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Video: Price Says Tepco Timeline for Nuclear Cleanup `Feasible’

May 18, 2011

May 18 (Bloomberg) — John Price, a former member of the safety policy unit of the British National Nuclear Corporation, currently a principal at Integrity Partners, speaks about Tokyo Electric Power Co.’s efforts to cool reactors at its stricken Fukushima Dai-Ichi plant. Price speaks from Melbourne with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

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Larry Magid: Google Becoming All Things to All People

May 17, 2011

After attending the Google I/O developers conference in San Francisco last week, I’m starting to feel as if the company is trying to become all things to all people. With its Android phones and tablets, Google is competing with Apple. With its Chromebook laptops, it’s competing with Microsoft. Google Voice is competing against Sprint, AT&T, Verizon and now Microsoft, which just acquired Skype. Google Maps has practically put traditional map makers out of business, and now that it’s on smartphones, it’s having an impact on the sale aftermarket and factory-installed navigation devices. Google TV is trying to compete with set-top box makers. Google has also disrupted the advertising business and, if it has its way, Microsoft Office and what else is left of the desktop software business will be eclipsed by Google Docs and Spreadsheets, Gmail and other Google Web apps. Come to think of it, Google is even competing with GM, Ford and Chrysler now that it’s working on driverless cars. Google has justified all of these projects as fitting its corporate mission to “organize the world’s information and make it universally accessible and useful.” I suppose you could make a case for how each of these product categories fits into that rubric. Phones, tablets and laptops are the hardware that facilitates accessibility of information. Google Maps certainly fits, and Google Voice sort of qualifies because it lets you record and store incoming phone calls, transcribe and store voice mail, and makes text messages accessible via the Web. And driverless cars obviously qualifies because once we no longer have to concentrate on the road, we can be Web surfing while we’re driving. As if all that weren’t enough, Google last week expanded its empire even further by announcing a music storage service and adding video rental to its Android marketplace. I’m not complaining. As a consumer, I love having choices, and as long as Google isn’t driving competitors out of business, it’s adding to our choices. And in some cases, Google products work well as companions to competing products. As I wrote a couple of weeks ago, I installed an after-market navigation system in my car, but I still find myself using Google Maps on my cellphone when I want to quickly search for something like “the nearest sushi bar” or a particular restaurant or business. Not only is its cloud-based database a lot more up-to-date than the one in my navigation system’s firmware, but it’s also much easier to search and its voice-recognition system works almost every time. I’m very happy to see Google compete with Apple. I love the iPhone and the iPad, but it’s important not to let one company dominate the marketplace. Apple would continue to innovate even if it didn’t have Google at its back because it makes a lot of its money by selling annual upgrades to existing customers. But now that it has to worry about losing customers to Google, Apple is under pressure not only to keep innovating, but also to keep its prices in check. Speaking of competing with Apple, last week Google handed out pre-release versions of Samsung’s Tab 10.1 to all attendees of its conference, including press covering the event. The new tablet is slightly thinner and lighter than the iPad 2 and, so far, is performing admirably. That doesn’t mean it’s better than the iPad 2, which is the current gold standard for tablets, but it’s a serious competitor. Google announced that there are now 200,000 apps in the Android marketplace. That’s still a lot fewer than are available for Apple phones and tablets, but it’s a very respectable number, and it will only get higher. One area where Google will probably never catch up with Apple is with cases and other accessories that attach to the devices. Google tablets don’t even have a consistent power and data connector. The Samsung 10.1′s power cord has a standard USB connector that goes into the power brick but what appears to be a proprietary connector that plugs into the tablet. The Acer Iconia Tab that I wrote about last week has yet a different power connector. What’s ironic about this is that Google CEO Larry Page made a big pitch at his 2006 CEO keynote for getting the consumer electronics industry to standardize on power supplies. I could write even more about Google products, including some categories I don’t have room to mention. If you want to learn more, you can do a search for “list of Google products.” And, yes, “there’s an app for that” — it’s called Google.com. This post also appeared in the San Jose Mercury News For more from Larry visit LarrysWorld.com

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Andrew Winston: Consumers Never Liked to Pay More for Green to Begin With

May 16, 2011

A week ago, the New York Times breathlessly declared in a cover story that during the recession, ” As Consumers Cut Spending, ‘Green’ Products Lose Allure. ” It’s a nice headline and makes it sound like the green product and business movement is in trouble. But the story, while interesting, doesn’t really change the reality for business. First, consumers never liked to pay more for green and, second, consumer pressure is not the biggest force driving the greening of business. Here’s the story. The Times piece focuses on the rise and (sort of) fall of Clorox Green Works cleaning products. Launched with much fanfare in 2008, Green Works quickly became the biggest player in the niche green cleaning space, hitting $100 million in sales before falling to $60 million in the recession (which is still a very respectable number in this market space). The Times crows that “As recession gripped the country, the consumer’s love affair with green products, from recycled toilet paper to organic foods to hybrid cars, faded like a bad infatuation.” So green products are on their way out, right? Not quite. First, as the next sentence points out, “sales at farmers’ markets and Prius sales are humming along now” (fyi, Prius sales jumped 70% in February as oil prices rose). So two of the three categories the Times uses to make its point are actually growing, not fading. Second, at the end of the article, a fascinating chart shows the “green share” of household products holding steady at about 2 percent over the last few years. The conventional brands like Clorox have flattened out — even as Clorox sales dipped, the total number of entrants has continued to grow. The niche brands, such as Method and Seventh Generation, have continued to nibble away at market share and actually grew during the recession. To the extent that the premium-priced green products named by the Times have taken a hit, consumers’ disdain isn’t news: Recession or not, mass consumers never loved paying extra for green. Asking people to pay more for green is usually doomed. Green has always been most effective as the “3rd button” (as my co-author and I called it in our book Green to Gold ) to press in marketing pitches, after price and quality. The Prius is the premium-priced exception that does not disprove the rule. It’s is a special case, since the purchase confers a range of emotional and value-laden benefits that household products just don’t have (critics call the pride of ownership smugness — and, yes, I own one). Therefore, in the trenches of consumer product development, the real story is the pursuit of more sustainable products that, as P&G execs say, create “no tradeoffs” for customers. Why ask people to pay more? As more companies present green products at no additional cost, Wal-Mart and others will be happy to give them more shelf space, because what’s really happening with consumers is subtler than a supposedly fading infatuation with green. As the Times story indicates, there is no rise in the percentage of “true green” consumers who will pay more for sustainable products. But there is a serious rise in the number of so-called “conflicted” or “conscious” consumers , which has been building for years. These buyers, who are quickly becoming the majority of consumers, not a niche segment, want it all. They demand more sustainable products at the same or lower price. The last sentence of the Times article actually captures this phenomenon: “Sarah Pooler, 55, said she did not normally buy green products but would pick them up if they were on sale… ‘Bottom line, if it’s green and it’s a good deal, I’ll buy it’, said Ms. Pooler. And so the race is still on to provide green products at the same price and quality. But exactly because Ms. Pooler and millions of other buyers are still waiting for that price equality, I would argue that what is and has been driving the greening of business is not consumer pressure but a mix macro-level forces and operational sustainability success stories, the countless examples of reduced packaging, lowered toxicity, and condensed versions of products(in detergents for example) that save shelf space and tons of energy in shipping and storage. At the macro level, the greening of products and companies is accelerating because the sustainability drivers are only getting stronger . Rising resource prices, ever-increasing transparency demands about what’s in every product, and continuing pressure up the supply chain from business customers are just a few of the big forces. Does anyone in the consumer product space seriously think Wal-Mart (and other retailers) will stop demanding sustainability-driven operational and product changes just because of the recession? On the contrary, the need to lower costs in the face of rising commodity prices is making eco-efficiency even more economic. So even if consumers develop fickle infatuations with certain products, the business world is clearly developing a deep, abiding love of — or at least growing respect for — the power of sustainability. This post first appeared at Harvard Business Online .

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Joseph A. Palermo: The Republican Supreme Court Sticks It to the Little Guy (Again)

May 15, 2011

Once again the United States Supreme Court under Chief Justice John Roberts has shown the nation it will always favor corporations over people even if it means conjuring new law out of thin air. Like Citizens United, the recent 5-4 ruling in AT&T’s favor gutting the power of consumers to file class-action lawsuits against giant corporations tips the scales of justice against the people and renders the enormous power of corporations even more enormous. When I first heard about the case, AT&T Mobility v. Concepcion there was little doubt in my mind that the Gang of Five — John Roberts, Antonin Scalia, Samuel Alito, Anthony Kennedy, and Clarence Thomas would figure out a way to ignore Supreme Court precedent and again apply their judicial activism in service to the corporations, and by extension, to the oligarchy they apparently believe the “founders” intended. It’s kind of funny when we see Republican presidential candidates like Mitt Romeny, Tim Pawlenty, and Newt Gingrich pandering to the “little guy” denouncing “elites” who are trampling on their rights only to remain mute on the fact that their beloved Republican Supreme Court never, ever rules in favor of the “little guy.” The Republican president Ronald Reagan gave us Scalia and Kennedy; the Republican president George Herbert Walker Bush gave us Thomas; and the Republican president George W. Bush gave us Roberts and Alito. This cabal has shown over and over again where its true loyalties lie, not to “the law,” not to “the Constitution,” not to “calling balls and strikes,” but to a 21st century version of corporate feudalism. This new corporate feudalism that the High Court is determined to thrust on the nation is even more exploitative than the earlier brand of Medieval feudalism because it is absent noblesse oblige. The serfs toiling on the corporate plantation can only continue to pay Chase and Bank of America for their underwater mortgages, ExxonMobil and Chevron for their $4 a gallon gas, and AT&T, Comcast, T-Mobile and the rest for the privilege of communicating in a modern society. And if the serfs seek redress the High Court will slap them down before they can get anything substantial off the ground. With Citizens United placing a stranglehold of corporate power over our state, local, and federal system of elections, we cannot turn to our political “leaders” for redress, we can’t turn to the courts, and we certainly can’t turn to trying to morally persuade sociopathic non-human entities called corporations — so where does that leave us? In the current context of unrestrained corporate dominance it’s unconscionable that the Obama administration has not done more to blunt its disastrous effects. The Justice and Treasury Departments, the Securities and Exchange Commission, the Internal Revenue Service, etc. could be doing a hell of a lot more in bringing balance to the equation of corporations versus people. The administration’s lagging performance in holding Wall Street accountable is well known, but it won’t even lift a finger to block grotesque mergers like the one between Comcast and NBC Universal, and AT&T and T Mobile . In all these mergers and acquisitions it’s always the consumers and the employees who lose, while the CEOs and a select few of shareholders and financiers make out like the bandits they are. Nothing illustrates the corruption rampant in Washington more than the recent resignation of Federal Communications Commission member, Meredith Attwell Baker, a Republican who Obama appointed to show how “bipartisan” he can be, who is now going to work as a lavishly paid shill for the very industry she was supposedly “regulating.” Ms. Baker will now make the big bucks serving Comcast/NBC Universal after she voted for the merger of Comcast and NBC Universal. Sweet. And few in the Beltway see anything unsavory about it. Our political leaders, our Supreme Court, our captains of industry and finance, are so out of touch it’s going to be a long, long time before ordinary working people see any relief. All of our institutions, political, economic, even religious, social, and cultural, all of them, are failing the people miserably in pursuit of the Almighty Buck. The cunning game of appointing young ideologues to the bench has paid off handsomely for the corporate power structure. Someone should tell those people running around in tri-cornered hats and talking about the “founders” that it might be wise to save an ounce of their collective wrath for the Republicans who have appointed five Justices who are trampling on individual freedoms in service of corporations.

