Posts filed under ‘– Klein –’
Top Ten Signs Your Airline is Cutting Costs
| Peter Klein |
Having done a fair amount of flying this summer I particularly appreciated this recent Letterman top ten list:
Letterman: Top Ten Signs Your Airline is Cutting Costs (August 5)
10. During flight they hit you with additional $200 “landing charge”
9. It’s day 4 of your honeymoon, and you’re still on the tarmac
8. Plane has a “Hyundai” hood ornament
7. When you arrive, Hawaii looks suspiciously like Detroit
6. Inflatable vest replaced with smaller inflatable bow ties
5. Plane can’t take off until you lose 20 pounds
4. In-flight entertainment: watching two fat guys fight for an armrest
3. Flight attendants wearing clothes you packed
2. The pilot — Andy Dick
1. During the captain’s preflight checklist, you hear him say, “close enough”
“El Pulpo”
| Peter Klein |
A few years ago I read, and enjoyed, Stephen Schlesinger and Stephen Kinzer’s Bitter Fruit: The Story of the American Coup in Guatemala. (Kinzer also has a nice book on the CIA’s role in Iran.) So when I saw Peter Chapman’s Bananas!: How The United Fruit Company Shaped the World in a local bookstore — yes, the bright-yellow cover caught my eye — I snapped it up. United Fruit — “El Pulpo” (the Octopus) to its detractors — is a fascinating company, the history of which should be required reading for students of international business. Bananas is a disappointment, unfortunately. I wasn’t expecting a scholarly treatment but, even by journalistic standards, the book is weak, substituting breathy clichés for facts and analysis. And Chapman’s unfamiliarity with even the most basic concepts of economics doesn’t help. (Spend your money on Bananas instead — my favorite Woody Allen movie.)
Today I learned of at least one scholarly treatment of United Fruit, focusing on its Colombian operations: Bananas and Business: The United Fruit Company in Colombia, 1899-2000 by Marcelo Bucheli (New York University Press, 2005). Alan Dye makes some interesting points about knowledge transfer in his review for EH.Net:
One important contribution is the story the book tells of how United Fruit eventually decided to abandon its initial policy of creating barriers to competition and accept fair dealing with rivals to its core business. Although its early history was one of raising barriers to competition and exploiting the weakness of unstable governments to establish its monospony position, he argues that in the long run the presence of this, or another multinational, was necessary for the development of a commercial banana industry in Colombia. United Fruit had pioneered techniques for how to commercialize a fragile and highly perishable product. Regardless of unethical practices when dealing with locals in the producing countries, the importation of the marketing techniques that such pioneers in the industry developed were of substantial value to local industry. (more…)
Please, No More “Preneurs”
| Peter Klein |
The term entrepreneur is well-established in the academic and practitioner literatures, if not always consistently used. (As I note here, the word is typically applied to self-employed individuals or, in adjective form, to new and small ventures, but I prefer the broader, functional notions of innovation, alertness, or judgment found in the classic economics literature on entrepreneurship.) The literal translation of the French entrepreneur, “undertaker,” isn’t quite right, though I’m rather drawn to the older English terms “adventurer” or “projector.”
In any case, there’s no excuse for the seemingly endless proliferations of
“-preneur” words floating around today. An entrepreneurial individual within a large firm is an intrapreneur. With some additional skills and an external perspective she might become an extrapreneur. A good manager can hope to be a manapreneur. You in the tech sector? You’re a technopreneur. Or you might be a minipreneur, actorpreneur, agripreneur, authorpreneur, seniorpreneur, or even a mompreneur. Enough!
Let’s stick to simple ideas, like manurepreneurship.
McNamara on Management
| Peter Klein |
From Abraham Zaleznik in HBS Working Knowledge (via Marshall Jevons):
[Robert S. McNamara] was a brilliant student at the University of California and at Harvard Business School, where he became a member of the HBS faculty. McNamara was a devotee of managerial control, an expertise he applied in his work at the Ford Motor Company and later at the Department of Defense as secretary in President John F. Kennedy’s cabinet.
His mantra was measurement. As secretary of defense, McNamara developed, along with key subordinates, including Robert Anthony of the HBS control faculty, long-range procurement cycles. He even tried to get the U.S. Navy to subscribe to a common aircraft for the three branches of the military. The Navy refused to go along, since this branch was concerned about aircraft operating from carriers.
