Friday, December 2, 2016

Saving jobs at what cost

I have been searching for the words to express how exasperated I am with United Technologies' decision to keep 700 or so jobs in its Carrier plant in Indianapolis.  Kudos to Larry Summers, today in WP, who totally nails it.  In a market system based on stable regulations and enforced laws, everyone plays under the same rules.  Who you are does not matter.  In a system based on ad hoc deals, all bets are off and companies will redouble their efforts to make friends in high places in government.  

Money quote:
Most companies will prefer the good to the bad will of the U.S. president and his leadership team. Should that reality be levered to get them to locate where the president wants, to make contributions to the president’s reelection campaign, to hire people the president wants to see hired, to do the kinds of research the president wants carried out, or to lend money to those that the president wants to see assisted?
Some of the worst abuses of power are not those that leaders inflict on their people. They are the acts that the people demand from their leaders. I fear in a way that is more fundamental than a bad tax policy or tariff we have started down the road of changing the operating assumptions of our capitalism. I hope I am wrong, but I expect that as a consequence we are going to be not only poorer but less free.

Tuesday, November 29, 2016

Economists weigh in on Fidel

Two blog posts from well-known economists:

1) Tyler Cowan's forecast for the Cuban economy after Fidel is not very rosy.  Cuba has a foreign debt challenge and can no longer count on cheap oil from Venezuela.  Sugar prices have increased this year but remain depressed.  The best case scenario, Cowan argues, is that Cuba catches up with the Dominican Republic in a few decades.

2) George Borjas spent the first 11 years of his life in Cuba, leaving with his mother after his family's business had been confiscated.  He shares his remembrances about life under Fidel in the early 1960s in this blog post.  Borjas reaction to the news of Fidel's death: "Good riddance!"

Sunday, November 27, 2016

Machine Intelligence

Twenty years ago the internet was supposed to "change everything" and defy conventional economic analysis.  Nope.  Did not happen.  The internet lowered the cost of search, information, and communication.  New products spawned by the internet were characterized by massive fixed costs and negligible variable costs.  Key insights about the internet continue to follow from basic economics.

Now the hype is about machine intelligence.  Three faculty members at the Rotman School of Management at the University of Toronto have a short article on the HBR website where they argue that the economics of machine intelligence can be summed up as "lower costs of prediction."  This means that firms will have lower costs associated with demand forecasting and inventory management, leading to wider adoption of these practices.

As prediction becomes cheaper, there will be an impact on other inputs into the production process, depending on whether they are substitutes or complements for prediction.  For instance economists who make predictions may be displaced by machines.  The authors think that judgment skills will become more important, serving as a complement to cheaper predictions.  I am not sure what they mean by judgment skills, but presumably they are referring to cognitive processes where humans will continue to have an advantage over machines.

Machine intelligence will soon be coming to higher education.  Some business schools are already experimenting with using tools based on machine intelligence to drill newly admitted students on basic skills in math and statistics.  Will a machine-based socratic dialogue be next?

Tuesday, November 22, 2016

Immigrants making America great

If you want to understand why America has been the world leader for so many years in technology, you might want to pay some attention to the key role played by immigrants.  This report from the American Enterprise Institute (right-leaning DC think tank sure to supply many appointees to the Trump administration) shows that

  1. Fifteen of the top 25 tech companies were founded by first or second generation immigrants
  2. A fifth of the Inc. 500 firms are headed by immigrants
Legitimate disagreements can be had concerning illegal immigration and the number and mix of legal immigrants to the US.  As these discussions play out, everyone needs to be well aware of the vital role immigrant entrepreneurs play so that we avoid decisions that keep the father of the next Steve Jobs in Syria.  

Wednesday, November 9, 2016

Economists find recipe for charter school success

The evidence on the effectiveness of charter schools is mixed at best.  But a recent study by  economists from MIT and other schools (that was featured in NYT recently) shows that one type of charter school has been consistently successful -- schools that set high expectations for students and high levels of support for teachers and students.

The research team followed charters in the Boston public schools.  Lotteries determine who gets into charters, so there is a real experimental design to the research.  Those fortunate to get into charters learn more in school and are more likely to go to college.  Most of the charter students come from low income families and are learning at the same level as those in public schools from upper and middle income families.

One researcher noted that the impact of the charter environment was far greater than variables such as class size and new buildings.  Another, who used to be a union organizer, said the gains from these charters were the largest she had ever seen in her career.

Yesterday Massachusetts voted on a referendum to significantly expand charter schools.  It lost 62 to 38 percent.

Friday, November 4, 2016

NC State MBA rated in Global Top 100 by the Economist magazine

More kudos for the NC State Jenkins MBA!  The program was ranked #89 in the world by the Economist magazine in its annual Which MBA? rankings.  This is the first time our program has appeared in a global top 100.  NC State placed #24 among public universities in the US.  This will certainly help raise its reputation, especially among prospective students overseas.