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Finance Professionals See Business Opportunity In Strapped Michigan Cities

May 12, 2011

NEW YORK — As Michigan cities grapple with budget deficits and spending cuts, their troubles amount to an attractive opportunity for financial industry players, who are eyeing individual localities for state-sanctioned takeovers. Thanks to a new Michigan law , the governor can appoint an emergency manager to have total control over a municipality or school system deemed to be in dire financial straits. Such officials currently run three Michigan cities and the Detroit school district. Many more, from private and public industries, are waiting in the wings, boning up on municipal governance in case one of them is called upon to turn a city around. Hundreds have already been trained. In Detroit , the largest city in the state, the upcoming budgeting process carries an implicit threat: If local politicians can’t convince the state they have what it takes to repair the city’s finances, the state could appoint an outside official to do the job for them. The city has already hit several of the triggers to initiate the process that could install an emergency manager, say local politicians, who are scrambling to keep the city government out of receivership. But would-be emergency managers say they can succeed where elected officials have failed. They stand to draw six-figure salaries from the local governments under their management, but some talk about this work as if it were a civic duty. “We feel very strongly that not only is there a business opportunity here, but we want to be part of a solution for the greater good,” said Michael Imber, a principal in Grant Thornton LLP’s corporate advisory and restructuring services practice in New York. “We’re absolutely ready to help.” Imber is not alone. In February, he was one of about 50 graduates of a training course for Michigan emergency managers, a two-day program promoted in Crain ‘s business magazine. The course was popular, with a waiting list exceeding 100 people, said Eric Scorsone, an economist at Michigan State University, who helped organize the session with the Turnaround Management Association, a corporate restructuring industry group. More than two-thirds of the participants in February were from the private sector, Scorsone said. At the next training program, held in April, public sector professionals were more heavily represented, and about 400 people participated. That course, too, had a long waiting list. “There’s constant chatter going on about this,” said bankruptcy attorney Harley Goldstein, a partner at the law firm K&L Gates. “Everybody wants to make a buck.” Michigan has had an emergency manager statute on its books for 20 years, but Public Act 4, signed by Republican Gov. Rick Snyder in March, endows these officials with expanded powers over the localities where they’re dispatched. Emergency managers now can suspend collective bargaining rights for unions. They can terminate worker contracts. They can strip the mayor and the city council of all their power. These officials were once called “emergency financial managers.” Now they’re called just “emergency managers.” “That’s to emphasize that it’s not just about finances,” Scorsone said. “It’s more like a CEO rather than a CFO.” But even “CEO” doesn’t fully capture the extent of emergency managers’ authority. In the city of Benton Harbor, Joseph Harris has been the emergency manager for a year . Elected officials have resisted his rule, but thanks to Harris’ new powers, he is able simply to “put them in the timeout chair,” state Rep. Al Pscholka (R) told Bloomberg Businessweek . For Detroit, the coming two months are a crucial period, a time in which the local elected officials must prove to the governor that they can take care of the city on their own. The fiscal year ends June 30, and a new budget, which local officials are now in the process of writing, will take effect the following day. Mayor Dave Bing’s proposed budget includes cuts totaling nearly $100 million from a $1.3 billion general fund. The actual cuts could be even greater, city council members say. But it might take more than a balanced budget to convince the state to leave Detroit alone. Local politicians are also writing a plan to eliminate the city’s accumulated deficit, which exceeds $200 million, according to the mayor’s estimate. The goal is to give the city a budget surplus in five years. But for all the planning, the city’s finances could remain tenuous. For one, Detroit’s deficit-reduction plan depends on the state’s allowing the city to collect certain taxes, and to raise others. The latest Census data showed Detroit’s population had declined by a quarter over the last decade, falling below a legal threshold and preventing the city from collecting a utility tax. To get this revenue, and to raise its income tax, Detroit needs approval from the Republican-controlled state legislature — the same body that passed the new emergency manager law. Already, the city has made deep spending cuts to compensate for its depleted coffers. Workers have absorbed furlough days that amount to a 10 percent pay reduction. But city officials say they’re prepared to cut even more. The mayor has proposed shrinking the workforce by nearly 200 positions to help achieve that $100 million in savings. Other layoff counts discussed around City Hall reach as high as 1,000 workers, Council Member James Tate said. The pension and health care systems, too, are frequently cited targets for cuts. Between June 2008 and June 2010, the assets in Detroit’s General Retirement System pension plan lost nearly 40 percent of their value as the financial crisis struck, an auditor’s report shows . In his budget address last month, Mayor Bing said he wants to replace the city’s defined benefit pension plan with a 401k-style defined contribution plan for future hires, and to reduce the value of future employees’ pensions. But the city’s organized labor has resisted. In the end, budget savings might depend on whether the elected officials can successfully negotiate with unions. “We have to make those unpopular decisions,” Tate said. “I truly believe that this particular city council and this mayor will probably go down as one of the most unpopular groups of city leaders in the history of this city. We’re talking about massive change, massive sacrifice.” Outside the city, prospective emergency managers say they can do better. “There’s no question that an outside party can move things along faster,” Imber said. “Whatever the constituencies are that are resistant to change need to recognize what the reality is. If they don’t, they’re going to lose the right to choose.” While some prospective emergency managers have little or no experience in the public sector, they say their private sector experience has prepared them for this job. “We run a process to solve the financial issues of the enterprise,” said Michael Boudreau, a director at the financial firm O’Keefe and Associates, who has 20 years of experience in private industry, and who attended the February training session. “That process works in one industry as well as another industry. In this case, I’m going to say that it works just as well in private as in public.” Like elected officials, emergency managers are paid by the municipality they serve. But private sector turnaround artists are accustomed to salaries far larger than what these cities would offer. A “typical” salary for an emergency manager is about $11,000 a month, according to Terry Stanton, spokesperson for the Michigan Treasury Department. For Detroit, the salary would likely be more, said Scorsone, the economist who helped organize the emergency manager training sessions. He estimated that the annual pay for managing Detroit could reach as high as $400,000. The Detroit Public Schools’ Emergency Manager, Robert Bobb, earns about $350,000 annually . Compensation for private sector restructurings is often many times that. But clients in the private sector tend to have deeper pockets than Detroit taxpayers, who would foot the bill for an emergency manager. The city could end up paying several salaries, since the emergency manager can appoint advisers. But Goldstein, the bankruptcy lawyer, said in an email that he would consider working on Detroit on a pro bono basis. “I strongly believe that restructuring professionals should give something back to the community,” he said, adding, “Detroit’s situation is a noble cause that is deserving of altruism.” Stanton, the Michigan Treasury spokesperson, refused to speculate about whether an emergency manager is in Detroit’s future. State officials are “not waiting with bated breath to send EMs into different local units of government,” he said. What’s more, the purpose of the new law is preventative, he said. “The goal here is not to name emergency managers,” Stanton said. “The goal is to avoid having to name emergency managers.” Indeed, the new law seems to have inspired a fresh sense of urgency in Detroit city hall. A state takeover would be “tragic,” said Council Member Kwame Kenyatta. Local officials are avoiding it “like the plague,” Council Member Tate said. “It would be the end of the democratic process as Detroiters know it,” said Gary Brown, the council president pro tem. “You’d basically have a dictator that’s not accountable to the citizens of the city of Detroit.” “I appreciate people getting their training, but we won’t need them,” Council President Charles Pugh said. “I hope that that training was in vain. I hope that they wasted their time.” But not all city leaders show such confidence in the way the city is currently run. Al Garrett, president of the local division of the American Federation of State, County and Municipal Employees, said the city council members have a vested interest in avoiding emergency receivership — to protect their own jobs. Garrett expressed frustration with the way local politics works. He strongly opposes an emergency manager takeover — “it’s just a host of bad things,” he said — but he also said the current city leaders aren’t exactly ideal. “There are decisions that are made daily that make no damn sense, that lead to our fiscal crisis,” he said. “Part of what we want to see, when we go to the table, is how are you going to deal with the other issues.” “I’m not willing to voluntarily take a bad deal,” he added, “just to get the city out of receivership.”

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Toyota’s Profit Plunges After Japan Disaster

May 11, 2011

TOKYO — Toyota’s quarterly profit crumpled more than 75 percent after the March earthquake and tsunami wiped out parts suppliers in northeastern Japan, severely disrupting car production. The maker of the popular Prius hybrid gave no forecast for the current fiscal year through March 2012, citing an uncertain outlook because production continues to be hampered by shortages of parts. Toyota is expected to lose its spot as the world’s top-selling automaker to General Motors Co. this year because of the disasters. The automaker’s president Akio Toyoda said he and others at Toyota are “gritting our teeth” to keep jobs in Japan. He promised to disclose earnings forecasts by mid-June. Toyota Motor Corp. reported Wednesday that January-March profit slid to 25.4 billion yen ($314 million) from 112.2 billion yen a year earlier. For the fiscal year ended March 2011, Toyota’s earnings doubled, showing that the Japanese automaker had been on the way to recovery from its recall crisis when the magnitude-9.0 earthquake struck on March 11. But Toyota also said efforts to fix production, including using other plants and finding replacement parts, were going better than initially expected, with car manufacturing expected to gradually pick up in Japan and abroad from next month to 70 percent of pre-disaster levels. Toyota earlier said such production improvements wouldn’t start in Japan until about July, and overseas in August, with a full recovery not expected until late this year. “Our priority is to get our production back to normal and recover from the disaster,” a somber Toyoda told reporters. When a full recovery would come was still unknown, he said. By the end of May, the crisis has cost the company production of 550,000 vehicles in Japan, and another 350,000 overseas. Production is now back at about 50 percent. “By reviving our company, we want to help bring Japan’s comeback,” said Toyoda. Analysts say the quake and tsunami have sorely hurt Toyota but a production recovery could come quickly. “I think chances may be good that getting production back would be speedy,” Shotaro Noguchi, analyst at SMBC Nikko Capital Markets in Tokyo, said in a recent report. Still, Toyota may face a different kind of challenge in the months ahead because the government has asked for a shutdown of the Hamaoka nuclear power plant, which is located on a fault-line and furnishes the power supply for the region where Toyota is headquartered and has many of its plants and suppliers. The request came because of growing fears about the safety of nuclear power after the tsunami damaged the cooling systems at the Fukushima Dai-ichi plant on the northeastern coast, sending it to the brink of a meltdown. Toyoda did not say how much the Hamaoka shutdown would reduce production, but promised the company would do its utmost to secure a stable power supply. He said production at all lines for all models would be back at pre-disaster levels by November or December at the latest, but efforts are under way to do it faster. The hit Toyota has taken makes it likely a resurgent General Motors will regain the title of world’s No. 1 automaker by annual vehicle sales. Toyota overtook GM as the world’s biggest automaker in 2008, a distinction the American manufacturer had held since 1932. Toyota said it sold 7.31 million vehicles for the fiscal year through March 2011, up by 71,000 vehicles from the previous year. For the January-March period, Toyota sold 1.79 million vehicles worldwide. That is fewer than the 2.22 million vehicles GM sold and fewer than No. 3 automaker, Volkswagen AG of Germany, at 1.99 million. Toyoda said the automaker was still missing about 30 types of parts, although that was an improvement from the 150 it had lacked before. Toyota hopes to be producing at 70 percent of its pre-quake levels by June. The automaker’s full-year results highlight how, when the quake struck, Toyota had been on its way to a recovery from the recall fiasco, affecting 14 million vehicles worldwide, which had battered its reputation for quality. Sales for the January-March quarter dipped 12 percent year-on-year to 4.6 trillion yen ($57 billion), according to Toyota. For the fiscal year ended March 2011, profit doubled to 408.1 billion yen ($5 billion) from 209.4 billion yen the previous year. Annual sales edged up 0.2 percent to 18.99 trillion yen ($234 billion). Toyota said vehicle sales fell in North America, Japan and Europe, but it had robust sales in other regions, such as the rest of Asia, Africa and South America. Toyota is especially struggling in the U.S., where its April sales rose just 1 percent from the previous year, while GM’s car and truck sales surged 26 percent and South Korean rival Hyundai Motor Co. posted a 40 percent jump in sales. Like other Japanese exporters, Toyota has been hurt by the surging yen, which erodes overseas earnings. The dollar has now fallen to near 80 yen from about 90 yen a year earlier. “Despite negative factors such as a rapid rise in the yen and the earthquake, our profit sharply rose, thanks to massive cost-cutting and sales efforts,” said Toyoda, referring to the full-year result. Honda, which reported a quarterly profit drop of 38 percent last month, has said it doesn’t expect to return to full production in Japan until the end of the year. Toyota shares closed up 0.6 percent at 3,270 yen ($40) in Tokyo, shortly before earnings were announced. That is still down 9 percent from before the quake. ___ Associated Press writer Shino Yuasa contributed to this report.

