BUSINESS – Page 2 – REVIEWS AND VIEWS OF LIFE

AMERICAN HOPE

From Fukuyama’s intellectual musing to our eyes and ears, one hopes he is correct about America’s future in the technological age.

Books of Interest
Website: chetyarbrough.blog

The Great Disruption (Human Nature and the Reconstitution of Social Order)

By: Francis Fukuyama

Francis Fukuyama (Author, political scientist, political economist, international relations scholar.)

Francis Fukuyama argues America is at the threshold of a social reconstitution. Fukuyama believes we are at Gladwell’s “Tipping Point” that is changing social norms and rebuilding America’s social order. He argues the innovation of technology, like the industrial revolution, is deconstructing social relationships and economics while reconstructing capitalist democracy.

Gladwell’s Revenge of the Tipping Point.

The immense power of big technology companies like Amazon, Google, and Facebook have outsized influence on American society. They change the tone of social interaction through their ability to disseminate both accurate and misleading information. They erode privacy and create algorithms tailored to disparate interest groups that polarize society. The media giant’s objective is to increase clicks on their platforms to attract more advertisers who pay for public exposure of their service, merchandise, and brand.

To reduce outsize influence of big tech companies, Fukuyama suggests more technology has an answer.

There should be more antitrust measures instituted by the government to break monopolistic practices and encourage competition with large technology companies. Algorithms created by oversight government organizations can ensure transparency and reduce harmful content to reduce big tech companies influence on society. (One doubts expansion of government agencies is a likely scenario in today’s government.)

On the one hand, technology has improved convenience, communication, and a wider distribution of information.

On the other, technology has flooded society with misinformation, invaded privacy, and polarized society. Technology has created new jobs while increasing loss of traditional industry jobs with automation. Trying to return to past labor-intensive manufacturing companies is a fool’s errand in the age of technology.

Luddites during the Industrial Revolution.

Like the industrial revolution, the tech revolution’s social impact is mixed with a potential for greater social isolation, and job displacement with the addition of wide distribution of misinformation. The positives of new technology are improvements in healthcare product and services, renewable energy, and climate understanding with potential for improved control.

Work-life balance in families has been disrupted by technology.

Face-to-face interactions become less and less necessary. Children’s access to technology impacts parental supervision and relationship. Fukuyama suggests setting boundaries for technology use needs to be a priority in American families. Technology can open the door to better education, but it also becomes a source of misinformation that can come from the internet of things. Employers have the opportunity to help with work-life balance by encouraging flexible hours and remote work. (Oddly, that suggestion is being undermined by the current government administration and many American companies.)

Economic growth, access to information, and global connectivity have been positively impacted by technology. However, the concentration of power, misinformation, and surveillance of social media has diminished privacy and eroded individual freedom. There are concerns about technology and how it is good and bad for democratic capitalism.

The good lies in increased efficiency, innovation and creation of new markets, through globalization. However, today’s American government shows how tariffs are a destroyer of globalization. Fukuyama implies A.I. and automation is displacing workers and aggravating economic inequality because it is being misunderstood for its true potential and also being misused. Personal data is used to manipulate consumers in ways that challenge the balance between corporations and consumers.

Fukuyama argues private parties will grow in America to create software that will filter and customize online services.

With that effort control of the influence of big tech companies will be diminished. With decentralization of big tech power and influence, society will theoretically become less polarized and more consensus oriented. The capitalist opportunity for tech savvy startups that diminish influence of big tech companies will re-create diversification like that which the matured industrial revolution gave to new manufacturers. Like Standard Oil and other conglomerates of the industrial revolution, businesses like Amazon, Google, and Facebook will have competition that diminishes their power and influence.

American Government will grow to regulate the internet of things just as it has grown to regulate banks, industries, and social services.

Service to citizens will become a bigger part of the economy as a replacement for manufacturing. Family life will re-invent itself as a force of society because of the time saved from manufacturing product to improve human relationships.

From Fukuyama’s intellectual musing to our eyes and ears, one hopes he is correct about America’s future in the technological age.

JAPAN

In planning a trip to Japan this year, it seems prudent to learn more about the history of Japan.

Books of Interest
Website: chetyarbrough.

Great Courses-Understanding Japan (A Cultural History)

By: Mark J. Ravina

Narrated By: Mark J. Ravina

Mark Ravina (Scholar of Japanese history at the University of Texas at Austin)

Professor Ravina’s lectures are a little too heavy on Japan’s ancient history but offers some interesting opinion about the rise of the Samurai, the evolution of women’s roles in Japan, Emperor Hirohito and his role in WWII, the democratization of Japan after WWII, and the cause of Japan’s current economic stagnation.

As is well known, the Samurai were a warrior class in Japan. Their role in Japanese history grows between 794 and 1185.

They began as private armies for noble families with estates in Japan. They became a force in Japanese politics and have had an enduring effect on Japanese society. They evolved after 1185 into a ruling military government called shogun that exhibited political influence through 1333, emphasizing Bushido or what is defined as a strict code of loyalty, honor, and discipline. That discipline extended to ritual suicide in defeat or disgrace to preserve one’s honor. Zen Buddhism entered into the Samuria culture, exhibiting a time of peace under the Tokugawa shogunate that lasted until 1868. After 1868, the Samurai era came to an end, but its cultural influence remains in a modernized military that adheres to qualities of discipline, honor, and resilience.

Traditional Japanese Woman.

