Monday, July 28, 2008

Employee training

Lets see if I get it - American business have stopped investing in employees and expect them to arrive fully trained, but some Indian companies are investing in large scale employee training. This article at Fast Company describes one Indian company's efforts to build a world class work force and the amount of time and effort they are investing in their employees.

I’ve watched the transition in American business as employees went from being viewed as creating value to an expense. And as that change took place, many (most?) companies quit investing in training. Is this change in India part of a trend by those companies to view workers as partners in building profits? If so will American business pick up on this new view in time or lag behind as we have with so many other trends?

American business, at least the auto industry, was slow to recognize that continuous quality improvement was key to building world class products. We were slow to recognize rising demand for key resources, like oil,and didn’t invest in developing our resources. By lagging behind we not only have to play catch up, but our costs of adopting the new ideas and methods is much higher because we have to implement the changes as a crash program rather than evolving into them.

Big change made over a short time is almost always more expensive than a measured phase in of new processes or procedures.

Tuesday, July 22, 2008

Midwest floods and self reliance

Any ideas on why the people displaced by the midwest floods aren’t rioting and complaining that FEMA is not supplying coffee makers? I think it’s mostly because the flood victims are small business owners. Farmers, small store owners, small auto repair business; that kind of thing.

These people are used to solving problems themselves and making things work. When the floods destroyed their homes and businesses they started figuring out how to make things work again. Since they built it once they know they could build it again. All they really need is a little time and the cash to get started. The people who in New Orleans who rioted were mostly used to having a government agency fix things.

I live where my taxes don’t provide trash pickup. My choices are to pay a private company to pick up my trash or take it to the transfer station myself. I take it to the transfer station once a month and save about $20 a month over the cost of pickup.

This simple example multiplied by the number of things the people in the midwest did for themselves before the floods is why they are just fixing things and not rioting against the government when things go wrong.

Thursday, July 17, 2008

It’s not politics, it’s business

The recession the US is facing is the direct result of political choices we made over many years. While it is simplistic to claim that any single decision of the federal government is the point cause of our economic woes, the collection of legislation certainly caused the economic results we face.

Companies make operating decisions based on both what consumers want (market forces) and what regulations will permit (government control). We have not built an oil processing plant to make gasoline in something like 20 years. Was this because there was no market for product or because the government created regulations that made it too costly to open a new plant? We have curtailed oil drilling in the US not because the oil companies don’t see a market but because the regulations make the costs of drilling too high to allow a satisfactory return on the companies investment.

We use regulations to “adjust” public behavior routinely. No smoking laws are the most obvious case of blocking your legal behavior to accommodate your neighbor’s preferences. While the case for smoking as a health risk is clear, the case against second hand smoke is less clear. Still, we enacted legislation that defines where and under what conditions individuals can smoke in public. Debating if this is good or bad public policy is not the point of this article, the point is that legislation creates the environment that business operates within.

Another example is foreign trade agreements. The US routinely makes deals with other governments to allow US business low tariff access to foreign markets by allowing those countries businesses low tariff access to US markets. Some of those agreements made it cost effective to ship a lot of jobs out of the US.

When I was taught to analyze information, I was taught to speak not of what was certain to result, but of what was more or less likely.

Anyone who has managed their own small business (as I have) predicted as one obvious results of free or nearly free trade with Mexico (the most well known example) that Mexico will, most likely, sell a lot of inexpensive good to us while we will, most likely, sell fewer expensive goods to Mexico.

We have a huge trade deficit because we buy a lot more cheap stuff than we sell expensive stuff. The legislation that makes this possible was touted as “good for the country” when passed. Once again common wisdom was right and the expert analysis was wrong. We aren’t selling more than we’re buying and we are shedding jobs a an alarming rate.

If I’m right, how did a not very smart guy like me expect the results that we now have and the super smart experts miss it? Too much theory and not enough common sense. We’ve got far too many people making decisions who’ve never had to produce a product other than conversation.

The key to economic growth is not businesses making money, its workers making money and buying products made by other workers. The lessons you learned as a kid from your allowance still apply. Your allowance (income) is fixed and if you don’t have enough income to buy the things you want, you do without. If a candy bar is $1 and you only have 99 cents, you don’t buy. The store doesn’t sell and the manufacturer doesn’t produce. The key to economic growth is workers with money who buy things.