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Don Tapscott: The Need to Reinvent Venture Capital

May 10, 2011

The good news about Schumpeter’s creative destruction is that, thanks to the Internet and digital tools, it has never been easier to start a company. One study found that the availability of open source software, cloud computing, and the rise of virtual office infrastructure has driven the cost of launching an internet venture down from $5,000,000 in 1997, to $500,000 in 2002, to only $50,000 in 2008. According to Austan Goolsbee, Chairman of the Council of Economic Advisers, in the past 13 years, start-ups created more than 40 million jobs. One study revealed that over the last 30 years nearly all net job creation in the United States occurred in firms less than five years old. So today’s lower start-up costs should mean lots of new companies leading to lots of new jobs. But that’s not happening. The traditional venture capital system is choking on the sudden ease with which companies can be founded. It actually makes it harder for start-ups to find the money and also the attention they need. That’s because more companies receiving investment means more companies to supervise and more demands on the investor’s attention. After all, VCs usually add a lot more than just money. They also provide a supportive environment, make introductions, assist with strategic sales, help recruit top talent, and find customers. But what happens if you run a $1 billion fund and the companies knocking on your door only want seed funding of $50,000? After all, $1 billion invested $50,000 at a time, would result in 20,000 deals to manage. “The problem,” according to a 2009 report by North Venture Partners, “isn’t the number of opportunities investors are presented with, but it is rather the lack of an efficient means of filtering the options.” Throughput, not supply, argues the report, is placing unnecessary constraints on today’s innovation system. “How do investors find, filter and fund the most promising new opportunities in a deep ocean of possibilities? The truth is they can’t,” the report concludes. So venture funds are trying to move upstream, looking to do seed deals with $40 million plus. But a handful of new companies are exploring a different option. Sean Wise, a management professor and venture capitalist, leads one of a growing number of outfits determined to prove that a form of community-powered venture capital can both filter the global wealth of opportunities and channel more intellectual horsepower into making each investment successful. His new venture fund, called VenCorps, uses mass collaboration at every stage of the process. Just as Wikipedia crowdsourced the publication of expert articles, or Threadless works with customers to design t-shirts, VenCorps is leveraging collaboration. He’s deploying the power of mass collaboration not just to the process of choosing which start-ups to fund, but to help grow those start-up ventures after the investment is made. “For Venture Capital 2.0 to succeed” says Wise, “there will need to be exponentially more people involved.” The money being invested by VenCorps in small companies comes from their own fund, but the choice of where to invest it belongs to the VenCorps’ community. Founders from around the world log on and register their start-up at www.VenCorps.com . There, they can upload a video elevator pitch, share some biographic details and/or post an executive summary. The community at VenCorps (made up of thousands of entrepreneurs, scholars, scientists, angel investors, service providers and government officials) then reviews and ranks each entry using a five-criteria weighted scorecard. During a challenge the top nine start-ups (as determined by the community) go on to the next round, where they can win an investment, typically $50,000. That may not sound like a lot in typical VC-terms, but it’s enough to kick-start a small enterprise as some of VenCorps early successes have demonstrated. Post investment, the community continues to help the startup. The theory is that “many hands, make light work” or as Kevin Kimberlin, Chair of the private equity firm behind VenCorps, puts it: “VenCorps is 21st century barn raising. Instead of relying on three experts to put in 1,000 hours each, you rely on 1,000 people putting in three hours each.” The VenCorps platform uses the web to offer creative new ways to link up start-ups to get them access to not just cash but also to support and prominence. VenCorps uses social networking to give start-ups the keys to succeed, faster, cheaper, and more equitably. While VenCorps is unlikely to challenge major VC firms anytime soon, the company is giving a chance for many more promising ideas to reach the stage where larger VC investment may be warranted. Crowdsourcing venture capital is also a means for the government to assist with job creation. The Boston Innovation District is a good example. The District is a large parcel of the South Boston waterfront undergoing redevelopment, and the city is looking to attract start-ups. “We are creating a hub of knowledge, creativity and inspiration — an Innovation District where new ideas, new businesses and more jobs will come to life,” says Mayor Thomas Menino. So Boston teamed up with VenCorps to run the Welcome Home Challenge. Companies used the VenCorps site to promote their business or business plan. Entrepreneurs, innovators, stakeholders, the general public, funders and organizations were then encouraged to vote on these submissions, supporting those they think are a best fit for the Innovation District. At its core the VenCorps concept is to supplement some of a start-up’s cash capital requirements with community “enthusiasm capital.” VenCorps gives entrepreneurs the ability to engage the community to help launch and develop ideas into start-ups, then into successful businesses and hire people. In the end, this feedback proved as valuable as the cash injection made by VenCorps according to Bill Starr from MyLifeList who won the Boston Challenge. “I am really excited by the opportunity to have VenCorps as a Seed Investor. We came for the cash, but stayed for the community.”

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Heather McGhee: Who’s Budgeting for a Middle Class?

May 9, 2011

For the first time, the majority of Americans believe that their children won’t be better off than they are . If current trends continue — in just a few categories: wages, benefits, retirement income, personal debt, job creation, job quality, job security, and costs for education, child care and health care — they’re absolutely right. So as the lights are dimming on the American Dream, what are America’s political leaders doing? They’re tripping over one another to reach for the off switch. That’s exactly what the leading deficit reduction plans amount to, according to an analysis we conducted recently at Demos , a non-partisan policy center. In ” Budgeting for America’s Middle Class ,” we graded the various budget plans on their impact on working- and middle-class Americans and the result was disheartening. The only legislative budget to get above a “C” — that issued by the Congressional Progressive Caucus’ ” People’s Budget ” — only garnered 77 votes in the House and is unlikely to come to a vote in the Senate. Download the full Report Card (PDF) When today’s deficit hawks (including, however reluctantly, the president) debate how the nation should tax and invest over the coming decades, they seem to ignore that those priorities could make or break America’s future middle class. That’s because the middle class did not create itself in the mid-20th century. Along with strong labor institutions, robust public investments (which we made despite high deficits) made the financial success of ordinary families a national priority. We built the national highway system; put a generation to college on grants, not loans; and invested in public research that redounded to enormous private gain. The result was the greatest middle class the world has ever known. That all shifted in the mid-1970s as organized big business gained influence in Washington, the power of labor unions weakened, and a range of new policies undermined the living standards of working Americans. As a result, working- and middle-class families have been losing ground for the past 30 years . This reality compelled Demos to join with the Century Foundation and the Economic Policy Institute to create OurFiscalSecurity.org , a project with the goal of conducting regular reality checks on the fiscal policy debate. We relied on the principles that created a strong American middle class to craft our own model budget blueprint, ” Investing in America’s Economy .” The blueprint shows that we can tackle our long-term fiscal challenges while creating jobs, safeguarding Medicare and Social Security, and decreasing inequality. In Congress, the representatives in the CPC designed their “People’s Budget” with similar principles in mind and achieved comparable goals. Unfortunately, the new Demos report card shows that the budget proposals with the most political tailwinds — Bowles-Simpson , the President’s new deficit plan and Rep. Paul Ryan’s (R-WI) budget — fail to harness these proven methods. On the most urgent factor — job creation and an accelerated recovery — the president’s plan received a “C,” the Bowles-Simpson plan a “D-” and Rep. Ryan’s proposal failed. None of these plans included the additional public investment needed to make up for our $1 trillion shortfall in economic demand. All three ignored the lesson President Roosevelt learned in 1937 when he cut spending and the country fell back into Depression, or more recently, when Britain’s austerity measures zeroed-out GDP growth . While educating the next generation is seldom included in long-term fiscal policy debates, our children and grandchildren are constantly evoked as reasons to slash and cap spending now. We graded the plans for the investments they make in this generation through both early childhood care and higher education. The House Progressives, OurFiscalSecurity.org and President Obama all demonstrate that we can rein in the debt without leaving behind a disintegrating nation to a poorly educated generation. They also preserve our obligation to the elderly through strengthened Social Security and Medicare, showing one generation need not be pillaged for the well-being of another. There were some surprises. The Bowles-Simpson plan, for example, scored higher than the president’s for reducing our out-of-control defense budget. For all his deficit-cutting bluster, Rep. Ryan received an “incomplete” for long-term debt reduction, since the budget chairman has failed to give adequate details on the taxes he’ll need to raise to meet his target. He can’t seem to give up his raft of new tax cuts for the wealthy and their heirs — even at a time when taxes are lower than they’ve been since 1958 . Does Rep. Ryan really believe that Americans are willing to stomach the end of middle-class America? Until the political conversation takes note of the relationship between our fiscal choices and the future of the middle class, our leaders will continue to get away with touting policies that exacerbate its decline. The winning legislative plan in our report card — the CPC’s “People’s Budget” — demonstrates that we can achieve fiscal balance while preserving the America we all cherish.

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Dave Johnson: U.S.-China Summit: If Trade Were Trade…

May 9, 2011

Today the U.S.-China Strategic and Economic Dialogue begins in Washington. This is the third such meeting, and it’s time for the Obama administration to get it right. China has not been engaging in “trade” with us, they have been engaging in something else entirely. The Washington Post sets the stage, with an editorial, The U.S. must push back against China’s investment controls : … It is still holding the renminbi at about 25 or 30 percent below its probable market value. … Beijing has increasingly used government procurement rules, technical standards and tax laws to force foreign companies to transfer their technology to state-owned Chinese firms in return for access to the Chinese market. … Beijing’s objective is the mercantilist one of building up state-owned “national champion” firms that can then capture global markets from Japanese, European and U.S. competitors. No matter that the state-owned sector already receives massive official support, direct and indirect — while more efficient private-sector job- creators must scramble for resources. Last week’s Let Trade Be Trade , explains: Since China’s admission into the World Trade Organization we have been packing up our factories and sending them over there. We have been buying so many things made in China, but they have not been buying very many things made here, and the resulting “trade deficit” has gotten worse year after year. Everyone is afraid of what China might do with all those trillion$ in U.S. Bonds they have accumulated. … There is a better way to solve the problem: let trade BE trade. Time To Buy From Us There is a simple solution: tell them to start actually trading with us, When the meeting begins Secretaries Clinton (State) and Geithner (Treasury) and Locke (Commerce) should slide a big stack of order forms across the table and say, “Your turn. Let us take your orders now, please.” China has been selling but not buying and it’s time for them to to start buying. That way we might be able use the word “trade” without wincing. It would also help fix our economy, our budget deficit, our unemployment rate and many other pressing problems. China Holds $1.5 Trillion Of Our Debt Trade by definition is a two-way street, buying from and selling to others. But China has accumulated $1.5 trillion by selling to us and not buying from us. This one-sided “trade” relationship has hurt or killed industries, companies, factories and jobs here in the United States, while forcing wages and living standards to drop. It has also placed China in an unhealthy position of power over us. It is understandable that some American interests have benefited from this arrangement, becoming fabulously wealthy while at the same time strengthening their whip-hand by pitting China’s low-wage rights-suppressed workers against American employees who have enjoyed all the protections and benefits of democracy. But it is not clear why our own government has gone along. It is obvious now to all that the one-way arrangement with China has hurt us, closed our factories, devastated our “rust-belt” communities, created vast income disparities and created terrible imbalances in the world’s economy. Placing Orders Here Fixes Both Economies If China were to place orders tomorrow for $1.5 trillion in American-made goods, the effect on our economy, unemployment level, manufacturing base, budget deficit, state budget shortfalls, public-employee pensions, and a host of other problems would be immediate and dramatic. And with our economy and wages restored, our own orders of goods from China would increase, boosting their economy, too. Their trade manipulations are costing them. Workers, facing labor-rights suppression and import restrictions from joining the world’s economy, are increasingly restless. They face inflation and a pending financial crisis. And that huge cash reserve is increasingly at risk from the worldwide imbalances it causes. If China repositioned its policies from mercantilism to trade it would fix so many problems. So why don’t they? If Not Trade, What? If China were using trade to build their economy they would use that $1.5 trillion dollar reserve to place orders here for American-made goods, boosting our economy, and boosting our ability to trade further with them. But they are not. They are sacrificing their own economic position to instead build their power position. China is cleverly using the greed and power of our Chamber of Commerce, huge multinationals, Wall Street, etc, to manipulate our government into letting them to sell China the rope to hang us with. The more China continues these manipulations even at its own expense, the more we should perhaps be understanding these imbalances as a national security problem instead of a trade problem. China isn’t trading , it is seizing the means of production. It is using manipulations of trade to gather wealth and power to itself at the expense of the rest of the world. It is vitally important for U.S. opinion leaders and policymakers to address this. We have been hypnotized by the word “trade” and the result is we are ignoring our national security. We are not minding our business. It is time to tell them to start trading fair or we’ll start minding our business with a big, fat tariff on imports so we can start paying down our deficits and rebuilding our manufacturing and jobs base. This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture . I am a Fellow with CAF. Sign up here for the CAF daily summary .