The role of women in Japan has evolved from great influence and freedom for the well-to-do to a life of restricted domesticity.

During the Samurai era, the influence of women declined and became more restricted. The rise of Confucian ideals emphasized male dominance with women being relegated to domestic duty. Women turned to art, calligraphy, and religion as their societal influence decreased. In the Meiji Era (1868-1912) women’s education somewhat improved and they began to participate in political movements like voting and equal rights. Finally, after WWII, a new constitution granted women equal rights like the right to vote and enter the workforce. However, like America, traditional gender roles persisted. In today’s Japan, like most of the world, equal rights remain a battle for women.

Hirohito is the 124th Emperor of Japan.

He reigned from 1926 to 1989. Professor Ravina notes that a question is raised about whether the emperor was a follower or leader in Japan’s role in WWII. Ravina argues history showed Hirohito’s role was as a leader. In defeat, Hirohito renounced his divine status to become a constitutional monarch under U.S. occupation. Hirohito, as the crown prince of Japan, strengthened Japan’s diplomatic ties on the world stage. He was instrumental in scientific research in marine biology. He emphasized Japan’s drive to become an industrial nation and player in international trade. He militarized Japan in preparation for war and territorial expansion. He authorized invasion of Manchuria in 1931 to establish it as a puppet of Japan. Hirohito aids the American occupation, after WWII, to de-militarize and re-industrialize Japan.

With creation of a new constitution for Japan in 1947, Japan became a constitutional monarchy that made the emperor a symbolic figurehead, and guaranteed freedom of speech, religion, and assembly.

The constitution formally denounced war as a means of settling disputes. Land reform redistributed agricultural production to tenant farmers that reduced the power of wealthy landlords and promoted economic equality in rural Japan. Women’s rights were codified to allow voting and participation in politics. The constitution guaranteed equality but, like the rest of the world, culture trumped reality. Japan’s military was reorganized as a defensive force for national security. War crimes trials convicted Hideki Tojo, Iwane Matsui, Hei taro Kimura, Kenji Doihara, and Koki Hirota and sentenced them to death. In total 17 leaders were executed, and 16 others were imprisoned.

Free-market economy.

The democratization of Japan entailed economic reforms that broke up large industrial conglomerates to promote a free-market economy and reduce economic monopolies. However, the culture of Japan replaced the industrial conglomerates with networks of interlinked companies that operated cooperatively in ways that reduced competition in pursuit of financial stability. The education system was reformed to promote democratic values, and equal access to education for all citizens.

A free press was encouraged to foster transparency and accountability.

The results allowed Japan to rapidly improve their industrial productivity. That productivity was defined and improved by the teachings of W. Edwards Deming, a statistician and quality-control expert in the 1950s. His contributions led to the Deming Prize in 1951, an annual award recognizing excellence in quality management. (This is a reminder of Peter Drucker and his monumental contribution to business practices in the United States.)

In Ravina’s final lectures, he addresses the economic stagnation that has overtaken modern society in Japan.

It began in the 1990s. A sharp decline in asset prices wiped out wealth and triggered a banking crisis. Banks had made too many bad loans that became non-performing. Deflation ensued with falling prices that discouraged spending and slowed economic growth. Company profits declined. The demographics of Japan reduced the size of the work force because of an aging population and declining births. One suspects this demographic change is further burdened by ethnic identity that mitigates against immigration.

Japan’s consumption tax increases in 1997 impeded recovery.

The close ties between government, banks, and corporations resist reforms. And, as is true in America, global competition from other countries with lower cost labor eroded international trade.

INDUSTRY GREED

Sir John Anderson Kay calls for more training in ethical behavior and fiduciary responsibility in the financial industry. Kay believes “too big to fail” financial institutions should be broken up to reduce risk and encourage competition.

Books of Interest
Website: chetyarbrough.

Other People’s Money (The Real Business of Finance)

By: John Kay

Narrated By: Walter Dixon

Sir John Anerson Kay (Author, CBE, FRSE, FBA, FAcSS, British economist, dean of Oxford’s Said Business School.)

John Kay explains how the world’s finance system was designed to support national economies and international trade. However, he argues the world’s financial system, though designed to improve the lives of everyone, has evolved into a system that primarily benefits those within the financial industry, not everyone.

Kay offers the example of Ponzi schemes like that created by Bernie Madoff, and mortgage derivatives created by financial quants. Unlike Madoff’s personal enrichment, the financial industry’s’ mortgage derivatives enriched mortgage lenders, banks and brokers who sold them to other financial institutions like hedge funds, investment banks, mutual funds, foreign and retail investors. Mortgage derivatives were a national Ponzi scheme, greater than Madoff’s, that only enriched the financial industry. In 2008, the financial industry nearly bankrupted the world. The finance managers served no jail time while poorly qualified homeowners were thrown into the street because they could not afford their home mortgages.

What is puzzling is how so many people lost their homes in 2008 despite government regulation of the financial industry, which was ostensibly designed to protect consumers and stabilize the housing market.

“Other People’s Money” is managed by financial institutions that have nothing to lose if other people’s money is lost. A poor finance industry manager might lose his/her job because of poor sales received for selling financial products to other financial companies. However, if their sales are good, huge bonuses are given to top earners. Kay notes three faults in this system. One, it is a closed system that primarily feeds on itself as an industry. Two, the product of sale can as easily be worthless as valuable. And three, the money that is being used is primarily the public’s money, not the financial industries’ money. Mortgage derivatives became weapons of mass financial destruction. The public suffered more than the financial industry for the obvious reason that it was the public’s money.

