s even inside.

The US unemployment rate is too high, and there are a lot of proposals for how to “put America back to work”. But the unfortunate fact is that too many Americans are like this FedEx counter lady: doing work that is fundamentally replaceable by automation and robots. I don’t know what this particular women will be doing in five or ten years, but I know that if FedEx wants to continue controlling costs, they’ll need to look carefully at how much value she adds, and inevitably they will conclude that a robot is better for this work than she is.

It’s sad, because she, like all humans, has some skills that are extremely hard to replace with machines. But first she’ll need to start acting like a human, and not like a robot.