Monthly Archives: September 2010

Why America needs more than Venturesome Consumers

I encountered a subtle but deeply disconcerting idea in a recent book entitled, “The Venturesome Economy”: America will prosper as long as American consumers are venturesome.  I’ll try to balance brevity with justice and summarize the author’s main points as the following:

  • First, more wealth is created by recombining technologies (building our capacity to benefit from them) than by making new technological breakthroughs.  Therefore, government should get out of the way, avoid distortionary and inefficient subsidies for pure scientific R&D, and allow firms to take greater risks with more freedom from over-regulation.
  • Second, outsourcing and offshoring are no causes for alarm because our venturesome economy will create new jobs through a process of “nondestructive creation,” i.e., innovation that creates new jobs without eliminating existing ones, especially in the nontradeables services sector where jobs tend not to migrate overseas.  Protectionism is the wrong approach.
  • Third, the American consumer is assertive, adventurous and capable – in a word, venturesome.  The author asks where else do customers exist who have been so anxious to buy products such as the iPod, willing to pay prices that justify significant upfront investments in R&D, and open to being ‘guinea pigs’ in the innovation process.  Innovative firms thrive in the U.S. because new ideas are given a chance; in fact, the social, cultural, psychological and historical roots for America’s venturesome consumption run so deep that they will nourish innovative activity for many years to come.

I can agree, in part, with the first point.  A growing body of economic literature does indeed find that “countries tend to converge to the level of income dictated by the complexity of their productive structures, indicating that development efforts should focus on generating the conditions that would allow complexity to emerge to generate sustained growth and prosperity” (Hidalgo and Hausmann, 2009).  In other words, wealth is created by deploying a distinctive and sophisticated combination of capabilities to satisfy human needs.

Beyond that, how visionary or inspiring is venturesome consumption?  Why not just say, “The key to prosperity: keep buying new toys, and he who dies with the most toys wins.”  But wait a sec…

  • Were Americans being “venturesome” when Wall Street engineered innovative new financial products to provide loans to anxious and willing consumers in Sarasota that would inevitably default?
  • Were Americans being “venturesome” when the Detroit Big Three discovered innovative new designs for wasteful, high-end automobiles and sold them to eager consumers?  What is “non-destructive creation” if not the discovery and deployment of clean technologies in auto manufacturing, and why do we lag so far behind?  Isn’t it the utter failure of these firms that makes it necessary for the DOE alone to spending more than $40 billion in loans and grants to encourage private firms to develop green technologies, such as electric cars and new batteries?
  • Is it wise to assume that the demand stemming from venturesome American consumers will sustain our national competitive advantage?

Clearly, I’ve got issues.  In particular, I’m also disturbed by the notion that somehow pure scientific inquiry pales in comparison to entrepreneurship.  Technologies come from somewhere!

And regarding the overtones of free-market fundamentalism, aren’t “perfect storms” becoming the norm?  Don’t we need publicly elected stewards of economic activity to help guard against market failures (including inter-industry coordination failures) more now than ever?  While the author’s repeated expressions of anti-industrial policy sentiment are loud and clear, let’s not forget some of the great successes of industrial policy, like the Internet, a DoD research project dating back to 1969.  Last summer, Dani Rodrik reminded us in an online debate that the Chilean government has played a crucial role in developing every significant new export that the country produces, South Korea’s POSCO is possibly the world’s most productive steel firm (state-owned until 2000), and Dubai’s Jebel Ali port is one of the largest and most successful ports in the world.  Go figure.

Of course, absolute protectionism is not the answer, but at the same time, we need more than just venturesome consumers.  Why is it so hard to hold two competing ideas simultaneously and still retain the ability to function?  A better path to prosperity involves lengthening our time horizon for investment and entrepreneurship; it involves both intellectual curiosity and genuine empathy; and it involves a process of de-bottlenecking along the way.  If we truly believe and spread the idea that the venturesome American consumer can sustain innovation across the U.S. economy, then we are doomed to wander a dark path toward more perfect storms, armed only with our hopeless optimism.

On the other hand, if the goal is to create a better world for both ourselves and the next generation, then firms, governments and civil society need to think hard about the co-evolution of scientific inquiry and human needs, not only in our own venturesome economy, but all around the world.  After all, “As American consumers spend a little less and save a little more, it has never been more important to connect U.S. businesses to the 95 percent of the world’s consumers who live outside our borders” (U.S. Commerce Secretary Gary Locke, Sep. 16, 2010).


The future of organizational consulting

Here is an outstanding summary of the basic concepts and recent history of network analysis, with examples ranging widely (teams, social networks, firms, industries, economies, etc.), authored by CA Hidalgo, an associate professor at MIT’s Media Lab.  Full text here, and other papers here.