In theory client funds are kept separate from a firm’s own assets. Though that may be true, the equity of lenders is small in relation to the loans made to others because the loan actually comes from “Other People’s Money”, i.e., those who deposit their paychecks in a financial institution. There are government entities like the SEC in the US that enforce separation of a lender’s equity from other people’s money but so what? Other people’s money is the bulk of what is lent out to others.

An example of the perfidy of the financial industry is the creation of mortgage derivatives that resulted in big bonuses to financial industry employees while many American citizens lost their homes.

Government regulations require record-keeping, transparency and risk management. So why did so many people lose their homes in 2008 while lenders were bailed out? If the Government regulated how other people’s money was being invested, how did the 2008 mortgage crises occur? It occurred because of the way the financial industry is regulated and the greed of financial institutions in selling a product that had less value than realized until it was too late. The fault within the industry grew bigger based on the packaging and resale of other people’s money in a product that became worthless.

The point is that there is little equity from money lenders that use “Other People’s Money” to invest in the economy. Financial institutions are required to have as little as 4.5 percent to 6 percent equity in loans for what they lend to others. The remainder is “Other People’s Money”. Most of the risk of institutionally loaned money is born by the public. Of course, there are insurance guarantees from the government, but they are limited.

Kay notes financial industries are motivated to expand their businesses by capitalizing on short-term gains for profit rather than long-term stability and growth.

Kay goes on to explain that financial institutions are the biggest contributors to candidates for public office. Just as the Supreme Court’s decision to give corporations personhood, the influence of corporate America distorts the influence of American citizens. Naturally, financial institutions push for favorable regulations designed to benefit owners and managers of the finance industry. He explains how financial risk is designed to fall back on taxpayers and less informed investors. Because financing institution managers are using other people’s money, they are more concerned about lender profit and their bonuses than loan default. Kay suggests there is a lack of transparency that hides the exploitive nature of lending that has minimal personal risk to lending institutions, its managers, and loan officers.

Kay argues financial products and services need to be simplified and made more transparent so consumers can understand how lending institutions and insiders are benefiting from their transactions.

Kay explains the primary functions of the financial industry should be focused on making payments simple with clearer explanations of risks so that capital is efficiently and wisely allocated. Government oversight should be exercised to promote transparency, accountability and long-term stability of the economy. Training in ethical behavior and financial responsibility is needed for agents of the financial industry so that incentives and rewards balance with the needs of the economy.

Kay notes there is nothing in the way of another financial crises like the 2008 debacle.

Kay suggests regulatory reform is necessary with greater transparency, and accountability for long term financial stability. He calls for more training in ethical behavior and fiduciary responsibility in the financial industry. Kay believes “too big to fail” financial institutions should be broken up to reduce risk and encourage competition.

THE DISMAL SCIENCE

It appears to this listener/reader, the rise of authoritarianism in the world today lays at the feet of Marx and, to a lesser extent, von Mises’ economic theories.

Books of Interest
Website: chetyarbrough.blog

Human Action: A Treatise on Economics

By: Ludwig von Mises

Narrated By: Jeff Riggenbach

Ludwig von Mises (Austrian-American economist, logician, sociologist, and philosopher. 1881-1973, died at age 92.)

Economics is defined as a social science that studies how individuals, businesses, governments, and societies allocate resources to satisfy the needs and desires of a community of people. Historically, one of the greatest explainers of this social science is Ludwig von Mises. Maturing at a time of the communist revolution, the advance of capitalism and both world wars, von-Mises offers one of the greatest books about economics since Adam Smith. The only economist of greater significance is Adam Smith (1723-1790) because of his origination of the principles of economics. Close behind are Karl Marx (1818-1883), and John Maynard Keynes (1883-1946).

KARL MARX (BORN TRIER, GERMANY 1818-DIED LONDON, ENGLAND 1883)

Of course, all economists are beholding to Adam Smith with his original conception of the dismal science. Smith conceived of the “invisible hand” of economics that postulated self-interest as the primary contributor to the overall good of society. Von Mises seems to guardedly agree but suggests self-interest’ market pricing can artificially distort distribution of economic resources. Von Mises infers the “invisible hand” is inefficient at the least and may artificially distort prices in the hands of authoritarian governments and business monopolies. Karl Marx suggests the invisible hand would evolve into a production system that would be owned by the public to ensure equality of distribution in an evolutionary economy that passes from capitalism to socialism, and finally communism. Marx argues self-interest will evolve into a common interest for all. Marx’s idea of change in the nature of human beings beggars the imagination.

Smith supported limited government intervention to maintain justice, defense, and public works.

Both Smith and Marx believed in a “labor theory of value” which argues the value of a commodity is determined by the labor required to produce it. Where Smith and Marx depart is in government enforcement of a balance between labor and the cost of goods. Von Mises opposed most forms of governmental intervention in the economy. However, Keynes argues government intervention is necessary during economic downturns. After WWII, Keynes theory became an important part of the American government’s support of European reconstruction.

Von Mises believed in human individualism which carries the risk of authoritarian domination.

Von Mises believed in human individualism while Smith and Keynes support limited government intervention. Marx argues human nature could be shaped by a melding of government dictatorship with societal pressures to support communal goals.

None of the economists seem to fully understand human nature will always get in the way of economic growth.