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Despite Differences, Obama, GOP Eye Medicare Limit

May 9, 2011

WASHINGTON — Unlikely as it may seem, President Barack Obama and Republicans in Congress actually share some common ground on the need to curb Medicare costs to fight the spiraling federal debt. Although the House GOP plan to replace Medicare with a voucher-like system got shunted aside last week, that may not be the end of the story. Embedded in both the Republican plan and in Obama’s counter-proposal is the idea of putting limits on the growth of the half-trillion-dollar-a-year program – and then enforcing them. High-level deficit negotiations resume Tuesday under the stewardship of Vice President Joe Biden, and tackling health care spending is critical to what could become the year’s most important legislation. The two sides differ sharply on how that should be done. Obama says the GOP would leave frail seniors at the mercy of profit-driven insurance companies. Republicans say the president would empower unaccountable bureaucrats to ration care. If they can meet in the middle on the idea of an enforceable limit, it could open the door for major changes. Over time, that could mean less money for hospitals, doctors, drug companies and other providers and higher out-of-pocket expenses for many retirees. Health care costs of an aging American population are the biggest challenge facing Biden and the deficit negotiators. Tiptoeing around the politically volatile issue won’t impress financial markets that are nervous over the $14 trillion national debt. Red ink ballooned as a consequence of two wars, tax cuts and the recession, and the government now is borrowing about 40 cents of every dollar it spends. “We’re at a point where we really need to get a solution,” said Rep. Dave Camp of Michigan, whose job as chairman of the Ways and Means Committee makes him the top House Republican on Medicare. “In other times when we’ve had this debate, we haven’t had the debt crisis.” Medicare is the largest single bill payer in the $2.5 trillion U.S. health care system. The way it works now, annual increases in the cost of care for 47 million elderly and disabled people basically get passed on to taxpayers. If spending surges in one part of the program, officials try to tamp it down in future years, like budgetary whack-a-mole. Obama’s approach and the House GOP budget by Rep. Paul Ryan of Wisconsin would both try to limit the amount of taxpayer money going into Medicare. It’s a tricky thing. If the limit is too tight, the welfare of millions of people could be jeopardized, to say nothing of the political careers of proponents. Too loose, and it’s meaningless. “They are both saying Medicare has to be on a budget,” said economist Eugene Steuerle of the Urban Institute think tank. “But each of them is also saying it has to be my type of system on a budget, and not your type of system.” Ryan’s plan would provide a fixed payment for everyone now 54 or younger to purchase a private insurance plan once they hit 65 and become eligible for Medicare. After getting an earful from constituents, GOP leaders backed away from pushing for Ryan’s overhaul, but still left it on the table. Obama would keep Medicare a government program but give a panel of experts the power to force cuts if spending exceeded a certain target. His latest proposal would strengthen cost curbs that are already in the new health care overhaul. Those are significant differences, but there’s another important yardstick for consumers: how hard each plan would ratchet down the growth of Medicare spending. Think of it as a kind of Goldilocks test. Ryan’s plan would increase the government payment for retirees’ health insurance by the general inflation rate and the age of the individual. It could be like Goldilocks landing on a hard mattress, because health care costs gallop ahead of inflation. Obama calls for cuts in Medicare payments to service providers if spending increases by more than the overall growth of the economy and an additional cushion. Medicare costs have been growing faster than the economy, so Goldilocks would still feel it, but there would be some give. AARP, the seniors lobby, opposes Ryan’s plan and has concerns about Obama’s. It’s too early to tell if the deficit talks will lead to budget limits for Medicare. But the idea can be paired with another plan circulating in Congress: automatic restraints if lawmakers fail to keep federal spending at about one-fifth the size of the economy. “We’re going to have to return to first principles of budgeting, that you have to set limits,” said Maya MacGuineas, of the Committee for a Responsible Federal Budget, a bipartisan group that advocates reducing the deficit. “That’s only going to get more support as pressure from health care drains the rest of the budget.”

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Daniel Dicker: Big Silver and Oil Moves End All Speculation About Speculators

May 5, 2011

If anyone ever needed a proof of the power of speculative bets in commodity markets, the last three days of silver’s price action should settle all doubts. Silver’s almost $12 dollar drop, a massive 25% correction in less than 72 hours (!) is a direct result of chasing the weakest retail customers and traders of this “poor man’s gold.” The avalanche of unwinding positions was initiated by the increased margins assigned to silver futures by the Chicago Mercantile Exchange in the last week. But now we’ve got to ask the question: What could measures to chase that kind of speculative money out of oil futures do for all of us regular Joes paying through the nose at the gas pumps? The answer is — probably as much as a dollar a gallon, although it won’t be quite as easy as raising margins in futures — speculative oil money isn’t as easily attacked as the bets being placed on silver. Let’s imagine that the price of silver, or oil for that matter, is represented in layers of money. There is hedging money from producers and commercial end-users, representing the “real” fundamental participants who have set prices for commodities since futures markets were created. On top of that, we have a layer of speculative interest from bigger institutional investors and traders, from pension plans and university endowments and dedicated commodity hedge funds. Add to that a layer from smaller trade groups and funds that only dabble in commodities — a smaller amount of interest individually, but collectively their force can be as great. Finally, let’s add that last layer of purely speculative interest, from day traders and other retail investors working through commodity ETF’s. What you have, if I can push this analogy, is a seven layer cake of capital, all voting on the price of the underlying commodity. Sometimes, it may be tough to see just how thick each layer in the cake is, but there is no question that increased money in any layer will lead to a thicker cake and a higher price. When the Chicago Merc raised silver margins four times in the last week, raising them almost 85% in total, they took aim at the most capital sensitive layer of our cake — the day traders and small retail investors. In addition, silver ETF’s which use futures like the Powershares DB Silver (DBS) were forced into liquidating as well. A market that has moved parabolically as silver had in the past several months was particularly vulnerable to a sell-off, and all that was required was a tipping point — which these margin increases provided. Going back to our cake, much of the top layer in silver has been sliced away — and that 25% selloff indicates just how thick that layer of money was. And what about oil? If margin increases could be a tipping lever for a big sell-off in silver, could we do the same to crude oil and slice the costs that people are paying at the pumps? Increasing margins would be an excellent start, and one of the arguments that the CFTC is waging among itself as part of their rule writing mandate from the Dodd-Frank bill. But that big top layer of retail speculation fueling silver is a relatively much, much smaller layer in oil’s “cake” and slicing the thicker layers of investment interest in crude will require a much, much bigger knife. An enormous amount of capital, perhaps as much as $300 billion, is engaged in energy through index investment, the speculative proxy of institutional and private wealth investors. Getting at that layer of speculation will require restricted access to the commodity markets from these instruments, owned and run by powerhouse funds like Pimco, Oppenheimer, Blackrock and Goldman Sachs. Being able to remove that capital from the oil market might drop the price that consumers pay for gas as much as a dollar a gallon as quickly as money has fled from silver. It would, however, require a more concerted effort from Congress and the SEC, as well as from the overseeing exchanges. Still the silver move provides the lesson of just how much speculative money has been fueling the price rises we’ve seen in all commodities in the past year — and just how quickly prices can come down if some available tools are used to chase some of that money out.

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The Death Of The Ereader

May 5, 2011

The ereader’s days are numbered. Though 6 million ereaders were sold in 2010 , experts predict it is all downhill from here for these devices, which will be edged out by the growing number of increasingly affordable tablets on the market. By 2015, twice as many people will own tablets as do ereaders. By the end of 2012, the number of people owning tablets will overtake the number of those owning ereaders, according to research by Forrester , a tech research company. As the demise of the Flip camera suggests, consumers are increasingly trading single-purpose devices for multifunction gadgets. Especially as the price of tablet computers continues to fall, experts predict users will drop ereaders for tablet PCs that offer web-browsing and video capabilities alongside ebooks. Even Amazon, which helped make ereaders and ebooks mainstream, appears to recognize the ereader’s impending demise and is rumored to be developing its own tablet device . The Barnes and Noble Nook Color has already been modified to run Android’s Froyo software , taking it into tablet territory. “We think there’ll continue to be a niche for purpose-built ereaders but that niche is getting smaller and smaller as it gets less and less expensive to buy a multifunctional device,” said Susan Kevorkian, a research director at IDC, a tech research firm. While ereaders offer such advantages as long battery life, light weight, and a wallet-friendly price-tag, their utility is limited: They are built primarily to let you read. By comparison, tablets are far more powerful machines that not only offer the Kindle and Nook experience through apps, but include a wide range of other features within a similarly portable device. Already, the iPad is cutting into the ereader market at a rapid pace. While 47 percent of ereader owners in a November 2010 ChangeWave survey were Kindle owners, the number represents a rapid plunge from August, when 62 percent were. In the meantime, the iPad saw its share increase from 16 percent to 32 percent in the same period. “It’s between [ereaders] and tablet PCs, led by the advancing charge of the iPad. It’s a fight that ereaders will not win,” said a report from Forrester. “The reason is simple: Tablet PCs like the iPad are a new computing form factor — a portable, comfortable, personal media and information device with the power to run whatever app developers can and will throw at it.” Though the iPad is on the expensive end of the tablet market, tablets on the whole are getting cheaper. For some consumers, the Nook Color and the rumored Amazon tablet will represent the mid-range of the tablet market — not quite the tricked-out tech bonanza of the iPad, but enough to get the job done. The Nook Color is priced at $249, drastically cheaper than a high-end tablet. The cheapest iPad 2 available sells for $499. “Clearly an Amazon [tablet] and the Nook are an example of moving towards a mid-range tablet,” said Shannon Denton, an analyst with Razorfish, a digital consulting firm. “iPad is the Mercedes of tablets and there’ll certainly be consumers that want the high-end, but there’s space for the mid-range.” Of course, for Amazon and Barnes and Noble, it’s not just about the device. Both companies are heavily invested in ensuring that they sell ebooks, not just ereaders. And Amazon has a direct channel to consumers looking to buy books that even Apple can’t match. “Amazon is fundamentally a content provider,” said Kevorkian. “They’re approaching their app and device strategy accordingly to make their content as widely available as they can.” Fifty percent of people who purchased an ebook in the past month bought it at Amazon’s Kindle store . Ebook sales, under $1 billion in 2010, are projected to more than double by 2015 to $2.8 billion, according to Forrester . As a destination to purchase books, Amazon’s brand is made. Literary content, however, is no longer just a matter of words on a (digital) page. Though Kindle devotees will tell you they love the paperlike display of the screen, which, unlike a backlit LCD screen, doesn’t have glare issues in direct sunlight, all the Kindle provides is text, font size control, and a way to turn the page. Basically, it replicates the experience of the paper-bound book. But it’s not just about the book versus the screen anymore: It’s about reconsidering what it means to read. “More and more, reading is taking on a bigger definition,” said Allen Weiner, a VP of research at Gartner, a technology research firm. “It’s expanding in terms of content– not just books, but newspapers and magazines. It implies the need for color, graphics, other forms of media.” A new breed of digital book, designed to make reading on a computer take advantage of the computer’s capabilities, has changed the way we will think about reading. Push Pop Press , a startup creating interactive digital books, incorporates video and audio into the text, as well as a wide array of playful infographics. One feature on its debut app for Al Gore’s Our Choice even lets the reader blow into the iPad’s accelerometer to demonstrate windpower on an animated wind turbine, whose blades turn with each breath. The fate of the ereader comes down to whether consumers deciding on their next device will prefer to opt for the simplicity of a gadget dedicated just to reading — a boon to those who want to eliminate distractions — or if they’ll opt to buy a multifunctional tablet that can not only supply the computerlike abilities of its compatriots, but maybe even allow new reading experiences. “I have an 8-track recorder. It still works, if i can get blank 8-tracks it will still record” said Weiner. “It doesn’t serve any meaningful purpose, but it still works.”

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Blake Fleetwood: Frequent-Flyer Programs Are Convoluted, Mysterious, and a Maddening Fraud

