Category: economics

Agility of small companies <i>vs.</i> inertia of big companies

It has been noticed again and again that small enterprises have agility advantages, which big and established corporations lost as they grew to their present size. Everyone realizes the advantages of small size, but seems to be unable to bring those advantages into a big corporation.

Maybe the following insight can resolve the dilemma.

Let’s consider the examples of building a small house vs. that of building a giant shopping mall.

The project of building a small house is easily-managed. There are few stakeholders to be consulted about designing the house. If plans need to be changed midway, they can easily be changed (of course, assuming that there is budget and the ROI figures are good enough).

On the other hand, when building a giant shopping mall, which involves also rerouting of roads around it, there are several stakeholders. The Electric Company needs to be involved with supplying electricity to the mall, and with re-routing electrical wires around it. Water and sewage systems need to have adequate capacity. Proper mix of shop sizes needs to be determined. Big construction loans need to be negotiated. Firefighting provisions are mandatory. You get the picture.

In the same way, small companies are agile, because they do not have a big network of external stakeholders, who need to be considered when changing corporate policies. On the other hand, if a big corporation wishes to make a small change in its policies, it is liable to find that several of the external stakeholders have an interest in the status quo, and will be damaged by the change.

My conclusion is that a big company may be able to regain the agility of a small business if it can reorganize itself to implement a business version of the Law of Demeter. Each decisionmaker and policy formulator should confine his interactions and influence to his immediate neighbors. Any policy changes should have an effect only on a small number of stakeholders. A stakeholder should be able to buffer another stakeholder, which interacts with it, from changes made by other interacting stakeholders.

If this policy is adopted, then stakeholders can be agile.

This runs against the empire building tendency of top level executives.

Broken Windows, Broken Patents

This article in the Right To Create blog likens broken patent systems (and I’ll add that by extension – also broken copyright legislation) to broken windows (the fallacy of economic benefit caused by a small boy who throws a stone through the shopkeeper’s window, causing money to be spent by the keeper to pay a glazier to replace the window).

The Income Tax System in USA and Business Licensing system in Israel

Thomas Frey predicts the collapse of the Income Tax system in USA.

Few weeks ago I was in the offices of the Israeli organization of small businesses (by the way, simply-smart.com, their Web site designers, royally botched their job – at least as far as the Web site viewability under Mozilla 1.7.8 at the moment of writing this blog entry is concerned; 2.5 second long surfing session using this browser version would have showed them that the current Web site design is totally broken) to see an exhibition of art by people with disabilities. At this opportunity, I saw on a table a report about the woes of the business licensing system in use in Israel.

It seems that like the American Income Tax system, the Israeli business licensing system is being abused by using it to accomplish additional politically-desirable ends besides ensuring the safety, health and honesty of the business.

The nightmare of artificially low water prices

The Bureaucrat in Your Shower discusses regulation of maximum water flow rate in showers taken by USA residents.

I agree that it would be better to charge higher prices and make water desalination economically viable. Or at least require attachment of water consumption meters to shower heads, so that people can see exactly how much water they are consuming. Water consumption meters together with existing technology would at least allow people to enjoy brief and intense showers while conserving water in the large.

Bibi Netanyahu and the First Zionist Congress at 1897

Bibi Netanyahu was excellent Minister of Finance, who saved the Israeli economy from the fate of Argentinian economy. Too bad people do not recognize this fact and are angry with him due to cutbacks in handouts to poor people. They do not realize that if Netanyahu hadn’t cut back those handouts, those handouts would have suffered much more serious and less controlled cuts as the Israeli economy collapses.

Bibi Netanyahu was OK as Prime Minister.

However I am not happy with one thing which he failed to accomplish.
This failing is a reason why I and other people do not remember the exact date of the first Zionist Congress at 1897.

You see, Bibi Netanyahu was Prime Minister at 1997. However, he failed to arrange for celebrations to mark 100 years since the first Zionist Congress. The event could be used to explain to the world why Zionism was necessary given the status of the Jews in Europe and Russia at the time. Why Zionism is not as discriminatory as an affirmative action type movement. What problems Zionism set out to solve.

However, since the original Zionist ideology was different in details from Netanyahu’s ideology, budgetary excuses were invoked to avoid celebrating the event.

Ten years later, we have a chance to partially fix this oversight. At 2007, we can celebrate 110 years to the first Zionist Congress. Let’s start preparing for this.

Paul Graham's What Business Can Learn from Open Source

According to Paul Graham’s What Business Can Learn from Open Source, people are more productive when they work at their own hours in their homes. He uses the examples of software startups versus established software companies.

This leads me to wonder how should businesses, which have a lot of capital invested in equipment, manage the work hours of their employees. The employees have to be in contact with the machines at scheduled times, if the machines are to be operated efficiently and economically. Examples: Intel’s semiconductor FABs with their process developing and monitoring physicists and chemists, airline companies and their pilots and airplane maintenance technicians, car assembly plants.