McNamara urged field commanders in Vietnam to apply measurement to enemy losses, but did not realize until it was too late that the measurements were unreliable to assess enemy losses. The most reliable assessments came from correspondents like Neil Sheehan and David Halberstam. McNamara published a book years after he retired to reassess the Vietnam War and his role in it as secretary of defense. His main theme was the failure to examine critically the assumptions leading to U.S. involvement in this disaster. Editorial writers took no pains to spare McNamara’s feelings.
The moral I took away from his story is to avoid the perils of the fox and its reliance on a single belief, in this case measurement, and the technology of control.
For more on McNamara’s management philosophy and experiences, Deborah Shapley’s 1992 biography Promise and Power is pretty good. I also recommend The Whiz Kids: Ten Founding Fathers of American Business — and the Legacy They Left Us by John Byrne. As these books point out, McNamara was not a pioneer in this area but a follower of Tex Thornton, head of the US Army’s Statistical Control Group in WWII and later CEO of Litton Industries. It was Thornton who brought McNamara and the rest of his “Whiz Kids,” as a group, to Ford in 1945. Harold Geneen, the most famous “management-by-the-numbers” guy, was not part of this group but shared much of Thornton’s philosophy. (See Robert Sobel’s Rise and Fall of the Conglomerate Kings.)
Public Choice and Austrian Economics
| Peter Klein |
The Austrian school and the Public Choice or Virginia school of economics are often tightly linked, both among the lay public and within academic circles. The connection isn’t obvious, however. While members of both schools tend to have classical-liberal views on political economy, the Virginia school emerged from the Chicago public finance tradition (Buchanan, after all, was a student and disciple of Knight) and is thoroughly “neoclassical” in orientation. Public choice economists tend to look to Chicago, not Vienna, for inspiration.
Anamaria Berea, Art Carden, and Jeremy Horpedahl take a different tack, drawing out common threads in Buchanan’s and Hayek’s subjectivist approach to cost.
Cost and Choice and The Sensory Order represent tangents from the basic research programs of their respective authors, James M. Buchanan and F.A. Hayek. These seeming diversions into methodology by two political-economic philosophers help to shed light on their underlying assumptions about cost and rationality. We argue that Buchanan and Hayek, and consequently Public Choice and Austrian Economics, have very similar underlying assumptions about the nature of cost. This can help to explain other similarities between the two schools, especially regarding the role of the state. These contributions are synthesized and applied to debates over the “new paternalism” and military conscription.
Tom DiLorenzo’s 1990 paper “The Subjectivist Roots of James Buchanan’s Economics” is also worth consulting on this connection. The question, though, is whether Cost and Choice (and the later Buchanan and Thirlby-edited volume, LSE Essays on Cost) is a consistent with the rest of the public choice tradition (including Buchanan’s own work).
NB: In graduate school I was exposed to the “positive political theory” (PPT) literature associated with Riker, Shepsle, Weingast, etc. and was surprised that the Virginia school was never mentiond in the discussion. A prominent PPT scholar told me once that PPT is “scientific,” while public choice is merely “ideological” and “low-tech.” Fair or not, I think this view is widespread among younger scholars. Has anyone written a good comparison of PPT and the public-choice approach?
Econ Academics Blog
| Peter Klein |
Christian Zimmerman of RePEc (and Dick’s colleague at UConn) has set up a blog aggregator focused on academic economics research, Econ Academics Blog. As Christian points out, there are lots of economics blogs, but only a few that deal primarily with academic economics (theories, research papers, debates). We’re happy to be included as a source.
Random Thoughts from the AoM
| Peter Klein |
Back now from the AoM conference in Anaheim. Random thoughts:
1. The Critical Management Studies Division (yes, it really exists) featured, as a keynote speaker, none other than Ward Churchill, former professor of ethnic studies at the University of Colorado (fired in 2007 for professional misconduct). His talk: “On the Banality of Managerial Efficiency: The ‘Eichman Question’ Revisited.” Apparently the Late Unpleasantness (1, 2) did not disqualify him from this eminent academic honor. I did not attend the talk but was told he was “impressive.”
BTW, if you’re wondering about this division of the Academy, look no farther than the CMS website:
The Critical Management Studies Division is a forum within the Academy for the expression of views critical of unethical management practices and exploitative social order. Our premise is that structural features of contemporary society, such as the profit imperative, patriarchy, racial inequality, and ecological irresponsibility often turn organizations into instruments of domination and exploitation. Driven by a shared desire to change this situation, we aim in our research, teaching, and practice to develop critical interpretations of management and society and to generate radical alternatives. Our critique seeks to connect the practical shortcomings in management and individual managers to the demands of a socially divisive and ecologically destructive system within which managers work.