At extremes, von Mises endorses individualism and Marx endorses dictatorship. The middle ground seems held by Adam Smith and John Maynard Keynes that endorse limited government intervention. It appears to this listener/reader, the rise of authoritarianism in the world today lays at the feet of Marx and, to a lesser extent, von Mises’ economic theories.

The length and value of von Mises’ book overwhelms a non-economist listener with his esoteric statistical and lengthy explanations of economic theory. However, comparison with a dilatant’s understanding of other renown economists is enlightening.

FINANCIAL LITERACY

What Professor Fullenkamp makes clear is information is key to understanding financial markets, but human judgement is the difference between investor’ success or failure.

Books of Interest
Website: chetyarbrough.blog

Financial Literacy (Finding Your Way in the Financial Markets)

By: The Great Courses

Lectures By: Professor Connel Fullenkamp

Professor Connel Fullenkamp (Lecturer at Duke University, economist and director of undergraduate studies in economics.)

“Financial Literacy” may put some listeners to sleep but there is a lot to be learned from Connel Fullenkamp’s lectures. He gives a lengthy description of financial markets extending from Stocks to Bonds, Forex, Commodity, and Derivative Markets. He offers information about how money is used and made in financial markets. Fullenkamp addresses banks, stocks, selling and buying securities, expected returns on investments, how they are priced, controlled, and how information about them is important for personal financial decisions.

It is no surprise to find that banks play a critical role in financial markets.

They provide personal banking services by accepting deposits and providing loans to individuals and businesses. They smooth the flow of money in the economy. Banks can help companies raise capital by offering advice and services for the issuance of stocks and bonds to finance businesses. They offer advisory services for mergers, acquisitions, and other financial strategies. Banks can act as market makers by buying and selling securities for their clients. They can provide asset management services, research and analysis, and ensure legal regulation and compliance with government and international laws. Banks are the backbone of financial markets when they provide efficient allocation of resources and ensure the smooth functioning of the financial system. All of this is true in concept.

However, banks, savings and loan companies, and mortgage lenders are run by human beings who are subject to all the risks of human nature that can lead to catastrophic financial collapse as it almost did in the 2007-2010 mortgage derivative crises.

To be fair to the professor’s presentation, the 2007-2010 crises is not only because of the bad mortgages generated by financial institutions like Countrywide, New Century and Ameriquest. Goldman Sachs, Lehman Brothers, Bear Stearns, and Merrill Lynch investment banks are equally guilty. They packaged bad mortgages with high-risk mortgages to be sold to the public as safe collateralized securities that were far from safe and ultimately unsound. The result was a near worldwide financial collapse.

The government compounded the failure of 2007-2010 by guaranteeing poorly justified mortgages that were included in the packaged securities.

Rating agencies like Moody’s Standard & Poor’s, and Fitch ratings misled investors about the risks of the packaged mortgage securities. Government oversight organizations like the Federal Reserve and Department of the Treasury did not adequately do their job. Ironically, banks like Wells Fargo resisted the mortgage derivatives while banks like JPMorgan Chase bought and sold them but was too big to fail. Ironically, both banks became vehicles for recovery by taking over some of the lenders that had to0 many mortgage derivatives in their portfolios. (As noted in earlier book reviews, many families lost their homes because of foreclosures caused by lenders who originated the mortgages in these securities.) Fullenkamp explains financial markets are based on information. However, as noted by information computer geeks, “garbage in, garbage out” sunk lenders and victimized many investors, lenders, and homebuyers.

In explaining the stock market, Fullenkamp notes an investor becomes a partial owner of a company which gives them a stake in a company’s future profits, either from dividends or market performance.

Stocks have a dual identity. The difficulty for the investor is in understanding the information provided by the company to predict company performance and reap the benefits of stock appreciation. Fullenkamp gives some insight on assessment of that information, but most listeners seem most likely to pay less attention to professors of finance than to their own judgement.

Fullenkamp goes on to discuss Forex (Foreign Exchange). This is a global marketplace for trading national currencies.

Unlike stock and bond markets, a Forex market operates 24 hours a day because currency is an international trading market with centers in different cities like New York, Tokyo, and London. In the case of Europe and the U.S., the trade would be in Euros and US Dollars or in Japan and the U.S., the trade would be in Dollars and Yen. Exchange Rates fluctuated based on nation-state events. Strategic buying and selling based on those events can create profits and losses for exchange traders. Unlike a singular centralized stock market, Forex is decentralized and conducted electronically over the counter (OTC) by a network of banks, brokers, and dealers.

Fullenkamp also defines commodities markets. There are hard and soft commodities. Hard are like gold, oil, and other naturally produced materials. Soft are agricultural products like wheat, coffee, or cotton.

Most commonly, trading in these products is done with futures contracts. Futures are agreements to buy or sell a commodity at a predetermined price on a future date. The investor is gambling on the commodity to be either worth more or less than what the product is expected to cost at the actual time of purchase or sale. There are several exchanges around the world. The participants are speculators that either take the commodities at the agreed upon price or simply gain or lose money based on the actual price of the commodity when it is deliverable.

There is a great deal to absorb from Fullenkamp’s lectures. The last lecture is on “The Future of Finance”.

He suggests the technology of mobile phones has expanded the lending industry to individuals from institutions. It has already begun in less successful economic societies. Mobile money platforms and digital financial services are being used in Africa. Users of these platforms store, send and receive money by mobile phone owners because traditional banking services are not available. Fintech companies are formed to assess creditworthiness of individuals and small businesses. The vast amount of personal information becoming available with the internet becomes a source of customer approval or rejection of small companies and individuals seeking loans.