Globally NC State stood out in the following areas:

  • #10: % of graduates with jobs within three months of graduation.  
  • #12: faculty quality
  • #14: salary growth (post-MBA divided by pre-MBA salary)
Highly half of the top 100 programs were in the US, with most of the rest in Europe.  The top five programs were Chicago, Northwestern, Virginia, Harvard and Stanford.  

Wednesday, November 2, 2016

NC State MBAs excel at case competitions

In two recent case competitions, teams representing the NC State Jenkins MBA team have excelled.  At the National Black MBA Conference in New Orleans, 34 top-tier schools competed.  NC State's team placed second, just behind the University of Michigan.  Other schools that competed include Boston University, Cornell, Emory, Georgetown, MIT, Ohio State, Penn State, Purdue, Rice, Rutgers,  Southern Cal, Texas A&M, UCLA, UNC-CH, and Vanderbilt.  

Kudos to David Satterfield, Rudhawarsh Loganathan, Chandan Dash, Malcolm Scott, Aarathi Sree Srinivasan, and Vishnu Kotipalli for representing the program so well.  Rudhawarsh also was one of six contestants recognized as one of the best presenters in the first round.  Also at National Black, Jelyse Dawson finished fourth (out of 300) in the Innovation Whiteboard Challenge.  

Kevin Weisner's team finished in first place in the US division of the Novo Nordisk Innovation in Action Case Competition.  Kevin goes to Denmark in two weeks to compete against a Danish team for the global championship.  

NC State is hosting its first case competition starting tomorrow, the NC State Grand Business Challenge sponsored by Merck.  There will be nine other schools competing

Saturday, October 29, 2016

How are those pay raises working out for Walmart?

In early 2015 Walmart made a strategic decision to start paying higher wages to store employees.  Starting pay went up to $10/hour with department managers getting bumped up to $15/hour.  Walmart also started investing more in training that would make workers promotable.  What happened?

According to a recent NYT article, the good news is that customer satisfaction and sales have both increased.  The not so good news is that profits have lagged the averages for S&P Retail and the S&P 500.  Managers report that Walmart is now attracting a different sort of employee, one looking for a career instead of just a job.  Productivity seems to be higher as well.  Conceivably the profit situation will turn around once enough workers have been trained that Walmart can get a return on the training investments.

Sunday, September 25, 2016

Regulating driverless cars

According to WP, the National Highway Traffic Safety Administration is in a big hurry to issue "aggressive" regulations on driverless cars.   The regulations are likely to encompass "how and where they expect their vehicles to operate, how they will interact with other cars and the roadway, how they validate their testing, how they intend to protect privacy and prevent hacking, and how they would share data collected by onboard computers."

Two ways of looking at this.  The good news is that one set of federal regulations will make compliance easier than 50 sets of state regulations.  The not so good news is that the feds are insisting on pre-market approval with testing monitored by an independent party.  This looks like a sure way of putting the US behind other countries in the race to develop this new technology.  

Driverless car experiments are already taking place.  Hopefully the industry and the regulators can wait until there is more certainty about how such cars are likely to operate before coming up with a regulatory framework.  

Thursday, September 15, 2016

An incentive plan fiasco at Wells Fargo

NC State online MBA students have been studying incentive plans this semester.  The main motivation behind such plans is to change employee motivation to generate additional net income for the employer.

This week's revelations about Wells Fargo show how a poorly designed plan can backfire.  WF wanted its employees to cross-sell more accounts, e.g. get someone with a checking account to take out a mortgage.  Employees ended up with aggressive sales targets and thousands of them created new accounts without the customer's knowledge so that they could collect bonuses.

Maryland Smith Professor Clifford Rossi argues that none of the traditional lines of defense against such behavior held.  Line managers did not hold front line employees accountable until it was too late.  Corporate risk management missed all signals as well, ditto for internal audit.  According to WSJ, only 10% of the 5000+ employees who have been fired were at the branch manager level or higher.  No senior officers have departed yet.

While the plan was in effect the number of Wells Fargo products per household rose from 5.5 to 6.4 over a four year period.  And the four year period was 2009-2013, not exactly a time when people were taking out second mortgages to buy a new vacation home.

NYU finance prof Kermit Schoenholtz argues in the New Yorker that enforcement of financial regulations depends on bank self-monitoring.  Right now, that "mechanism isn't working."  Fines are supposedly designed to punish wrongdoing and send a message that banks will pay a stiff price if caught.

Wells has been fined $185m.  Net income in the 2nd quarter of 2016 was $5.6 billion.  The CEO John Stumpf still has his job.