Maybe it is a significant fact that those businesses, which have expensive equipment, do not lock into uniform office cubicles those employees, who deal with the equipment on daily basis. Sailors on a ship sometimes need to be available 24 hours a day to handle emergencies. They work under different weather conditions. They have shore leaves. Shop workers need to be in the shop during its work hours, because it is when the customers come in. However they do not sit in offices or waste time in meetings. They stand and serve customers, reorder the inventory, or whatever. The “expensive equipment” in their case is the shop’s inventory and fixtures which entice customers to leave their money in the shop.

So it seems that it is only those businesses, which do not need to provide their employees with expensive capital equipment, do lock their employees into a 09:00-17:00 day in boring offices and lots of meetings. It is precisely those companies, for which Graham’s conclusions seem to be true. The work done for those companies could be done from employee’s home at his own hours – the inexpensive equipment (such as a PC with one or two specialized peripherals) could be installed at his home. The profession is not necessarily software development. It could as well be a telemarketing operation (heaven forbid).

Relationships between speculative bubbles and economic depressions?

It seems to me that after each bubble (like the American stock market speculations of the 1920’s or the 1990’s dotcom bubble) , an economic depression ensues.

Possible explanation?

When a bubble happens, several people lose their sound judgment and spend their capital and precious time on nonprofitable business dealings. They waste their time on activities, which do not create food and other life’s needs. Without feeling so, they get into debt, one way or other. Eventually, the bubble bursts and they realize that they didn’t make a profit from the work and capital spent.

Since their capital is gone and time was spent on other than profitable work, they find themselves without money to buy the necessities and luxuries of life. Hence, depression.

Depression ends after people work few years and pay off their debts (both real and virtual) and again have money to spend.

What is the real meaning of money?

I have read a book about alternative money schemes. It is called “Funny Money”, written by David Boyle (who has a Web site at http://david-boyle.co.uk/). ISBN 0 00 653067 2.

The book offers alternative points of view on money – as time, as information, as religion, etc. One of the alternative money schemes has people earn “time-dollars” for helping their elderly neighbors, running their errands, keeping them company, etc. They can pay with “time-dollars” for help to their own grandparents or parents, or even themselves if they themselves are old.

In another section of the book, the author explains that all of us are already exposed to various alternative monies, and he does not mean foreign currency. There are the air-miles handed out by airlines, “points” given by the credit card issuers for purchases (worth in Israel about 1 agora per “point”), etc.

I found two oversights in the book.
One oversight is the Free Software world. You pay for your use of Free Software by adding your pet features to it and allowing the entire world and his niece to use them.
Another oversight is understandable. It was due to the fact that the author wrote his book as an account of his trip in USA, which of course excluded Israel. The book does not cover the economic systems developed in Israeli kibbutzim at intermediate stages of privatization.

The important point I took home from the book is that the meaning of money is – that in exchange of my labor, I get a promise that someone else will work for me sometime in the future, when I need this. Bills or gold bars are concrete manifestations of this promise.

Of course, if someone collects more promises of labor than other people can deliver within reasonable working time, then they would eventually find a way to renege on their promise. This is inflation.

One complicating factor of money as a promise of labor is that an hour of one person’s labor is not equivalent to an hour of another person’s labor. Education, experience, availability of capital equipment (such as hammer and screwdriver or an oscilloscope with voltmeter or a stethoscope or a PC) apply a factor, which can be very large in today’s Hi-Tech based economy. The value also varies over the seasons of a year (or a business cycle). At some times, certain professions are in demand and an hour of their labor is worth more than that what it would be worth at other times.

Misfits and Revolutionaries in Utopia

When designing an Utopia, one needs to consider also how people who do not fit in are treated in the Utopia.

One way in which someone may fail to fit in is by being unsuccessful when trying to play by the Utopia’s rules.

In capitalistic regimes, unsuccessful people are poor, hungry, have poor health and bad (or nonexistent) housing. They then have a good reason to try to overthrow the present regime, in the belief that in a better regime they will have higher quality of life.

Another kind of unsuccessful people are those, who do not have the patience and long attention span to build their wealth slowly and on solid base. Such people indulge in various get-rich-quick schemes. They typically become real estate and insurance agents. They start the classical makework businesses. They do not consider the benefit to society when planning their business, only how it can funnel money into their pockets. Such people are behind business scams and Enrons.

A third kind of people are ones, who are better at organizing (i.e. influencing) people than in creating something. They become salespeople and politicians. They are the ones, who might believe that their personal success would come from organizing poor people to overthrow the present regime.

The real test of an Utopia is in how it deals with all those kinds of people and how can they find their opportunities in it without harming other people.

At any case, there will always be some people, who feel very dissatisfied with the Utopian regime, and who would try to overthrow it, or at least get it to change. Such people are necessary for the future evolution of the Utopia and for updating its workings according to the changed times. Those people would be good at pointing out abuses of the establishment and at getting it to change before it is overthrown.