2. You know how all stereotypes are based on elements of truth? I noticed that the receptions hosted by groups and organizations dominated by economists (such as the BPS Division) tended to have cash bars, while those dominated by psychologists and sociologists (e.g., anything to do with organizational behavior) tended to have open bars. (more…)
A Note to My Undergraduate Students
| Peter Klein |
From a former student:
I was in your Managerial Economics back in Spring 2005. I guess I actually learned something and remembered it. I am going back to school for my MBA and I was able to test out of my basic economics class using the knowledge I gained in your class. Since I actually paid attention to you talking about game theory, I was able to save myself from taking an extra graduate class.
Pay attention now, save $$$ later!
Robust Competitive Advantage
| Peter Klein |
Rich Makadok, during an AoM session on “Real Options and Competitive Advantage,” made an interesting point about the concept of sustained competitive advantage (SCA). The modifier sustained is typically taken to mean “persisting over a long period of time.” As Rich noted, however, the initial formulation of SCA in Barney (1991) doesn’t include a temporal dimension at all. It refers, instead, to imitability: “a firm is said to have a sustained competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy” (Barney, 1991, p. 102). Sustained competitive advantage, in other words, refers to value-creating activities that cannot be imitated. The key is entry barriers, not time.
Rich suggested replacing SCA with some other term, like “hard-to-duplicate competitive advantage,” for greater clarity. Here’s my suggestion: robust competitive advantage. What do you think?
Megawatt Ghemawat
| Peter Klein |
Five things you didn’t know about Pankaj Ghemawat:
1. He entered Harvard College at age 16 and graduated in three years.
2. He entered Harvard Business School’s PhD program at age 19 and graduated in three years.
3. After a year at McKinsey he was hired by Michael Porter into the HBS strategy group and later became, at age 31, the youngest full professor in HBS history.
4. He has authored or co-authored more than 50 HBS cases.
5. He looked about the same at age 19 as he looks today. (I have seen the photographic evidence).
This was discussed yesterday at an AoM session honoring Pankaj with the BPS Division 2008 Irwin Outstanding Educator Award. Jan Rifkin and Anita McGahan hosted a semi-roast in his honor, at which they revealed that Pankaj’s college nickname was “Megawatt Ghemawat” (the authenticity of this story could not be verified, however). Pankaj explained that he started writing his own cases out of fear, lacking the confidence to teach other people’s cases to demanding Harvard MBAs. Eventually he decided that cases were interesting in themselves and led to new research questions and new answers to old questions.
His website is ghemawat.org. He now lives in Spain where he holds the Anselmo Rubiralta Chair of Strategy and Globalization at the IESE Business School, University of Navarra. He blogs at the HBS Discussion Leader site. His Foreign Policy article “Why the World Isn’t Flat” gained a lot of attention when it appeared last year.
Organizational Structure and the Diversification Discount
| Peter Klein |
Do diversified conglomerates trade at a discount relative to more specialized firms? A huge literature in strategy and corporate finance emerged over the last couple of decades devoted to this question. Early studies claimed to find a substantial diversification discount, though more recent papers claim that the observed discount is due to measurement error, self-selection, and other characteristics, not a harmful effect of diversification per se. (For a good overview of this literature, now slightly dated, see this roundtable report edited by Belén Villalonga. Some of my own contributions are here and here.)
Seemingly lost in the search for a diversification discount, however, is a related question: What is being discounted? Potential benefits of diversification, according to the literature, include access to internal capital markets and more efficient redeployment of distressed assets; potential costs include inefficient rent-seeking, bargaining problems, and bureaucratic rigidity. But these benefits and costs have little to do with industry or geographic diversification per se — they apply to the management of any multi-unit organization, even if its activities do not span different industries or regions.
In a new paper, “Organizational Structure and the Diversification Discount: Evidence from Commercial Banking,” Marc Saidenberg and I try to distinguish the effects of diversification and organiztaional complexity by studying multi-unit firms within a single industry, commercial banking. (more…)
O&M at the AoM
| Peter Klein |
Ah, Los Angeles . . . land of “tattoos, breast implants, bleached hair, and vacuous egos,” as Nicolai recently wrote on Facebook. And then there are the people not in town for the Academy of Managment meeting!