May 4, 2011

Thirty years ago in May 1981, American Airlines started its successful Frequent Flyer program in secret on May 2, 1981. They didn’t advertise and the plan’s author admitted “we didn’t want the great unwashed to be a part of it.” They deliberately cobbled together a complicated new class system to pay off 150,000 of its favored customers. This ingenious loyalty scheme succeeded beyond the airline’s wildest dreams. Frequent-flyer programs — which now enroll nearly 200 million customers — are the largest, and most brazen, commercial bribery systems ever –rewarding the deep-pocket elite and neglecting, overcharging, and abusing most everyone else. Ironically, the elite, who benefit the most, are also being defrauded by the airlines by a convoluted “bait and switch” scheme, which effectively devalues the frequent-flyer currency. Instead of being able to redeem flights for the normal points (25,000 – 30,000 miles), airlines are forcing frequent-flyers to pay double points (50,000 – 60,000) for almost all flights, unless you can book 330 days in advance. Today, more miles are earned from non-flight activity than from flying. In 2010 American issued more than 185 billion miles to credit cards, and other partners — 62 percent, raising the price of everything we buy by 1 or 2 percent. There are more than 17 trillion miles (and points) in circulation according to Conde Nast Traveler , and at a rough exchange rate of one penny and a half a mile, this is the equivalent to $255 billion. All the airlines combined are not worth that much. The admitted goal is to build loyalty among customers in a business where the products are almost indistinguishable. The hidden agenda is to pay off the business traveler personally into spending the boss’s money with one airline rather than with another. Industry analysts estimate that about a million trips are taken each year just to add miles to one’s account. If the purchasing agent of a firm were to accept a free vacation in return for selecting a certain vendor for a large purchase, he would go to jail for commercial bribery. But ethical niceties don’t apply when 200 million people are on the take. More than 40 million frequent- flyer tickets were issued last year. We have become a nation of frequent-flyer junkies. Nearly 50 percent of households participate in one or more of these loyalty programs and no one wants to give up even one frequent-flyer mile. People choose their breakfast cereal based on what miles they can earn. There is no underestimating the power of human greed. The programs are ingeniously designed to prevent companies from claiming these payoffs from employees. The airlines zealously hide frequent-flyer records from the very corporations that pay for the tickets. But some companies, including Abbott Laboratories, Chrysler, General Motors, Kmart, Wendy’s, and Nordstrom, have tried to get employees to turn over awards to be used for future company travel. In an ironic twist, employees of the Federal government were, in the past, required to turn over their awards earned on business travel to the agency that paid for the travel, but Senators and Congressmen specifically passed a law exempting them from this regulation. In 2002 all employees were allowed to keep their miles. What is wrong with these most successful programs? Plenty. For starters, a kickback is built into the price of each and every ticket or credit card purchase. Everyone pays more. But while that once-a-year vacation traveler never earns enough points to get a free trip and thus loses the benefit, the elite flyers always end up winning. 39 billion miles expire annually never to be used. Second, frequent-flyer programs cost companies $7 billion per year in fraud and unnecessary travel. Corporate travel managers are driven crazy when their negotiated lower fares are ignored by business travelers who refuse to go along because they won’t earn the right type of frequent-flyer miles. Employees are often more loyal to their frequent-flyer program than to their employer. The airline loyalty programs persuade travelers to make “irrational” higher priced decisions. One survey of frequent-flyers on Flyer Talk revealed that 24 percent admitted taking unnecessary trips to get extra miles. Estimates of waste caused by abuses come to 8 percent of annual travel expenses. Third , these programs cost the U.S. Treasury more than billions of dollars per year in unpaid taxes from the wealthiest people in our country. The Internal Revenue Service had been considering regulations to treat frequent-flyer benefits as taxable income. But so far, even as we drown in record deficits, politicians have not had the guts, or political clout, to levy a tax on such a widespread entitlement. Such a tax is only fair, since most middle class Americans pay taxes on all other dividends and bonuses, while affluent elite flies for free. Even frequent-flyers themselves recognize ethical dilemmas. Frequent Flyer Magazine polled readers, and 35 percent of the respondents — the obvious beneficiaries — saw the programs as unethical. Another third said they would gladly trade points for better service and cuts in airfare. In this new class system, VIP flyers are rewarded with special favors and treatment including: free flights, expensive vacations, upgrades to First and Business Class, distinctive ‘select’ check-in lines, priority seating on sold-out flights, early boarding, special seats, and other goodies that the rest of us can only dream about. It starts when they want to book a flight. There are secret phone numbers for “Gold” and “Platinum” and “Infinite Elite” members. They are blessed. The rest of us have to deal with constant busy signals, impersonal computer voices telling us to punch an endless series of different buttons, one after another, only to be left on infinite hold or, worse, looped back to where we started. Elite members, on the other hand, get their calls answered right away by human beings. For the blessed, flights are never sold out. These upper castes always get their reservations booked; even if more seats are sold than exist on the plane. Somebody else can get bumped. They never get squeezed into a middle seat. American, for example, saves 10-20 aisle seats per flight for its premium flyers and, on many flights, upgrades them to First Class for a nominal fee or for free. Continental and other airlines send upgrades to all their frequent flyers and many airlines block off adjoining seats so that the elite are not forced to rub shoulders with the masses. At any gate or check-in line, frequent flyers wave around their platinum, gold or premier cards that distinguish them from the hoi polloi. If flights are cancelled or delayed, as is happening more and more, the airline gods — sophisticated mainframe computers — identify the “chosen people” according to carefully calibrated mileage totals. Road warriors always get first crack on the next available flight. Everyone else has to wait.

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Dorie Clark: How to Change Anything

May 4, 2011

I ran across VitalSmarts — a corporate training and research behemoth — when I was teaching a course on social marketing at Tufts University. Their book Influencer: The Power to Change Anything quickly made it onto my syllabus, as they detailed innovative strategies from across the globe that had successfully reduced HIV transmission in Thailand and reformed gang members in San Francisco. Now they’ve turned their sights inward — after all, if we can reform society, shouldn’t we be able to change ourselves? In the recently-released Change Anything: The New Science of Personal Success , Kerry Patterson and his compatriots have created a roadmap for individuals to gain mastery over their weight, their careers, their exercise habits, their interpersonal relationships, and more. This is a book you can put to immediate use at work. My top five takeaways: 1. Identify Crucial Moments Sometimes you’ll finish a day and feel completely unproductive. You know you worked 8 or 9 or 10 hours — but what did you actually accomplish? Patterson and company encourage us to identify specific “crucial moments” where we may have gotten derailed. Perhaps it’s our obsessive e-mail checking (which can quickly lead to putting out random fires) or getting too caught up chasing an article citation online (when we could have simply asked a colleague). Noticing these moments is key to controlling them in the future. 2. Find the Right Team . Some people truly want you to succeed, giving you sage advice and encouraging your efforts. And others may be dragging you down the path of extended coffeebreaks and carping about the boss (see my recent BNET article Are Your Friends at Work Holding You Back? ). It can be a challenge, but you’ve got to cut the naysayers out of your life. We respond to our environment, and you don’t want them polluting yours. 3. Structure Your Life to Succeed . We like to think success is a matter of willpower — but more often than not, it’s actually a matter of structure. I always thought it was a good idea to bike more, but I’d usually be in a rush … and I wasn’t sure if my tires were pumped … and I wasn’t sure where I’d put my helmet … so I’d invariably take my car, instead. All that changed when I moved to Boston years ago for graduate school, and parking rates close to school hovered between $20-$30. Thanks to the structural incentive, I quickly became a bicycling convert. 4. Proximity is Your Friend . Studies have shown that — despite the much-vaunted interconnectedness of the Internet — distance and proximity matter to us greatly. Scientists are more likely to collaborate with peers who work on the same floor; you’re more likely to work out if your exercise equipment is in your bedroom (as compared to the basement); and you’ll eat more Tootsie rolls if they’re on your desk instead of in the break room. So think carefully about the workplace behaviors you want to encourage, make them proximate, and watch yourself succeed. Having a professional journal on your nightstand instead of Sports Illustrated could make all the difference. 5. Don’t Accept Lame Feedback . I wish I’d had Change Anything a decade ago, when I worked as a reporter. It seemed like my editor disliked me more and more each week, because I clearly wasn’t writing articles the way she liked them. Her profound advice to me? “Make it different!” Sadly, my mind-reading skills were lacking, so she continued to harrumph and redline every piece. Patterson and friends urge us to insist on specifics, because that’s the only way we’ll get better. We should ask for particular, recent examples until we identify the “vital behaviors” that are sought. What are your top workplace success strategies? Dorie Clark is a strategy consultant who has worked with clients including Google, Yale University, and the National Park Service. Listen to her podcasts or follow her on Twitter.

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Aron Cramer: Japan: From Tragedy to Turning Point?

April 29, 2011

I arrived in Japan for a week of meetings to find Tokyo more deserted than ever before. Maybe the economy really had collapsed in the wake of the triple whammy of the earthquake, tsunami, and ongoing nuclear accident at Fukushima-Daiichi. A week’s visits with BSR’s member companies, however, showed a more layered situation. Japan appears ready to turn this tragedy into a pivot point that puts the country on an even stronger path for a safe, prosperous — and sustainable — future. Many of our Japanese member company representatives expressed a strong sense of self-reflection. One executive raised the question of whether Japan would shift from the energy-dependent consumption models the country has adopted over the past few decades. He asked, for example, whether the Japanese people were ready to dispense with the energy-hungry vending machines that are one of the most ubiquitous symbols of Japanese consumer culture. Another executive said “we can easily achieve” the voluntary 25 percent reduction in energy consumption the government and the Keidanren, Japan’s leading business association, have called for. But he went beyond that. If such reductions were possible, he asked, “Why didn’t we do it before?” (Of course, as an American, I could say little about why another country’s population should reduce their use of electricity, in light of America’s inefficiency and energy gluttony.) Japan currently gets about 30 percent of its energy from nuclear power. It is in no position to phase it out overnight, and, like many countries, would find it harder to reduce carbon emissions, at least in the short term, if it did. However, many people in Japan hope that the events in 2011 will move the country more quickly toward renewable energy, just as the 1973 oil shock catalyzed a national commitment to energy efficiency — and, by the way, to nuclear power. In addition to expressing confidence that Japanese business could adapt, several company leaders predicted that in the aftermath of the quake and tsunami, the long dormant Japanese “NPO” (nonprofit organization, the term of reference for NGO in Japan) would become more important. Most companies are working with NPOs on relief, recovery, and reconstruction. Many of these efforts are channeled through Japanese branches of global organizations like CARE and the Red Cross. But the upsurge in interest in working with such organizations could lead to a stronger role for NPOs in Japan’s everyday future. This was all developing against the backdrop of a widespread lack of faith in the government. Many company representatives expressed their extreme disappointment with the lack of government leadership in responding to the disaster. Several cited their appreciation for the rapid response by the U.S. armed forces, which, in some cases, provided relief more quickly than the Japanese Self-Defense Forces. (Granted, the U.S. military is far larger and richer than the Japanese forces, but this was seen as a failure of resolve and commitment from the government.) Japan now faces a moment of truth. In the wake of 9/11, many commentators in America said that that “everything changed.” in the United States, suggesting new values and a renewed sense of common purpose. Sadly, that never happened. Perhaps Japan will find that 3/11 brings the positive transformation that eluded the United States. It is possible that, a generation from now, Japan will have ushered in a commitment to renewable energy and hyper-efficiency, based on the lessons of its society’s moment of truth. If so, Japan will again have much to teach the world about grace under pressure, clear resolve, and the power of innovation.

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Margaret Heffernan: The Parallel Universe of Social Enterprise

April 28, 2011

I’ve just spent a week touring the U.K. with MBA students from the Simmons School of Management, led by Fiona Wilson. Our trip focused on companies that are good for people, the planet and profits. This is also variously called Conscious Capitalism or social entrepreneurship, and there’s much debate about what fits or doesn’t fit — what is, or is not, a model. What everyone involved in the area does agree on is this: our current way of doing business obviously doesn’t work. We need new models. So you could see this trip as an exploration of other ways of doing business. So, what did we learn? Some Bad News… People and companies struggling to do good spend as much time on in-fighting as those focused purely on profit. Theology and ideology is rampant. Whenever you’re trying to save the world, this will be true. But it is discouraging and annoying to find green energy companies like Ecotricity so determined not to be a good partner with other green energy companies. Competition makes people do stupid things. All of the companies we visited are pretty small — none with revenues of $100 million. In part, this is because they’re young. In part, it’s because they don’t think that size equals success; it can also be that size becomes its own problem. But if you really want to change the world, making a big impact does matter. …And A Lot Of Good News Spending a week focused exclusively on high-minded companies trying to do good in the world is pretty inspiring, not least because these businesses prove that you don’t have to be brutal or exploitative to flourish: Divine Chocolate — proving that fairtrade cooperatives work for everyone and lock the mission into the brand. The fact that 45 percent of the company is owned by the Ghanaian cocoa farmers who supply the chocolate means that even if the company were sold, its suppliers would benefit. Structure counts. A4E — working with insane dedication to prove that everyone is employable if you take enough time and give enough attention. The unbelievable energy of A4E employees also testifies to how much difference a sense of purpose can make. You don’t have to pay a fortune to get great performance from your people. Fifteen — Jamie Oliver’s apprenticeship scheme for formerly unemployable young people is striking because — like A4E — it demonstrates how much more talent there is out there than most employers can see. And the fact that the restaurant is packed shows the public wants to support this kind of initiative. Furniture Resource Group — using all the strategic tools of business to build profitable businesses that benefit people and the planet alike. They fully recognize that high ideals make it more — not less — important to be brilliant and disciplined when it comes to execution. And they make great partners. Triodos Bank — uses the traditional engines of finance to support companies that do good for people and planet. Just goes to show bankers don’t have to be evil. You have to love their strapline: More Green/Less Greed. The Bluecoat — testifies to the power of art to make people smarter, more collaborative and social. Emma Bridgewater — proves that it is possible to resist the ‘race to the bottom’ and protect quality with price. Good Energy — daily evidence that green energy is real, practical and that customers are willing to pay extra to cost the planet less. 2OC — Out to prove that green energy can be very big indeed. I feel like I’ve just returned from a trip to a parallel universe where business is a force for good, employees are well looked after and greed is supplanted by purpose. The question I’m left with is: will this ever become mainstream? And with the world so hungry for a new way to do business, why (instead of the same old grim cliches) isn’t this the stuff of headlines?

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The U.S. Banking Industry Is Shrinking: Who Benefits?