What Professor Fullenkamp makes clear is information is key to understanding financial markets, but human judgement is the difference between investor’ success or failure.

WORKER ABANDONMENT

Trump is unlikely to help the middleclass and poor any more than some of America’s past Presidents, but he disrupts the status quo. That is Thomas Frank’s answer to why Trump was re-elected.

Books of Interest
Website: chetyarbrough.blog

Listen Liberal (Or, What Ever Happened to the Party of the People?)

By: Thomas Frank

Narrated By: Thomas Frank

Thomas Carr Frank (Author, political analyst, historian, and journalist)

How could the American people elect a billionaire felon as President of the United States? Thomas Frank offers a compelling answer to that troubling question.

Since WWII, the American people have been misled by the words, policies, and deeds of both Democratic and Republican leaders. No post WWII leader escapes Frank’s frank explanation. Not since Franklin Roosevelt, and Harry Truman have any Presidents effectively reduced income inequality.

Frank embarrasses American voters for complicity in reducing the size of the middle class, ignoring the poor, and making the rich richer. He explains how Presidents of the last 70 years have made the middleclass smaller and the poor poorer. Frank particularly points to Bill Clinton and Barack Obama as examples of Ivy League’ wordsmiths that misled the public and instituted policies that moved America away from the working class and poor.

Clinton and Obama represented education as the primary measure of success in the 21st century. They largely ignored the working class that grew the American economy to be the most successful in the world. With that neglect the Democratic party became adjunct to the Republican party by diminishing the contribution and value of working Americans. Whichever party leads America no longer makes a difference to the middleclass’ and poor. Frank argues there is little difference between a Democratic or Republican President. The middleclass and poor realize those who are elected to lead make little difference in American worker’s lives.

Frank methodically dismantles Clinton and Obama administration’s policies to show how they diminished opportunity for the middleclass and poor. Clinton manages to balance the national governments debt on the backs of working America. Clinton’s welfare reform took many off of welfare by demanding employment as a requirement for any help by the welfare administration. That seems laudable but its impact on single parent households left children home alone and at the mercy of their neighborhoods. A child alone is left to the influence of neighborhoods festooned with gangs, drugs, guns and their societal consequences. In reducing the number of people on welfare, poverty increased.

Clinton’s programs for crime control massively increased prison building and prison populations that disproportionately affected African and Latino American communities.

Clinton repeals the Glass-Stegall Act and allows commercial banks to enter the derivative mortgage business that led to the near future financial collapse of America between 2007 and 2010.

Entry into the North American Free Trade Agreement (NAFTA) led to manufacturing job losses in America.

Frank admits Obama helped the middleclass and poor with Obama Care but argues he made the same mistakes as Clinton by supporting the rich at the expense of the middleclass and poor. Obama chose to follow the lead of George Bush’s plan to get America out of the economic ditch of the century by bailing out the financial industry while allowing the working class to fend for themselves. Many lost their homes as a result of banker’s lending greed and mortgage derivatives that came from Clinton’s decision to repeal Glass-Stegall. None of the banks were punished by bankruptcy because the federal government made a deal to keep them in business or subject to acquisition by bigger banks that became even larger. Poverty remained at the same level. Surprisingly homelessness was reduced by Obama’s “Opening Doors” initiative in 2010. However, the trend of aiding the rich at the expense of the working class is re-invigorated by emphasis on higher education and creativity rather than the nuts and bolts of economic prosperity that comes from job creation and a working public.

The trend of aiding the rich at the expense of the working class is re-invigorated by emphasis on higher education and creativity rather than the nuts and bolts of economic prosperity that comes from job creation.

The glaring irony of Frank’s observation led to the election of a billionaire who lauds wealth and power and cares little about the middleclass and poor. Donald Trump, Barack Obama, and Bill Clinton distorted the truth, partly by lying to themselves but also by purposely lying to the public with political policies and actions that did not make the lives of the middleclass and poor any better.

Trump directly distorts the truth but Obama and Clinton lie to themselves about the value of education as the singular path to improvement for the middleclass and poor. People are not only educated by school.

People are also educated by work and their experiences in life. Not every person in America or the world is interested in having a college degree. Shared economic productivity is the key to reducing income disparity. The brilliant oratorical skills of Obama and Clinton were refined by their intelligence and education but not everyone is blessed with the same skill. Trump is no Obama or Clinton, but he appeals to many who feel they have been left behind or can be benefited by his transactional view of the world.

One may agree that economic productivity comes from creativity, education, and work. However, it does not come from emphasis on one thing but on equality of opportunity for all to be employed.

Franks’ cynicism is overwhelming. By the end of his book, which is published before Hilliary Clinton’s political defeat by Trump, one is depressed by the truth of what he writes. The second election of Trump is proof of the failure of the Democratic party, and the Republican party, to live up to a belief in social equality and equal opportunity.

Creativity is an innate human quality. Education comes in many forms which are both formal and informal.

Being employed is a government, private enterprise, and personal responsibility. It is the job of governance to create public policies that support equality of opportunity for people to be creative, educated, and employed. Equality of opportunity ensures national economic growth and prosperity.

Trump is unlikely to help the middleclass and poor any more than some of America’s past Presidents, but he disrupts the status quo. That is Thomas Frank’s answer to why Trump was re-elected.

AMBITION

It takes more than ambition to build a successful organization or company. Unless one is a genius who can continually innovate, it takes management structure that encourages others to innovate and work for a common organizational purpose.