As readers may know, the AoM is meeting this week in Anaheim. The O&M crowd is well represented, as usual. You can search the online program for your favorite person, subject, or interest area. Below are some of the sessions involving O&Mers, past and present: (more…)
Laptop Bleg
| Peter Klein |
I’m in the market for a new laptop. My current model is a Sony Vaio TR3 and I want to stay in the ultraportable category (under 4 lbs., 12″ or smaller display). For now, I’m sticking with the WinTel platform (sorry, Teppo!).
Sony’s current offering in this category, the TZ, has the right combination of size, weight, and style, but it’s not quite as powerful (in RAM or clock speed) as some alternatives, like the Asus U2 and a few models by HP and Toshiba. I’m not particularly looking for a tablet, though I wouldn’t rule it out. The Lenovo X series is nice, but lacks the Sony’s built-in optical drive. Any suggestions?
Cars for Comrades
| Peter Klein |
A while back we posted a video from an East German Trabant factory that got a lot of hits. A video is worth more than a thousand words on the political economy of socialism, right?
Indeed, the automobile played an important role in the eventual collapse of the communist system, according to Lewis Siegelbaum’s Cars for Comrades: The Life of the Soviet Automobile (Cornell University Press, 2008). As Perry Patterson notes in his review for EH.Net:
As incomes and economic complexity grew over time, the Soviet state found it necessary to produce more and more vehicles of all sorts, and private cars in particular. But policymakers also discovered that the existence of cars generated additional demands for consumer services, and discontent when the economy could not provide them. As Siegelbaum puts the matter, “cars, cars, and more cars seem to have played a particularly large and invidious role in popular disillusionment with Soviet socialism.” Worse perhaps for the Soviet state, private automobiles and the culture that grew up around them also opened up numerous ways for individuals to evade and undermine the official command economy. For example, cars facilitated private conversions, private dealmaking, the generation of “unearned” income from taxi rides, and the unplanned movement of (sometimes stolen) goods.
The quality of Soviet cars was, well, about what you’d expect. The book “provides extensive examples of the mental knots in which the Communist leaders tied themselves, wanting on the one hand to boast about their superiority over the West on all fronts, and being unable and unwilling to match it when it came to cars,” notes the Economist.
My first “serious” research paper, written in Glen Elder’s undergraduate sociology class, dealt with the social and cultural impact of “automobility” in the US, so this subject is near and dear to my heart. (Fortunately, the paper is buried deep in a secret vault and will never see the light of day.)
IBES-AAEA
| Peter Klein |
As the next phase of my Plan for World Domination I’ve taken office as Chair-Elect of the Institutional and Behavioral Economics Section (IBES) of the Agricultural and Applied Economics Association. One of my duties is to organize the section’s sessions for next year’s AAEA annual meeting, 26-28 July 2009 in Milwaukee, Wisconsin. I welcome participation from the O&M crowd so please email me your suggestions for session topics, papers, special formats, themes, or other ideas. Milwaukee is a lovely and interesting town (just ask Alice), so make plans to join us!
The Price of Exclusivity
| Peter Klein |
Whenever I fly first or business class — not nearly often enough — it’s usually an upgrade, and I feel sorry for the rich guys around me who shelled out serious coin partly to avoid sitting next to schmucks like me. Perhaps you’ve been to an expensive restaurant where the food isn’t that good, but the clientele is made up of people who can afford that kind of place and you enjoy the exclusivity. And you’ve heard stories about first-class train compartments that are identical to their second-class counterparts, only more expensive, catering to people who like to be surrounded by other rich people.
Here’s a cool modern example of this phenomenon: a $999 iPhone application that does nothing but announce to the world that you can afford a $999 iPhone application (via Josh). Talk about a separating equilibrium!
Homogeneity and Cooperation
| Peter Klein |
Why are Scandinavians so cooperative? Nicolai and Lasse might suggest it’s their superior moral character. La Porta et al. (1997), Putnam et al. (1992), and others point to Protestantism: hierarchical religions like Catholicism and Islam, it is argued, tend to discourage trust and retard the development of social capital. The Protestants, who already have Max Weber in their corner, seem to be piling it on.