After reading it through, I’m left hungry for more intuitive user-friendly tools for capturing and visualizing networks.  The consulting industry needs a network viz tool that links up with (or gets embedded in!) PowerPoint and other slide production software as seamlessly as think-cell.  Such technology would be particularly valuable in large-scale institutional re-design projects in the public sector (all the more so insofar as they concern key public-private feedbacks in the policymaking process).

I wonder who’s up for the task… (?)

From Deming’s TQM to Crowdsourcing

Here is an interesting article on the future of crowdsourcing for marketing and innovation in business.  The author is my brother-in-law, Andrew Eklund, Founder and CEO of Ciceron Digital Marketing.

My reactions:

I wholeheartedly agree with Andrew that now, more than ever (and increasingly so), technology is enabling companies to better incorporate inputs and feedbacks from their customers.  For context, I must say we have come a long way since Deming’s TQM movement toward understanding the holistic and complex systems that comprise ‘the firm’.  Peter Senge wrote about the importance of systems thinking in his book The Fifth Disclipline: The Art and Practice of the Learning Organization (1990), highlighting the various feedbacks that enable or undermine sustainable long-term growth, not the least of which stem from customers.  Deming himself, in the forward to Senge’s book, acknowledges the importance of these feedbacks.

Now 20 years later (and following much discussion of the success of Dell’s customer centricity, Southwest Airline’s unconventional approach to market research, the crowdsourcing revolution in open source software development, and Steven Spear’s new look at Toyota’s culture of “dynamic discovery”), pretentious management consulting “thought leaders” are now pointing to the Power of Pull as the new frontier for value creation (the Economist published an excellent book review just last month).

But let’s just hang on a sec and recognize that every individual I’ve mentioned here is American, and that fact carries some big implications.  Setting the high-tech aside (as Andrew does as well, as he acknowledges the revolution in open source software development) and focusing on manufacturing, retail and consumer goods, many American firms have notoriously lagged behind their Japanese counterparts in their ability to understand the customer and anticpate demand trends.  Just look at Toyota’s Prius, 7-Eleven Japan’s innovative point-of-sale customer feedback system, and Kikkoman Corporation’s incredible 407-year survival (making it the oldest company in the world).  What’s with these Japanese?  Could it be that Japanese firms are learning more from their customers than American firms are learning?  Could it be that Japanese customers are just plain smarter and have more to say than American customers?  Well, on average, they’re certainly older, and the aging of their population may make them even wiser still.

Back to the U.S., here we have a population whose fertility rate was stagnant for a while, but is actually increasing again.  Now I’m not saying we’re going to get dumber (fingers crossed), but let’s just acknowledge that crowdsourcing is only productive insofar as the crowd is wise.  In part that’s what Southwest Airlines figured out (see Blue Ocean Strategy by Kim and Mauborgne) when they started seeking the valuable feedback of point-to-point bus and rail commuters instead of frequent flyers.

The Velocity of Economic Diversification

As a total newb to blogging, I suppose I’ll begin on a productive note and publish my recent thesis, submitted to fulfill the graduation requirements of the Master of International Business (MIB) program at The Fletcher School.  The topic reflects my long-held personal and professional interests in the evolution of economic complexity and the controversial roles of institutions of economic development.


Is there a speed limit to productive diversification?  What does rapid diversification entail in terms of resource requirements for economic governance? Complementing existing literature on the benefits of diversification for economic development, I examine the public sector labor requirements associated with the diversification of output across economic sectors.  Evidence from time-series and panel data for 16 countries, as well as the case of Abu Dhabi’s economic transformation since 1975, suggests that aggressive diversification may lead to problematic imbalances between public and private sector employment.  In view of these potential imbalances, I argue that policymakers should be less aggressive and more deliberate in their pursuit of productive diversification and adopt priorities to optimize the pace of achieving their economic development aspirations.

Full text: MIB Thesis – Fabyanske – 2010.

A Network Analysis of the Global Financial System

The following was submitted to fulfill the requirements of coursework in finance with Professor Jacque at The Fletcher School at Tufts and coursework in networks and complexity with Professor Hidalgo at Harvard Kennedy School of Government.  The network visualizations were created using gephi, an open source graph viz platform that rocks my world.


What implications has the U.S. sub-prime mortgage crisis had for international financing?  Are banks more or less exposed to systemic risk in the global financial system now than before?  This paper explores recent developments in the web of cross-border bank exposures and, treating these exposures as a “directed network”, investigates the changing statistical measures of network topology.  These measures suggest a stark departure from historical patterns of globalization in banking.  Historically, trends toward higher connectivity and diversified exposure were continuous and unhampered by disturbances or crises between 1985 and 2006.  More recently, these trends have been substituted for an apparently steady state of constant connectivity, with lower levels of average exposure, lower bank appetites for risky lending to less developed countries, and greater concentration on lending between “culturally similar” countries.  Looking forward, key implications of this departure include lower levels of systemic risk, but also lower levels of efficiency in international financial markets.

Full text: 0420 – Exposures Network – Fabyanske – FINAL

PowerPoint: Bank Exposures Network Analysis