Business & Economics: November 2005 Archives

My brother sent me this Fortune article about the growing popularity of anime in the United States and what it might mean for the American and Japanese economies.

From Pokemon to Full Metal Panic, the anime industry is doing everything the rest of show biz isn't: embracing technology, coddling fans—and making a killing. ...

None of this means that Western culture is going all-anime. Ledford acknowledges that interest seems to bubble up, then fall back a bit before growing again. Certainly the aging of the Pokemon generation—the first to have widespread exposure to anime at a young age—should help.

Some in the world are in a panic over American "cultural hegemonization", but this article illustrates that Americans are rabid consumers of culture as well as producers. As my brother pointed out, little could be better for Japan's economy that greater openness and connection to America.

Drudge is running the headline "Happy Holidays: GM to Cut 30,000 Jobs, Close 9 Plants" with definite implications as to the unfairness of it all, but this sort of creative destruction is exactly what makes America's economy so strong, and the fact that you'd never see such a headline in Western Europe should tell you everything you need to know about their economic weakness.

General Motors Corp. will eliminate 30,000 jobs and close nine North American assembly, stamping and powertrain plants by 2008 as part of an effort to get production in line with demand and position the world's biggest automaker to start making money again after absorbing nearly $4 billion in losses so far this year. ...

The 30,000 job cuts represent about 9 percent of GM's global work force of about 325,000 people.

"The decisions we are announcing today were very difficult to reach because of their impact on our employees and the communities where we live and work," Wagoner told employees. "But these actions are necessary for GM to get its costs in line with our major global competitors. In short, they are an essential part of our plan to return our North American operations to profitability as soon as possible."

Assuming Wagoner knows what he's talking about, his actions fall squarely into the realm of reasonable and responsible management. He has a duty to the owners of the company -- the millions of shareholders -- to handle their investments profitably. As for the economy itself, eliminating these jobs is a double-win, because not only will less manpower be wasted on unneeded effort, that same manpower can be redirected towards useful endeavors -- a minus is turned into a plus.

And yes, I've been laid-off before, I work in aerospace!

The Wall Street Journal has published a list of quotes by lont-time contributor Peter F. Drucker who recently passed away. His insights will be valuable to anyone who is interested in understanding the philosophy behind successful American capitalism. A taste:

From "How to Save the Family Business," Aug. 19, 1994: Family members working in the business must be at least as able and hard-working as any unrelated employee. In a family-managed company, relatives are always "top management," whatever their official job or title. On Saturday evenings they sit at the boss's dinner table and call him "Dad" or "Uncle." Mediocre or lazy family members are therefore--rightly--resented by non-family co-workers, and respect for top management and the business as a whole rapidly erodes. Capable non-family people will simply not stay, and the ones who do soon become courtiers and toadies. It is much cheaper to pay a lazy nephew not to come to work than to keep him on the payroll.

In a post about the winners and losers of last week's elections, John Fund cites a statistic that should scare Californians who just rejected Arnold's attempts to decrease the stranglehold of unions on the state:

For now, the unions are flush with victory and their success in humbling Mr. Schwarzenegger. But their victory may be a Pyrrhic one if it accelerates the flight of California private-sector jobs and capital to other states, taking the source of much-needed government revenue at the same time. Even the most powerful economic engines can rust. Take New York City, which today has the same population it did two generations ago but a total of 30% more government workers. During the same period, the number of Fortune 500 headquarters in New York City has dwindled to 30 from 140. When the unions win too much political clout, the overall economy inevitably suffers.

I love Los Angeles, but I worry about the city's long-term viability.

I don't know how most people define "frequent", but I fly a few times per year and don't belong to any frequent flyer programs... am I missing out on something big? I've heard, somewhere, that frequent flyer miles are the second most in-use currency in the world, second only to the US dollar, but I've never come across a plan that really sounds like it would be worth the effort to join. Are my flights just not frequent enough?

Gary at Marginal Revolution has a piece about the true value of frequent flyer programs and gives several examples of major airlines being saved from or financed through bankruptcy purely to preserve the value of their frequent flyer programs for the credit cards they're tied to.

# When United entered bankruptcy, BankOne (since acquired by JP Morgan Chase) provided $500 million in debtor-in-possession financing. The bank needed the airline to survive because their most profitable credit card product is the United Visa. JP Morgan has now stepped up as a major provider of United’s bankruptcy exit financing.

# American Express pre-paid the purchase of $500 million worth of Skymiles to try to keep Delta out of bankruptcy. Again, an airline was kept afloat because it was needed to sustain a credit card business.

# American Express required that Delta make its first action in bankruptcy a request to the Court to reaffirm its frequent flyer obligations, just as United had done in its first bankruptcy action.

What's more, when spun off as an independent corporation, a frequent flyer program can make more money than the airline it's tied to. There's something strange going on here; hopefully someone can figure it out.

Update:
For you real frequent flyers, here's a cool Yahoo tool that lets you find the cheapest places you can fly from where you are. Change the airport code it find cheap fares from anywhere to everywhere.

Larry Kudlow had a great post about the boiling competition between Microsoft and Google -- and between Google and everyone else -- that speaks very highly of the American economy.

Google is the elephant in boardrooms all across America.

You can’t turn a single newspaper page these days without coming across yet another story about Google barreling headfirst into some new industry. As discussed here last Thursday, Google has its sights set upon many of the market’s major players, including Meg Whitman’s eBay. You’d have to be living in a cave not to know that Google’s ravenous appetite knows no bounds. The company shows no imminent signs of losing its grip on its ace-in-the-hole advertising model, and is moving full speed ahead, bursting through fences and into the backyards of established industries including book publishing, telecommunications and software. ...

Look at what Bill Gates had to say about Google in Sunday’s New York Times. "This is hyper-competition, make no mistake," Microsoft's chairman and Chief Software Architect said. "The magic moment will come when our search is demonstrably better than Google's." Looks like Google has ruffled Mr. Gates’ feathers doesn’t it? ...

As I’ve written here before, "our resilient free-market capitalist economy continues to be the envy of all our neighbors. We have the greatest workers and the greatest companies in the world. The formidable combination of low tax-rates on capital, deregulation, strong productivity, Schumpeterian “gales of creative destruction” spawned by bold entrepreneurs who continue to reshape our prosperity, along with record wealth creation and low unemployment, have all conspired to turn the U.S. into the single greatest economy in the world."

Despite predictions a decade ago about a perpetual Microsoft hegemony, it looks like our capitalist system has managed to give rise to some considerable competition, which is good for all of us.

Do you want to make more money? Of course, we all do! Clayton Cramer links to an article about a study that appears to show that church attendance leads to increased wealth.

"Doubling the frequency of attendance leads to a 9.1 percent increase in household income, or a rise of 5.5 percent as a fraction of the poverty scale," Jonathan Gruber of the economics department at Massachusetts Institute of Technology wrote in his study.

"Those with more faith may be less 'stressed out' about daily problems that impede success in the labor market and the marriage market, and therefore are more successful," Gruber wrote in the study, which was released by the National Bureau of Economic Research.

I haven't read the actual study -- so it may merely show correlation rather than causation, as Mr. Cramer assumes -- but the language chosen by Mr. Gruber implies otherwise. The bolded phrase above says "leads to", which implies that his study demonstrated more than correlation; researchers are generally careful to distinguish (or they should be, at least). I may track down the paper itself when I have the time.