So, again if I’m right, how do we fix it? We use the same tools that got us into this position, we legislate - but we change our focus. We give incentives to companies that create jobs into the US and put disincentives on companies that rely on foreign labor. And if situations like Toyota who has big manufacturing plants in the US confuse you about who is a US company, try this - a US company is one that has its headquarters in the US, pays US taxes, and reports the bulk of their profits on their US tax returns.

When a company is bought by a foreign company it looses it status as a US company. Chrysler was a US company until it was bought by Daimler Benz then it became a foreign company. A foreign company because the profits (if any) go to a company that reports the income in a country other than the US. As with most things the simple answer is the most accurate.

The problem, truly, is not that the profits accrue to a foreign company, it’s that the cash goes out of the US and is then spent elsewhere. The Marshall Plan of post World War Two shipped boatloads of money to Europe and Japan but most of that money came back to the US to buy American products. The manufacturing base of most of these countries had been destroyed while America had a huge excess capacity.

So, what is that common sense answer? Give the companies an incentive to spend their profits in the US! The government should give incentives for spending in the US, generally in the form of tax or tariff reductions. The rules should also apply disincentives for taking profits out of the US economy, again in the form of higher taxes or tariffs.

For better or worse, we are part of a highly integrated global economy and there is no way to isolate the US economy from the rest of the world. With a little thought we should be able to create a system that rewards companies that keep their jobs (and purchasing power) at home.

Wednesday, July 9, 2008


I held off a while before posting this so I could see if I was writing something worthwhile or just knee jerk reacting to something that irritated me. So here are my thoughts, about a week out of date.

I was truly disappointed in General Wes Clark’s comment that Senator McCain’s military service doesn’t “qualify” him for commander in chief. It is certainly a form of experience that will be useful for a president.

John McCain’s service as a fighter pilot and prisoner of war may not “qualify” him for the office of commander in chief. But it does give him a unique understanding of some of the decisions he will have to make.

When I was in Viet Nam, we referred to someone being killed as “wasted”. In fact that term has now become a part of the language for almost anyone who is killed.

For any veteran, solders are not nameless, faceless “troops” they are the people that we lived and served with and one lesson the military instills in all its officers and noncommissioned officers is, while you may have to “spend” your people to reach your objective, GET YOUR MONEY’S WORTH!

Since Senator McCain has that unique experience, I should be able to rely on him not to waste our service people. Is that the only qualification for the office of President? Absolutely not! Is it an important consideration? Absolutely.

Monday, July 7, 2008

Labels matter

Why are so many American’s worried about the economy? Simply because the price of the things they buy every day are going up faster than their salaries. And all the talk by the “experts” about if it is a true recession or not is immaterial.

The accepted definition for a recession (according to wikipedia) is “a recession occurs when real growth is negative for two or more successive quarters of a year”. The street definition is “a recession is when your next door neighbor looses his job, a depression is when you loose yours”.

One of my favorite quotes is “If you call a tail a leg, how many legs does a Tiger have? Four, calling a tail a leg doesn’t make it one!”

The experts can create all the complex descriptions they want to, the truth is what is happening on the street to real people. Inflation is when I can’t buy the same thing today with the same amount of labor that I did yesterday.

If that sounds confusing, look at it this way. You make a dollar an hour and a gallon of gas costs thirty five cents. The next day you still make a dollar an hour and a gallon of gas costs fifty cents. That’s inflation, no matter what the dictionary says.

A recession is when people are getting laid off and can’t find a new job. Doesn’t matter how many legs the experts say the tiger has, real people know it has four!

As I write this, CNN TV is reporting that there is mild economic growth. If a lot of people are not able to buy the same things for the same amount of work; that’s not anyones definition of growth!

If you think I’m wrong, remember we got to where we are by following the advice of the highly trained experts! So if their advice is not producing the results we want, we need to look at that advice and see why it didn’t work. I submit that a big part of the reason is the inaccurate descriptions they use for real world events.

Just as calling a tail a leg and stating that a tiger has five legs confuses you when you see a real tiger with only four legs, the “experts” are now lost by their inaccurate descriptions of recession and inflation.

Are you sure you want to keep listening to the experts who got us where we are?