April 28, 2011

By Knowledge@Wharton Though the U.S. banking sector was in recovery mode in 2010, it still managed to reach some highs and lows. There were 157 bank failures in the country last year, the most since 1992, according to the Federal Deposit Insurance Corporation (FDIC). And the number of new bank charters was at an historic low — 11, compared with 181 three years earlier. With so many banks leaving the sector and so few entering it, a long-anticipated consolidation process is now under way. The U.S. is expected to end up with no less than 6,529 commercial banks and 1,128 savings institutions by the end of this year. That is a 4.4% decline from the previous year, and it leaves the country with nearly half as many institutions as it had 20 years ago, according to the FDIC. What does this consolidation mean for the banking sector’s next 20 years? Should consumers be concerned about the shrinking number of banks? Many experts expect consolidation to continue, and predict that the trend will leave the banking system better off in the long run. “We don’t really need as many banks as we used to,” says Jack Guttentag , a finance emeritus professor at Wharton and former economist at the Federal Reserve Bank of New York. “Banks now have the power to [set up branches] wherever they want to, so what really matters is how many options a customer has in a certain market.” Therein lies the challenge, according to Kenneth H. Thomas, a Wharton lecturer of finance. As he sees it, not all customers will benefit from greater consolidation. A market, such as the one in the U.S., that is “over-banked,” with a supply of banking services exceeding demand, “is generally good for consumers and businesses because it results in lower prices — i.e., lower loan rates, loan/deposit fees and higher deposit rates — and higher output [in terms of] more varied and innovative products,” he notes. “Some may argue that ‘over-competition’ [or over-banking] could drive weaker banks out of business” — as happened to Washington Mutual, the savings institution that collapsed in 2008 — “but then someone else comes in and replaces them, yet may reduce the number of offices and amount of services.” History Lessons It is no accident that the U.S. has had such a large number of banks. Rather than setting up one, large national bank as other countries do, the U.S. federal government rolled out various laws in 1784 to encourage multiple banks in individual states. In 1863, a new banking act introduced a national charter that encouraged the establishment of more financial institutions even as it taxed banks with state charters. Nearly 70 years later, with the dawn of the Great Depression, the country had more than 30,000 banks. But the stock market collapse took its toll. In 1933 alone, about 4,000 commercial banks and 1,700 savings and loans institutions failed. The next wave of consolidation occurred in 1994 with the arrival of the Riegle-Neal Interstate Banking and Branching Efficiency Act. That made interstate expansion easier, whether it occurred through M&A activity or organically. The number of banks began shrinking annually by about 4.5% before another period of expansion in the late 1990s, according to the FDIC. With another swing of the pendulum last year, consolidation returned to 1994 levels. But in contrast to previous times, much of the consolidation has been due to failures rather than through M&A. Shuttered banks have ranged from American National Bank of Ohio, a small institution with assets of $70 million that had struggled for years to turn a profit and was under regulatory pressure until it was closed in March, to $25 billion Colonial BancGroup of Alabama, which closed its doors in the summer of 2009, a few days after regulators started an investigation into accounting irregularities. As the third largest failure in U.S. history, all of Colonial’s deposits were sold to BB&T, turning it into the ninth-biggest U.S. bank by assets, according to Bloomberg. As for M&A, there were 197 deals last year, a 20-year low. Loretta J. Mester, a Wharton adjunct professor of finance and director of research at the Federal Reserve Bank of Philadelphia, expects consolidation to continue over the next few years. “In the short term, I think consolidation will pick up as weaker banks go through mergers and acquisitions, and stronger banks take time to get their capital shored up” in their pursuit of greater efficiency and economies of scale, she notes. The Little Guy The institutions that will likely be hardest hit by all this activity will be the community banks. Most of these small, locally owned banks have less than $1 billion of assets, but account for 92% of all banks and savings institutions, says the FDIC. For many of them, the arrival of the recent Dodd-Frank Wall Street Reform and Consumer Protection Act was a death knell.Tougher controls involving capital, liquidity and leverage, and a surge in regulatory red tape, have left such banks struggling, particularly those with less than $500 million of assets. “Many small banks feel that they are being pushed out of existence by new regulations,” Thomas states. Their plight hasn’t been lost on the FDIC, which has launched various initiatives to give community banks some relief. A few weeks ago, for example, it released guidelines that lighten requirements for how these banks manage customers whose accounts are consistently overdrawn. The FDIC has also been encouraging entrepreneurs to buy troubled banks. According to Thomas, this trend started two years ago, when new charters were hard to come by. A case in point: BankUnited, a 70-branch Miami Lakes, Fla.-based financial institution, was taken public earlier this year after the FDIC sold it in 2009 to a bevy of private equity investors led by John Kanas — the former chief executive of a Long Island regional bank sold a few years ago to Capital One. Todd A. Gormley , a Wharton finance professor, says community banks play an important role in local economies. They typically have close relationships with individual customers, while, for example, making loan decisions based more on personalized information than the credit scores and other hard data used by large banks. “Smaller firms and local individuals trying to get loans from larger banks could be a subset of the population that is worse off because of consolidation,” Gormley suggests. There is also something to be said for the often underrated efficiency of smaller lenders that rely on personal relationships as a guarantee against loan defaults. In a study published last year, Stephanie Moulton, a professor of public affairs at Ohio State University, found that borrowers with low incomes or bad credit are significantly less likely to default on loans if they borrow from a local bank than if they receive a loan from a distant bank or mortgage company. Personal relationships, she concluded, are an important factor in the reciprocal relationship between lender and borrower, resulting in both sides offering critical information, such as repayment schedules. Easy Come, Easy Go According to Guttentag, consolidation also leaves a handful of banks controlling the majority of certain types of products. Four “mega banks” — Wells Fargo, Bank of America, JPMorgan Chase and Citigroup — now hold three-fifths of the home mortgage market, which limits consumers’ choice of products and their ability to shop around for competitive pricing. “It’s a textbook issue of a concentration of power,” Guttentag says. “A limited number of firms control the market, and they will engage in implicit collusion.” Thomas, meanwhile, is concerned about the concentration in geographic markets as a result of ongoing consolidation. While there are more than enough banks in the entire country, some cities, states and regions have just one dominant bank. “There are a few markets in danger of becoming a one-bank or two-bank town,” he says. For example, in the Pittsburgh metropolitan area, PNC Bank has 47% of the deposit share, according to the FDIC. The second-largest bank in the area is Citizens Bank of Pennsylvania, which has 8.5% of the deposit share. “We need competition because competition lowers prices,” Thomas states. While there are no limits on deposit shares in certain markets, 1994′s Riegle-Neal Act imposes a 10% cap on nationwide deposits for a single bank. That has since been interpreted as a cap on growth that occurs through mergers rather than organically. The Treasury Department is now looking into modifying the cap to include all consolidated liabilities. But Mester says consumers need not worry. “When there is consolidation, there are not necessarily fewer outlets for banking services,” she notes. While the total number of banks may be declining, the number of branches isn’t. Additionally, no matter where they are, consumers have access to a growing number of Internet banking options. In the last 10 years, the number of bank branches nationwide has increased 15%, although that expansion has primarily involved banks with $500 million or more in assets. The number of branches dropped slightly for the first time in a decade in 2010. As for the future, Guttentag predicts that the number of banks will continue to shrink, but he doubts the U.S. will ever look like, say, Canada — which has just 22 banks. Indeed, if consolidation continues as it has over the past 20 years at the average annual rate of 3.3%, it would take 60 years for the total number to fall below 1,000 banks and nearly 130 years to get below 100. “Even if the number of banks shrinks from 6,000 to 100, if those 100 are operating in all market segments and if consumers have many options, there is no reason for concern,” Guttentag says. Additional reading from Knowledge@Wharton: The Dodd-Frank Financial Regulatory Law: Long-Awaited Cure — or Cause for ‘Wild-Eyed Alarm’? ‘A Major Transformation’: The Pros and Cons of the Dodd-Frank Act The Coming Meta-Boom and Meta-Bust — One Economist’s View

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Dylan Reid: Faced With A Grim Job Market, Young Entrepreneurs Create Their Own Employment

April 26, 2011

As June approaches, the million and a half students set to graduate from college in the U.S. this year likely have just one thing are their mind: the job market. For each of these students faced with an uncertain, unstable or imprudent future, there will be a strong impulse to pursue the safest path, often on the periphery of their passions. So to all this year’s graduates wavering between boring job prospects and graduate school admissions, debating backpacking trips across Europe or Latin American missions with the Peace Corps, we propose an alternative. Instead of looking for a job: create your own. The time for entrepreneurship is now. Employment may be scarce, but opportunities for talented students and recent grads to start companies are abundant, especially in the U.S. Increasingly, our national attention is focused on entrepreneurs, with university and government programs supporting R&D and offering low-interest loans for new ventures to start and scale. Tools like crowd-funding and out-sourcing are cutting costs and allowing entrepreneurs to bootstrap from virtually nothing. Accelerators and incubators are sprouting up across the country, transforming once quiet cities into interconnected innovation hubs. And as countries become more connected, more and more entrepreneurs are launching enterprises that operate across countries, continents and around the world, catering to cultural differences and regional needs. The international impact of startups like Facebook, Twitter and Google have laid the groundwork for new wave of global thinking. Growing up on a small farm in New Jersey, Jason Halpern remembered the difficulty of installing solar panels so far off the grid. Small farmers, he realized, had much to gain from solar but its complex and costly infrastructure placed it out of reach for many. While a student at the University of Pennsylvania, Halpern and childhood friend Pat Murphy set out to create a portable and affordable solar generator designed for farmers. After participating in contests and attending conferences at their school and around the area, they pieced together a prototype. They won a $500,000 Edison Innovation Fund Cleantech Grant from the State of New Jersey. And today their company PowerFlowerSolar is developing a range of portable solar generators for farmers, the military and for use in disaster relief. “Bringing power,” as Halpern says “to the places that need it the most.” Not every young entrepreneur has such a clear vision from the onset. Some stumble into entrepreneurship with only a vague plan. Upon graduating Wharton in 2009, Jonathan Hefter turned down lucrative job offers in finance and moved into his parent’s basement where he taught himself to code. It was then that he came up with the concept for the Neverware Juicebox, a super-fast, inexpensive server that speeds up old computers. After getting an invitation to join New York incubator Dogpatch Labs, he was able to perfect the first server. Today, Neverware Juiceboxes are revitalizing outdated computers in public schools across New York and New Jersey. While these entrepreneurs are exceptional, their stories are certainly not unique. They are only a few among the growing number of top students and recent grads in the U.S. and abroad foregoing the arduous process of job seeking for job creation. They are turning their passions into products and experiences into enterprises. They are working across a wide range of sectors and distant geographic locales. They are seeing opportunity in uncertainty and in doing so shaping the future and from the stories of their success a new generation of young talented people might be encouraged to do the same. At the Kairos Society this is not only our hope — it’s our vision. As the world’s most expansive network of student entrepreneurs, we are committed to making our vision a reality. By connecting the world’s most promising young entrepreneurs to each other and the resources they need to succeed, we are helping to foster the businesses that will drive the future and continually question what is possible.

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Australian Power And Gas Company Limited (ASX:APK) Releases Forecasts For Financial Year 2012

April 26, 2011

Australian Power And Gas Company Limited (ASX:APK) Releases Forecasts For Financial Year 2012

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Brink Lindsey: Why Growth Is Getting Harder — And What To Do About It