Not so fast, says Kevin O’Rourke in a recent paper, “Culture, Conflict, and Cooperation: Irish Dairying Before the Great War” (Economic Journal, October 2007). O’Rourke compares the Danish and Irish dairy industries before 1914 and argues that cultural and ethnic homogeneity, not religion, explains the success of Danish cooperatives. Unlike recent large-sample econometric work on trust, the paper uses deeper, more robust indicators of cooperation. Key findings:
At first sight, the contrast between Protestant Ulster and the Catholic South (as well as between Denmark and Ireland as a whole) seems a striking confirmation of the LLSV hypothesis that culture matters for the ability to cooperate, and that hierarchical religions such as Catholicism undermine both trust and cooperation. However, on closer examination it appears that politics, not culture, was responsible for the lower Irish propensity to cooperate. Suspicion between Catholics and Protestants, and tenants and landlords, spilled over into Nationalist suspicion of the cooperative movement and hindered its spread, despite the efforts of the [Irish Agricultural Organisation Society] to remain apolitical. To this extent, the results are more consistent with the stress on [ethnolinguistic fractionalisation] in Alesina and La Ferrara (2000) than with the cultural perspective of LLSV, Knack and Keefer (1997) and Zak and Knack (2001).
Denmark benefited from several relevant advantages that Ireland did not enjoy during this period. In particular, it was an extremely homogeneous country, ethnically, religiously and linguistically. There was no conflict over who should own the land, since land reform in Denmark had been underway since the late eighteenth century. . . . Nor was there any ethnic conflict, or disputes over where national boundaries should lie (all such controversies became redundant following the loss of Schleswig-Holstein in 1864). The results suggest that this homogeneity of Danish society is what explains the success of cooperation there.
Rothbard on Big Business
| Peter Klein |
We at O&M are sometimes described as “pro-business.” But this is not correct. We strongly support the economic function of commerce, and we think private ownership of capital, the profit-seeking activities of entrepreneurs and managers, and unfettered markets for consumer goods, factors of production, and financial assets are essential to a strong economy. But that doesn’t mean we admire the behavior and character of every capitalist, entrepreneur, and manager. Indeed, plenty are scoundrels. Empirically, the businesspeople who rise to the top in today’s mixed economy, with its peculiar blend of free markets and state controls, are likely to be those who excel in political entrepreneurship, in “working the system” to their advantage.
Murray Rothbard summarizes this view in a private letter written in 1966:
For some time I have come to the conclusion that the grave deficiency in the current output and thinking of our libertarians and “classical liberals” is an enormous blind spot when it comes to big business. There is a tendency to worship Big Business per se. . . and a corollary tendency to fail to realize that while big business would indeed merit praise if they won that bigness on the purely free market, that in the contemporary world of total neo-mercantilism and what is essentially a neo-fascist “corporate state,” bigness is a priori highly suspect, because Big Business most likely got that way through an intricate and decisive network of subsidies, privileges, and direct and indirect grants of monopoly protection.
Rothbard refers his correspondent to Gabriel Kolko, William Appleman Williams, James Weinstein, C. Wright Mills, and other New Left critics of the corporate state for details. For more on Rothbard’s own views see “Left and Right: The Prospects for Liberty” (1965) and “Confessions of a Right-Wing Liberal” (1968), as well as related essays by Joseph Stromberg and Roy Childs.
Thanks to Randy, and Get Well Soon!
| Peter Klein |
Our thanks to Randy Westgren for some terrific guest blogging this past spring and summer. Randy had a little time left on his guest-blogger clock, and was planning to share some additional thoughts in the coming weeks, but he was involved in a freak carpentry accident this weekend, losing a thumb and forefinger to a circular saw. Fortunately his digits have been reattached but — the academic’s worst nightmare — he can’t write or type, for the short term at least. He’s therefore requested, and been granted, a graceful early retirement.
We’ve greatly enjoyed Randy’s insights and look forward to his continued participation in the comment threads when fully healed. Thanks, Randy, and best wishes for a speedy recovery!
New Center for Economic Documents Digitization
| Peter Klein |
Below is an announcement from the St. Louis Fed about its new digital document library, the Center for Economic Documents Digitization (CEDD). A nice complement to the CORI K-Base, Connie Helfat and Steve Klepper’s FIVE project, and similar resources. Three cheers for the Digital Age!
The Federal Reserve Bank of St. Louis recently introduced the Center for Economic Documents Digitization (CEDD), with a mission to preserve the nation’s economic history through digitization. To date, CEDD has digitized more than 300,000 pages of published material and archival collections from the Federal Reserve System and selected partners — currently, the Brookings Institution, the Government Printing Office and the Missouri Historical Society.
This storehouse of documents includes U.S. government publications, Federal Reserve publications, photographs, manuscripts, and multimedia formats, all available on the St. Louis Fed’s FRASER (Federal Reserve Archival System for Economic Research) website: http://fraser.stlouisfed.org. (more…)
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