Books of Interest
Website: chetyarbrough.blog

Bad Blood (Secrets and Lies in a Silicon Valley Startup)

By: John Carreyrou

Narrated By: Will Damron

John Carreyrou (Author, French-American investigative reporter for the NY Times)

Ambition is the strong desire or drive to achieve something. The public story of Theranos is examined by investigative reporter, John Carreyrou. His subject is Elizabeth Holmes, a bright young woman who drops out of Yale to pursue an idea. Her idea is to create a blood testing system intended to diagnose medical conditions with potential for measuring effectiveness of drug treatment for existing disease. Her ability to sell an idea exceeded her ability to organize a company to create a product that accomplished that end.

Most companies or organizations will either fail or stagnate when led by only one innovator. There are exceptions but it requires an extraordinary leader, like a Steve Jobs, Ginni Rometty, Mary Barra, or Elon Musk. Their leadership skills may rub people the wrong way, but they have a superior perception of reality that is not singularly based on loyalty. They have the innate ability to offer enough innovation to grow their companies. (At the risk of offending supporters, loyalty is the threat of Trump’s management style. Trump principally bases his organizational decisions on loyalty.)

Elizabeth Holmes may have had a great idea, but her poor management skills are appallingly revealed in Carreyrou’s interviews with former employees of Theranos.

The only consistent management criteria practiced by Holmes is loyalty. If an employee appears disloyal to her vision of the company, they are fired. Any organization that principally relies on loyalty discourages innovation and becomes entirely dependent on orders of its leadership. Particularly in the tech industry, innovation is critical.

Elizabeth Holmes misled investors, patients, and doctors. She is convicted for fraud and conspiracy in 2022. She is serving an 11-year sentence in a Federal Prison Camp in Bryan, Texas.

Holmes’ ambition, in addition to her prison sentence, led to a $500,000 SEC’ fine and the return of 18.9 million shares of a company that no longer exists. Furthermore, the SEC ordered a ten-year ban on serving as an officer or director of a public company which, of course, becomes moot with her imprisonment. The irony of Carreyrou’s story is that Holme’s idea is presently being pursued by Babson Diagnostics, Stanford Researchers, and Becton Dickinson. Whether she will ever reap any reward from another company’s success seems remote, but it will presumably be based on patents filed, and licensing agreements based on former Theranos patents.

“Sunny” Balwani was also tried and convicted for Theranos’ misdeeds.

The 16th century phrase “birds of a feather flock together” comes to mind when Ramesh “Sunny” Balwani joins Theranos in 2009. He had loaned the company $13 million but he also knew Holmes from her days when she was learning Chinese in a Stanford summer program. At some point they became lovers despite a 19-year age difference. Carreyrou notes Balwani became a multi-millionaire with the sale of his tech company, Commerce One” in 2000. He was convicted of tax evasion for the sale but claimed the evasion was caused by his tax accountant which he sued for recovery for back taxes he had to pay. (There is a settlement amount between the tax accountant and Balwani, but it is not revealed.) Carreyrou explains Balwani was a martinet who brooked little disagreement when he became COO of Theranos in 2009. (Part of Holme’s defense was that Balwani was the principal behind Theranos misdeeds, but the court obviously disagreed.)

In 2022, Balwani was sentenced to 13 years in a federal prison for his involvement in what is characterized as Theranos fraudulent activities.

There are business management lessons in Carreyrou’s book about the misdeeds of Theranos. It takes more than ambition to build a successful organization or company. Unless one is a genius who can continually innovate, it takes management structure that encourages others to innovate and work for a common organizational purpose.

AI TRANSITION

The potential of AI is akin to the Industrial Revolution, yet it could surpass it significantly if managed correctly by humans.

Books of Interest
Website: chetyarbrough.blog

The AI-Savvy Leader (Nine Ways to Take Back Control and Make AI Work)

By: David De Cremer

Narrated By: David Marantz

David De Cremer (Author, Belgian born professor at Northeastern University in Boston, and behavioral scientist with academic studies in economics and psychology.)

“The AI-Savvy Leader” should be required reading for every organization investing in artificial intelligence for performance improvement. From government to business, to eleemosynary organizations, De Cremer offers a guide for organizational transition from physical labor to labor-saving benefits of AI.

AI offers the working world the opportunity to increase their productivity without the mind-numbing physical labor of assembly lines and administrative scut work.

Like assembly line production implemented by Ford and work report filing and writing during the industrial revolution, AI offers an opportunity to increase productivity without the mind-numbing physical labor of assembly line work and after-work’ analysis reports. With AI, more time is provided to workers to think and do what can be done to be more productive.

Arguably, AI is similar to the industrial revolutions transition to assembly line work. Assembly line work improved over time by changes that made it more productive. Why would one think that AI is any different? It is just another tool for improving productivity. The concern is that AI means less labor will be required and that workers will lose their jobs. De Cremer notes loss of employment is one of the greatest concerns of employees working for an organization transitioning to AI. Too many times organizations are looking at reducing costs with AI rather than increasing productivity.

The solution identified by De Cremer is to make AI transition human centered.

His point is that organizations need to understand the human impact of AI on employees’ work process. AI should not only be viewed as a cost-cutting process but as a process of reducing repetitive work for labor to make added contributions to an organization’s goals. AI does not guarantee continued employment, but reduced manual labor offers time and incentive to improve organization productivity through employee’ cooperation rather than opposition. AI is mistakenly viewed as an enemy of labor when, in fact, it is a liberator of labor that provides time to do more than tighten bolts on an auto body frame.