April 25, 2011

The worst of the Great Recession is apparently over. The economy is growing again, and the unemployment rate is down to 8.8 percent from its peak of 10.1 percent. Yet even if the acute crisis is abating, the grim fact is that the U.S. economy still faces chronic health problems. Even before the recession hit, back in 2007, real income for the median American household was lower than it had been in 2000. So too was total employment as a percentage of the population. Here’s the fundamental problem. Economic growth is harder than it used to be. This is the argument made by the economist Tyler Cowen in his provocative new e-book The Great Stagnation . Even if you don’t buy all his analysis (and I don’t ), he’s right that the American economy will have to contend with some pretty stiff headwinds over the next couple of decades. Let me mention here one of the main challenges that confronts us: increasingly unfavorable demographics. If you want to increase GDP per person — the main yardstick for economic growth — one of the best ways is getting an ever-higher percentage of the population into the business of producing GDP. And that’s exactly what happened over the course of the 20th century with the rise of women in the work force. In 1900, only 20 percent of women sought work outside the home; in 2000, the female labor force participation rate hit an all-time high of 60 percent. As a result, the overall employment-to-population ratio climbed steady, and this progressive mobilization of Americans into the money economy helped to propel growth and prosperity. But now demographics are pushing in the opposite direction. Female participation in the labor force started falling after 2000, well before the Great Recession. Meanwhile, the percentage of adult men in the workforce has been slowly declining for decades, thanks to later entry due to more schooling and more years in retirement. And looking ahead, the aging of the population will put further downward pressure on labor force participation. The switch from a rising to a falling employment-to-population ratio matters a great deal. A recent report by the McKinsey Global Institute estimates that growth in the workforce (due to increasing population) will add only 0.5 percentage points to the average annual growth rate between 2010 and 2020. By contrast, the expanding workforce added 2.0 percentage points to growth back in the 1970s. If we’re going to avoid a historically unprecedented slowdown in the long-term growth rate, something has to make up the difference. That something is productivity. Economic growth can be seen as having two basic sources: (1) increases in working hours per person, and (2) increases in output per working hour. Since the first has tailed off, the second — otherwise known as productivity growth — needs to pick up the slack for growth to stay on course. According to McKinsey , we will need to boost productivity growth by roughly 25 percent above present levels to keep economic growth from falling below the long-term historical trend line. Welcome to the era of “frontier economics.” That’s the term I used to describe our situation in a recently released study for the Kauffman Foundation. In that study I argue that growth comes in two basic forms: imitation, or expansion based on the application of existing knowledge; and innovation, or the development of new ideas at the technological frontier. Because of shifting demographics and other factors as well, the sources of imitative growth are being exhausted. As a result, we are now increasingly reliant on innovation to keep prosperity alive. The only alternative to Cowen’s “great stagnation” is to push back the frontier of our knowledge and know-how. Once the challenge that confronts us is understood, the implications for economic policy become clear. If we are to pull out of the current slump and launch a 21st-century boom that rivals the growth record of decades past, it will be through unleashing the power of competitive markets to spur innovation. I’m not talking about laissez-faire here, or the absolute minimum of regulations and taxes. Competitive markets don’t exist in a vacuum: They are the product of a highly developed and sophisticated regulatory structure. And the example of the Nordic countries shows that robust competition is possible even with much bigger government than I would personally prefer. Rather, I’m talking about an economic environment in which new businesses are free to enter the market, struggling businesses are free to exit, prices move freely in response to supply and demand and product offerings change freely in response to consumer preferences. Both empirical researchers and theorists of economic growth agree: Competitive intensity is the key to spurring progress at the technological frontier. Existing firms pressed by their rivals have sharper incentives to innovate. Meanwhile, a competitive business environment open to entrepreneurial upstarts creates opportunities for those new firms with new ideas that are so frequently the agents of disruptive, discontinuous innovation. That’s the big picture, but what are the specific steps we need to take to make America a more competitive, innovative economy? To answer that question, the Kauffman Foundation launched the Law, Innovation, and Growth initiative to explore how to reform the country’s laws and regulations to promote long-term growth. The early fruits of this project were published this year in a new book by the Kauffman Foundation titled Rules for Growth , which contains specific policy recommendations from some of the nation’s top legal experts. We still have much work to do. But here in the era of frontier economics, the choice is clear: innovation or stagnation. To keep the American dream of widely shared prosperity alive, we need to choose entrepreneurship and competition over the vested interests of the status quo.

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Naveen Jain: Bring Back America’s Spirit of Innovation and Entrepreneurship

April 25, 2011

As the U.S. economy slowly moves out of the recession, it’s a good bet that businesses started or led by immigrants will play a substantial role in creating jobs and driving growth. In high tech, for instance, 52 percent of startups launched between 1995 and 2005 were founded by immigrants, and foreign nationals have filed for a quarter of patents in recent years. So why are we so eager to send talented immigrants back to their home countries, instead of keeping them here so they can continue to innovate? Our unwillingness to champion entrepreneurs, no matter where they come from, is part of a larger attitude problem around entrepreneurship: We don’t celebrate their achievements as much as we should, and our government support of entrepreneurs is weak. The end result is that talent is attracted here to attend our finest educational institutions, but may not be so welcomed if it wants to stick around and start a business. It wasn’t always this way. Innovators were revered, and schoolchildren learned the names of the great inventors alongside the names of renowned statesmen. Today, people idolize athletes and celebrities — and yes, highly successful and visionary business people like Bill Gates or Steve Jobs, but not the innovators who perhaps have not seen such high-flying levels of success. Can anyone name the inventors of GPS, which has such a huge impact on our lives today? (For the record, Roger Easton, creator of some of the key technologies that led to GPS, was recently inducted into the National Inventors Hall of Fame .) Aside from an attitude shift toward the valuable contributions of entrepreneurs and inventors, we need to cultivate more support on a government level. We can learn valuable lessons from Start-Up Chile , an effort funded by the Chilean government that aims to attract early-stage entrepreneurs from all over the world to launch their businesses in that country. The program provides subsidies to teams of entrepreneurs along with access to sources of capital. It’s a great idea, and one that promises to reap benefits for the country’s economy as well as provide a source for jobs. We need our own American “mobilization” for entrepreneurship and innovators — one that provides both the practical and inspirational support that will attract foreign talent to bring and grow their ideas here, and will help our homegrown talent thrive. Here’s what we need to make this vision happen: Longer stays for entrepreneurs : We don’t have enough of our own innovators in this country, which means we need to encourage budding inventors and entrepreneurs to come here, and stay here. Our current system — the H-1B visa that allows workers to come here temporarily, along with temporary visas for college students — doesn’t provide a long-term solution. We need easy and hassle free access to ” entrepreneur’s visa ” — one that would give deserving startup innovators the time they need to conduct their research, start a company, and see it through to success. The impact on our economy and the job market would be significant. Support from the White House : The President needs to champion the power of entrepreneurship and innovation to help turn around the economy. This message needs to resonate with high school and college students who are poised to create the next generation of entrepreneurs. It will also help restore some luster to the dulled reputations of innovators. In other needs, we need to make entrepreneurship a cherished national value. Connections to markets and customers : The prevailing myth is that innovators and their businesses only need startup capital. But more valuable than money would be a mechanism to bring together budding companies with customers and sources of steady income — perhaps by showcasing their wares on the shelves of America’s powerhouse retailers. Under the direction of the President or a specially created entrepreneurship council, a hundred or so CEOs could meet entrepreneurs and learn more about their innovations. Major retailers could create an “innovation aisle” in their stores to promote new inventions, helping create a funding pipeline to worthy businesses. Programs for college entrepreneurs : More schools need to drive the growth of innovation and entrepreneurship via special training or degree tracks. For instance, Babson College infuses entrepreneurship throughout its curriculum — in fact, one of its most popular classes, the “Ultimate Entrepreneurial Challenge,” lets students compete against each other in business challenges (very much like TV’s The Apprentice ). Unfettered, creative and enthusiastic entrepreneurship is one of the hallmarks of American life, and allowed us to attract the best and brightest to this country. Let’s bring back this spirit of entrepreneurship — to make the U.S. an attractive venue for talent from all over the world, and to do a better job of nurturing young talent here at home.

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Obama’s Oil Market Fraud Squad May Miss Wall Street Abuses

April 22, 2011

WASHINGTON — On Thursday, President Obama unveiled a new working group to combat any fraud or manipulation in the oil and energy markets that may be contributing to near-record gas prices. But some economists and market experts worry that by focusing on criminal activity, Obama is shrugging off a much bigger problem: rampant Wall Street speculation in commodities markets that has helped drive up food and energy prices in the past. “If prices start moving quickly up, you can get a side effect … that people might try to play [fraudulent] games of one sort or another,” said Massachusetts Institute of Technology economist John Parsons. “But it wouldn’t be central to the price movement” currently being seen in the market, he said. Gas prices are approaching record levels set in 2008, when prices at the pump eclipsed $5 a gallon. While unrest in the Middle East is almost certainly playing a major role in boosting current prices, increased speculation in commodities markets is likely contributing to the near record prices. The number of speculative bets being placed on oil and gas now far exceeds that of the 2008 price swing , which many economists believe was driven by excess speculation. Moreover, on March 21, Goldman Sachs analyst David Greely advanced the argument that Wall Street speculation was helping drive up oil prices in a memo sent to the bank’s clients. But, if speculative excess is contributing to current sky-high gas prices, such activity may not be illegal, in part because the Commodities Futures Trading Commission has not yet issued key regulations intended to rein in Wall Street gambling on food and energy prices. Congress ordered the agency to crack down on excessive speculation with last year’s financial reform bill, but the CFTC has been slow to implement new rules in the face of intense lobbying from Wall Street bankers. Financiers are quick to note that commodities markets need speculation — a raw bet that the price of oil or food will move up or down — in order to function. But economists say that too much speculation can distort the market, leading to wild price swings. Even if so-called “fundamental” factors are driving prices, heavy speculation can cause prices to swing further than normal supply and demand forces would dictate. In January, the CFTC announced it would push back implementing ‘position limits’, a key regulatory tool that restricts the size of the bets investors can make on commodities, in order to collect more data. But many reform advocates and CFTC Commissioner Bart Chilton say that there is plenty of data available to implement new rules now. “What the administration and others should do, which they have the power to do quickly, is impose position limits, which would stop excessive speculation now,” said Dennis Kelleher, a former securities lawyer with Skadden, Arps, Slate, Meagher & Flom who now heads the financial reform advocacy group Better Markets. “An investigation into criminal acts is not likely to lead to much.” Attorney General Eric Holder, who is in charge of the new inter-agency taskforce, specifically instructed members of the new taskforce in a Thursday memo to look into “the role of speculators and index traders in oil futures markets” — something the CFTC is already required to do. Officials from the CFTC, the Federal Reserve, the Federal Trade Commission, the Department of Agriculture, the Deparment of Energy and state attorneys general will be part of the group. But Chilton, the CFTC’s strongest proponent of reining in commodity speculation, says that the task force may well do some good. “Seventy-five percent of the cases we send to the Justice Department for criminal prosecution are rejected,” Chilton told The Huffington Post. “But if we can work more closely with the DOJ folks, we may be able to put more people in jail.” Nevertheless, Chilton said the CFTC should be taking steps independent of the task force: “That doesn’t mean that the working group is a panacea for actions that can be taken by regulators right now. The position limits are something we can do right now. I don’t need a task force to tell me to do that.” Unlike the stock market and other capital markets, commodities markets are not designed to function as a forum for investment vehicles. Instead, commodity markets are supposed to allow farmers, manufacturers and other producers to hedge the risks of doing business. By taking out a futures contract, or similar bet in the derivatives markets, farmers can lock in a price for their crops, protecting themselves from price changes. Producers need someone to take the other side of their price bets, whether it be another producer or, as it more frequently is, a Wall Street trader. Commodities markets work well when around 30 percent of the market is dedicated to speculation, According to Kelleher. But since the mid-2000s, the share of speculators in commodity market activity has increased to about 70 percent, Kelleher says, in part driven by new commodities “index funds,” which allow investors to bet on the price of several commodities at once.The size of those funds expanded from about $15 billion in 2003 to $200 billion in 2008 , and are currently valued at over $400 billion , according to Barclays Capital. The explosion in the over-the-counter derivatives market has also contributed significantly to oil price increases, according to Kelleher, by allowing investors to place huge bets on commodities without either regulatory oversight or market scrutiny. The derivatives market for commodities grew from about $674 billion in 2001 to $13.2 trillion by June 2008 , according to the Bank for International Settlements. Last year’s financial overhaul gave the CFTC authority over that entire derivatives market — one vastly larger than the $5 trillion futures market that the agency had previously policed in isolation. Whatever new rules the CFTC writes, they will need funding additional funding to enforce them. “The CFTC’s current funding is far less than what is required to properly fulfill our significantly expanded mission,” CFTC Chairman Gary Gensler warned in April 12 testimony before the Senate Banking Committee . But Obama was willing to negotiate away additional funding for the agency during negotiations over the budget for the rest of 2011. Under the budget deal Obama struck with congressional Republicans earlier this month, the CFTC will receive a $34 million boost in funding for the remainder of the year. But, even with that additional cash, the agency will receive about $60 million less this year than the amount Obama requested for the agency under his 2011 budget. Calls to the White House were not returned. The Department of Justice declined to comment. Elise Foley contributed to this report.