AI is not a panacea for labor and can be a threat just like industrialization was to many craftsmen.

But, like craftsman that went to work for industries, today’s labor will join organizations that have successfully transitioned to AI with a human-centered rather than cost-reduction mentality. Labor productivity is only a part of what any AI transition provides an organization. What is often discounted is customer service because labor is consumed by repetitive work. If AI improves labor productivity, more time can be provided to an organization’s customers.

When AI is properly human centered, the customer can be offered more personal attention by fellow human beings employed by an AI organization.

Too many organizations are using AI to respond to customer complaints. Human-centered AI becomes a win-win opportunity because labor is not consumed by production and has the time to understand customer unhappiness with service or product. AI does not think like a human. AI only responds based on the memory of what AI has been programmed to recall. With human handling of customer complaints, problems are more clearly understood. Opportunity for customer satisfaction is improved.

De Creamer acknowledges AI has introduced much closer monitoring of worker performance and carries some of the same mind-numbing work introduced in assembly line manufacturing.

De Creamer suggests negative consequences of AI should be dealt with directly with employees when AI becomes a problem. Part of a human-centered AI organization’s responsibility is allowing employees to take breaks during their workday without being penalized for slackening production. Repetitive tasks have always been a drain on productivity, but it has to be recognized and responded to in the light of overall productivity of an organization.

AI, like the industrial revolution, is shown as a great opportunity for human beings.

De Creamer suggests AI is not and will never be human. To De Creamer AI is a recallable knowledge accumulator and is only a programmed tool of human minds, not a replacement for human thought and understanding. The potential of AI is akin to the Industrial Revolution, yet it could surpass it significantly if managed correctly by humans.

CLICKS

Just as McCulloch’s history shows how the internet changed yesterday, it seems A.I. will change the future.

Books of Interest
Website: chetyarbrough.blog

How the Internet Happened (From Netscape to the iPhone)

By: Brian McCullough

Narrated By: Timothy Pabon

Brian McCullough (Author, CEO of Resume Writers.com, entrepreneur.)

A book about the beginning of the internet is such old news, one is inclined to put this book aside. The internet was born in the 1960s and only became recognizable in the 1980s. However, even in 2024, it is interesting to hear about early users who became rich just by organizing information on an easily accessible and free media platform.

Like this blog, it is rewarding to write something that others are interested in reading.

The exercise of book reviews is a reward to one’s education and an ego boost for a writer from an audiences’ clicks. Brian McCullough tells the story of the founders of YAHOO, Jerry Yang and David Filo who were in college and became fascinated by the World Wide Web because of information it offered with clicks on a computer board. This was in the 1990s. Though there were many websites to choose from, they were disorganized and difficult to find if you were looking for specific information. Yang and Filo began organizing the websites by their offered information. YAHOO’S founders were looking for information of interest to them, and presumed others would like to know how they could use a keyboard to find information they might need or want.

Jerry Yang and David Filo were fascinated by what could be found on the internet.

They spent hours, days, weeks, months that grew into years organizing website addresses so others could find what was interesting to them. In these early years, making money was not their primary objective. They did not use their site to advertise products for income. They felt clicks were their reward and that clicks would be lost if advertisers were allowed to use their site. They chose to have users pay a fee to become members of their site. Their use and organization of the internet became an obsession for them and followers steadily increased. Their click numbers and users rose into the millions and advertisers were again knocking at their door. They resisted until they realized their idea could be worth something more than their interest in learning, gathering, and organizing knowledge. They relented, allowed advertising, and the clicks to their site kept on rising. YAHOO went public. The rest is history.

McCulloch goes on to describe the rise and fall of companies that capitalize on the internet.

The companies ranged from behemoth companies like Amazon, Microsoft, Google, Apple, and Ebay that rocketed to the stratosphere while Priceline.com, Netscape, Pets.com, Webvan and others plunged into the abyss. This is not to say today’s behemoths will continue to dominate the market or that some new company will replace their success with even greater appeal. A.I., like the internet, may be a killer discovery that makes or breaks today’s behemoths into tomorrow’s also-rans or hangers-on.

McCulloch’s history is interesting because it explains how winners understood the future better than losers understood the present.

It’s fascinating to find Apple’s Jobs resisted creation of the iPhone but employees worked secretly to refine the idea and Jobs eventually agreed. McCulloch also reveals the monopolistic nature of today’s winners and the threat they present to the future. Killer ideas of today’s tech companies capitalize on the internet’s information ubiquity, and how it can be organized to offer product to the world at a competitive price.

A.I. is a new idea that organizes information on its own with consequences to the public that are yet to be realized. Just as McCulloch’s history shows how the internet changed yesterday, it seems A.I. will change the future.

A.I.s’ CROSSROAD

The greatest threat of A.I. is that the ubiquity of information will turn people and countries against each other.

Books of Interest
Website: chetyarbrough.blog

Feeding the Machine (The Hidden Human Labor Powering A.I.)

By: Mark Graham, Callum Cant, James Muldoon

Narrated By: Orlando Wells

Graham, Cant, and Muldoon have backgrounds that offer an educated opinion about the impact of artificial intelligence on the world labor market. Graham is a Professor of Internet Geography affiliated with the University of Oxford’s School of Geography and the Environment. Cant is a researcher and labor rights advocate for workers in the gig economy. Muldoon is an Associate Professor in Mangement and Head of Digital Research at a think tank on modern technologies.

“Feeding the Machine” reminds one of the Industrial Revolution in its early stages.

The fear of loss of jobs because of machine replacement led to the Luddite movement that destroyed machines manufacturing products. The quality of machine-produced product may not have met craftsman standards, but production cost was so much less, the public preferred the lower-cost product. As the industrial revolution grew, the quality of production improved, and many craftsmen lost their jobs. Many of these craftsmen had to find new jobs. Some became users of machines to produce product. The transition was undoubtedly difficult because it required changes in the way people work. Rather than working for themselves, they had to work for manufacturers that produced products with machines. Craftsman had to work regular hours for a wage rather than sell product based on their exclusive labor. Karl Marx in “Das Kapital” explained that capitalism devalued worker’s contribution to society because they were not compensated fairly for their work based on profits earned by company’ owners.

Workers began to unionize to increase their political power and influence on managers of companies owned by entrepreneurs.

The results of unionization have been to begin equalizing wages and company profits. That equalization is a battle between corporate profit needed to stay in business, reasonable return to company owners, and livable wages for workers. When any of these three are out of balance, companies either go bankrupt, or find an acceptable balance that serves the needs of all.

Information is energy in today’s A.I. world., just as steam was in the industrial revolution.

As one listens to “Feeding the Machine” which claims A.I. produces poor quality energy is like early steam engines that provided inadequate energy. Who can say that A.I. “energy” will not improve just as steam engines improved? One becomes skeptical about the authenticity of the authors’ opinion. It seems too soon to believe A.I. power will not improve human life, just as steam engine power improved product quality and lowered consumer prices.

The authors make valid points about the impact of A.I. on workers.

Workers are often paid a pittance for repetitive work that is mind numbing because of the need to monitor digital information for its accuracy and quality. Is that significantly different than the repetitive motions needed by workers on a production line for manufactured goods? Henry Ford changed the way cars are produced by creating assembly line work that gave repetitive jobs to workers. Is that repetitive work much different than digital inspection by workers of A.I. production?

The many examples the authors give of remote workers’ wages for digital accuracy in Africa and other poverty-stricken areas of the world is heart rending. These new laborers are paid small wages that assure continued poverty. Economic inequality is a crime against humanity. Improving education seems the only sure way of defeating economic inequality. Education is a long road to travel but there seems no solution for economic insecurity without it.

Having traveled to Africa, seeing firsthand a dedicated teacher in a class of school children, one feels there is hope that the world’s economic insecurity will end.

Ford was a conservative right-wing businessperson by any measure. He supported Hitler because he was an authoritarian that resurrected a faltering German economy. However, Ford recognized workers were consumers and despite low wages for automobile workers of his time, he chose to raise wages. Ford recognized workers were also consumers. That remains true today. It seems reasonable to presume, unlivable wages will rise for digital workers around the world for the same reason the conservative Ford raised his worker’s wages.

This is not to say, what the author’s write is wrong about workers in Africa that are exhausted from repetitive work at an A.I. company but that the world is at a crossroad similar to the industrial revolution.

The world will change based on the weight of people’s discontent. The greatest threat of A.I. is that information ubiquity will turn people and countries against each other. The result may be a nuclear holocaust that changes the world and societies in a way that is impossible to predict.

The war in Ukraine.

The authors go on to explains how A.I. dehumanizes society. Creating a world-wide’ assembly line for product production allows companies to reduce their production costs by hiring workers around the world who are eager to have an income to improve their lives. The consequences to companies in the host country are improved profits. The consequence to host countries’ workers are layoffs and loss of income. A country of wealth has tools to mitigate worker layoffs, poorer countries do not. Laid off workers have better chances of finding new jobs in wealthy countries. This is not to minimize the consequence but to suggest the world is benefited more than harmed by A.I.

A point made by the authors that played out in the actor strike in America is that actors should be compensated for any work generated by A.I. images or voices of actors.

A.I. that generates false images should be penalized for misrepresenting real people without their consent. Another caution suggested by the authors is that A.I. can recreate art that is equivalent to todays and past literary and visual artists. That seems somewhat hyperbolic but if it is true, society has the tools to penalize those who choose to use A.I. to deceive the public. A.I. is only a tool of society. It is a source of energy that can destroy but also improve the lives of humanity. The authors note only minds are truly creative. A.I. is a recreator of the past, not the future. The use of A.I. by humans improves creative potential.

IN THE LAST CHAPTERS OF “FEEDING THE MACHINE”, THE AUTHORS SOUND AN ALARM BY NOTING THE CONTROL EXCERCISED BY INTERNET MOGULS WHO DIRECT THEIR EMPLOYEES TO CODE ALGORITHMS TO MEET THE NEEDS OF THEIR COMPANIES. THIS IS A SMILAR POWER EXERCISED BY ROBBER BARONS OF THE LATE 19TH CENTURY. DEMOCRACRATIC CAPITALISM COPED WITH ROBBER BARON’S HEGEMONIC POWER THROUGH GOVERNMENT HEARINGS AND OVERSIGHT. ELECTED OFFICIALS SEEM WILLING TO COPE WITH MEDIA BARONS OF THIS CENTURY IN THE SAME WAY. PUBLIC HEARINGS AND GOVERNMENT OVERSIGHT OF MEDIA MOGULS ARE BEING CONDUCTED TODAY.

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