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Steve Mariotti: Remembering Ayn Rand

April 21, 2011

I am the founder of the Network for Teaching Entrepreneurship (NFTE) and I would like to share my personal memories of Ayn Rand and the effect she and her work had on my life, which provide interesting sidelights on the legendary founder of Objectivism. It took me two months to read all 1069 pages of Atlas Shrugged in 1967, as a 14-year-old. Rand’s famous novel was sent to me by my grandfather, Lowell B. Mason, who was Ayn’s friend and advisor. Reading it was what made me want to be an entrepreneur. Featuring an inspirational hero who was independent and could get things done, Atlas Shrugged was the first work of fiction I had ever read that talked positively about entrepreneurs and the wealth they created. It eventually motivated me — as a 9th grader in Flint, Michigan — to move to New York and start a business. So here is my story. I met with Ayn Rand three times, beginning on Memorial Day of 1980, and our correspondence continued through mid-January of 1982, two months before she passed away, on March 6th. Our last meeting was right before her trip to New Orleans, in the fall of 1981, where she spoke at my friend Jim Blanchard’s convention on investments. Jim was the top expert in the world on gold investment, and he got Ayn to be the featured speaker by arranging for a private train car for her trip. My appointment on Memorial Day in 1980 was at 11 in the morning. I was overdressed for the weather, and sweat streamed down my face as I walked around the block at 34th Street and Lexington Avenue, putting off the meeting with my role model. Despite her well-known inaccessibility, Ayn Rand had agreed to meet me, a 26-year-old entrepreneur, through a connection with my grandfather, a famous libertarian lawyer who had worked with Clarence Darrow in the Depression. Now, procrastinating, I could barely breathe. I was exhilarated and terribly nervous. She was a great hero of mine; I had memorized large parts of Atlas Shrugged . However, I would find out that the Ayn Rand I had fantasized about was not the Ayn Rand I was about to meet. I finally went into the lobby of the Tudor-style building at 128 East 34th Street, and rang the bell for apartment 6D. (The name on the directory was O’Connor — Frank O’Connor, her husband, had recently passed away.) “I never agree to meet with anyone,” were her first words. And then: “You’re right on time. That tells me something about you. Your grandfather Lowell has been my close friend since I started writing The Fountainhead. He gave me good advice on some legal issues. His Language of Dissent was brilliant,” she continued, pointing to the copy on a bookshelf. “Otherwise I would never have agreed to see you. I am old and do not have the energy.” She wore a black dress that came to just below her knees, and her hair was pulled back and up. She made a point of standing beneath a topless portrait of herself painted 40 years before, when she was in her thirties. She examined me intently, wearing the same sly smile she had in the portrait. She was beautiful and, standing directly below the picture, she seemed to be saying: “And I am still this sexy?” She was. With her high cheekbones, full bosom and bright green eyes, she looked like an earthly goddess who had stepped out of one of her novels. I called her “Dominique,” and then “Dagney,” and she smiled and touched my arm. She knew I meant it when I told her how beautiful I thought she was, and laughed a loud, Russian laugh.” I was in love. She showed me around the apartment — everything but the bedroom; she said it was too untidy for me to see. She showed me the massive drafting table on which she’d written every page of Atlas Shrugged by hand. She mentioned how she’d outlined various thoughts and ideas from Part Three of Atlas Shrugged : “A is A” — on the table in ink. When I asked where she had outlined parts One and Two, she laughed and said she would tell me later. (She never did.) It was amazing to think that she had laid out the handwritten pages of her masterwork on this very table every night. She showed me some handwritten pages of an unpublished article about the impact of Atlas Shrugged , as well as ten or so pages from a draft of the manuscript of Part One of Atlas Shrugged , “Non-Contradiction.” We talked for about an hour in her apartment — over the noise of a maid, who was cleaning. Then we headed out for lunch. The maid, a soft-spoken African-American woman, said: “Ms. Rand, please do not be long, and absolutely no smoking.” (I didn’t know at the time that she had been diagnosed with lung cancer.) As we walked down Lexington Avenue, I quoted my favorite passages from both her novels, and also from the Objectivist Newsletter. At the corner of 33rd and Lex, I happened to mention King Vidor being the director of King of Kings . It was Cecil B. DeMille. Ayn said: “Now that you’ve gotten one wrong, can you be quiet and let me talk?” Of course I had been rattling on, as we walked from her apartment to the restaurant. I wanted to impress upon her just how significant she had been to me growing up, and that I knew she had met her husband on the set of King of Kings, in 1927. But, because of that one slip, I had to pretty much suppress my urge to talk further and, over the next four hours, let her have the lion’s share of the conversation. The restaurant was closed because of the holiday. As we walked on, looping back around towards her apartment, I remember thinking, “This is going to be a short meeting; we are going to end up back at her front door and that will be it. She won’t invite me up because the maid is cleaning.” Luckily we found a diner a block further on, back on 34th Street, and settled in. Ayn ordered cereal and I got a hamburger. She lit a cigarette and didn’t stop smoking and blowing smoke in my face for the next four hours. She did not eat at all. When it was apparent that I was uncomfortable with her smoking, Ayn shrugged and said, “I can’t do this in front of my housekeeper because it’s bad for my health. Do not be such a complainer.” The time went by in an instant. We talked about philosophy and economics and her work and career, and the love of her life, Frank O’Connor. In our time together I understood how she could have created a worldwide movement against totalitarianism just through force of will. But, sadly, she was also an adherent of atheism, a point of view I so strongly disagreed with that I could not keep silent about it, and the debate was on. In her words, I was a “mystic fool,” but I pushed back with Pascal’s argument that this world is so complex that some higher power must have created it. She was fearless and said exactly what she thought, in short, perfectly formed sentences. She was extremely judgmental, and every remark was dissected and commented upon. But earlier in my life I had faced off with Madelyn Murray O’Hare, the famous American atheist, and I too was fearless, at least on this subject. But she also spoke about her childhood, her father the pharmacist, growing up in and then leaving Russia, and about her sister, who came to live with her in the 1960′s. Throughout the conversation she would laugh often — loudly and joyously. I listened intensely to her every word, sensing that being with this beautiful woman would impact my life forever. As our visit was coming to an end, she said, “You listen and talk well but too much sometimes. You would make a good teacher. I’ve been taking math lessons in arithmetic; can you show me how to do this problem?” It was a simple procedure of dividing fractions and I showed her how to do it, feeling the pleasure of knowing something she did not. (Years later, in one of life’s great coincidences, I was in the same class with her math teacher.) I paid the check, we walked back to her apartment building, and said goodbye. I told her: “You are a great teacher, Ms. Rand.” She walked into her building and that was the end of our first meeting. A few days later, I sent her a book about Hollywood that she was mentioned in, along with a hand-written thank-you note. She didn’t reply, so a few weeks later I sent another gift — Russian candy — meant humorously, with another note. She sent them back. The returned gifts were accompanied by a letter from Ayn’s secretary, saying that Ms Rand had only seen me out of courtesy to my grandfather. I was devastated. This incident cut me deeply. I was so scarred by the rejection that I couldn’t even tell anyone about it for 15 years. Ayn had been so nice to me during those smoke-filled hours, which made the letter from her secretary all the more distressing. (I promised myself never to treat anyone like that, and I never have.) I felt then what others had told me: my idol was nothing more than an egotistical, self-absorbed recluse, and just as flawed as anyone else. Fifteen months later, in September of 1981, we both got another chance. Again my grandfather had intervened, calling Ayn and apologizing on my behalf. To me, he said: “You were too intellectually aggressive.” I was shocked, and didn’t say anything about my virtual silence for those four hours in the restaurant. My grandfather continued: “Because she hurt your feelings last year, she will see you one last time — for fifteen minutes. Don’t mess it up this time. She is a genius and you can learn a great deal from her. Do not talk or take issue with anything at all.” I met her in the lobby of her building in the early fall of 1981. I had been so shaken by her letter and the return of my gifts that I must have looked like a stunned little kid — beyond chagrined. She said, “Don’t be so weak. Weakness sickens me. Do not make me feel pity.” I knew she was quoting from The Fountainhead ; I then quoted the preceding and following sentences. She laughed, and said, “OK, you’re forgiven.” She looked even more beautiful to me this year. Her intelligence shone from a face that was now over 76-years-old. We went back to the restaurant on 33rd and Lexington that had been closed the previous Memorial Day. I gave her a bracelet my mother had given me when I left Flint. She put it on over a green shirt that was covered by an old blue sweater, with an elegant gold brooch pinned to the sweater. Her outfit was completed by a pair of baggy black pants. We sat at her favorite table by the door, exactly on the corner. She knew all the waiters, who were very respectful to her. I excused myself and went to the bathroom. On the way, I asked one of the waiters: “Do you know who that is?” “Of course,” he replied, “she’s a writer, right?” This time Ayn and I talked for at least five hours. She was still grieving over her husband Frank’s death. She smoked continuously, and said: “No one knows how sad I am. And this pain from Frank is killing me.” She blew a cloud of smoke in my face and said, “You should come to my funeral.” I laughed when she added: “And I mean it” — the four words that had guided her life. She told me in detail how she met Frank O’Connor on the set of King of Kings on a bus for the extras. She then did not see him for several months, until running across him by chance at the studio library, where he was reading about art history. She told me with a breaking voice what he was wearing on his tall frame. She had kidded him about his baggy pants and he had laughed at her accent. They both liked the poem “IF,” and she recited it to him from memory. For her, it was love at first sight. She told me many anecdotes about Frank and related how he had had a stroke before he died, which interfered with his ability to talk but not his ability to hear. Then she started to cry. I was shocked — everyone had told me she never cried, except once at the Foundation for Economic Education (FEE), a think tank for the ideas of Henry David Thoreau, when Ludwig von Mises — the legendary free market economist — had yelled at her. Von Mises told her that she was a stupid ignorant Russian peasant woman, and she broke down. When I mentioned this story, she got upset. She said Von Mises, always a gentleman, would never have said such a thing, that he had a deep respect for her. As she tells it, William F. Buckley had made up the story to hurt her. To change the subject, I brought up God and spirituality. We had spent a good deal of time at our first meeting arguing about spirituality — my belief in God and her hatred of the concept. “You will see Frank again in a spiritual sense,” I said, “there is just too much energy for it all to disappear. There are over two billion calculations a second for the body to function. That is so incredible, someone had to create that. And if that is so, then anything is possible.” She nodded, half-sobbing, her face heavy with tears. “I hope so” she said. “I would do anything to see him one more time.” She showed me notes he had written to her after the stroke. They were in large letters in what looked like a third-grader’s printing. “I hope you are right, maybe you are. I think about it all the time. I do not know. I just do not know,” she said. After a long pause, she added: “I will find out soon enough.” “Let me know,” I said, and we both laughed. I pointed out her use of “God” on Phil Donohue (whom she adored). “You did say God bless America,” I teased. She laughed that wonderful laugh again — she was so charismatic. I said: “You should let the public know that, that you have doubts. So many people follow you.” She waved her hand dismissively: “So what. Let them find their own way, I cannot help them.” I told her about my interest in politics and my desire to help maximize people’s personal and professional freedom — particularly for poor children. (I had recently been mugged and was thinking about making a career change to work with the type of children that had humiliated me.) She agreed that that was laudable, “Provided they have a good philosophy of reason and that they are objective and face reality,” she added — in what sounded like a harbinger of the didacticism that would come soon after her death, and scar Objectivism for decades. “You should be a teacher. You have a knack for it,” she said, repeating her comment of fifteen months before. “If you could teach people that are born poor to create value and be capitalists, that would be good. Look at what I was able to do with nothing — I had no money or skills, just a vision of what I could become. I wanted to be a writer and philosopher.” Little did I know how those words would guide me in the very near future. I gave her copies of three papers I had written on economics. One of them has since become famous as the first statistical test of the Austrian Trade Cycle Theory; another was my attempt to bring a unity to the different methodologies of economics, a paper F.A Hayek — a Nobel Prize winner — had loved when I had studied with him in 1977. She promised to read them. In passing, I told her of my activism for gay rights, thinking she would be pleased. She was not pleased, and also made it clear that she hated Murray Rothbard who, along with Charles Koch and I, had just co-wrote the Libertarian Party Platform. “We made him leave our study group,” she said, referring to Rothbard’s excommunication from the Collective, a discussion group of intellectuals that met weekly in her apartment. When we left the restaurant, having let her do almost all the talking, I said nothing — but gave her a hug. We walked back to her building, just as the housekeeper was coming out: “Ms. Rand, I was just coming to find you.” A colleague of hers had come out too, and began yelling at me that I had kept Ayn out too long and that I was boring her. I think perhaps he felt threatened by her being with me. Ayn turned and said, “You made me feel better.” I laughed and replied, “I thought people were not supposed to feel.” She gave me a quick one-finger handshake and said: “One more meeting and that is it — I am tired.” She added: “Do not count on me for any more visits.” I answered: “OK, but you did say we could have coffee; I love being with a beautiful woman. Can I get a picture with you, please?” I handed my camera to the housekeeper, at the same time calming her colleague down. “No, absolutely not, I am too old! If I am alive next year, perhaps,” she said laughing. “If not, come to my funeral.” Over her objections, the housekeeper took a picture (which unfortunately I lost 20 years later). Ayn and I both laughed, and she went inside the building with her companions. This time I waited a month to call her and sent no notes or gifts. When I got her on the phone, she said, “I am too tired now,” and then: “I can see you for a cup of coffee, perhaps, but only for twenty minutes. You wear me out.” I was pleased and promised not to talk at all. I met her at the same restaurant, but she was grumpy, irritable, and tired. We left after twenty minutes. I had absentmindedly left my jacket at the restaurant and her housekeeper called to say that I could come over to the apartment and get it from the doorman, that I could say hello to Ms. Rand for a minute, then leave. My visit got postponed several times. The last time I called, Ayn got on the phone and we spoke for a minute, but she sounded tired. I never picked up the jacket. After her return from the trip to New Orleans, where she had spoken on the topic of Morality and Capitalism, I received a letter from out of the blue: “I had seen you out of respect for your grandfather. You turned out to be a terrible disappointment. The fact that you support the immoral acts of homosexuals shows me you are a second-hander who likes his heroes with clay feet. Do not call me again or contact me in any way. Here is the bracelet — I do not want it. I am burning your papers.” It was like someone had taken a hot knife to my stomach. But the letter so contradicted how our last encounter had played out, that I was unsure if it was even written by Ayn herself. She had made a point to “cc” this letter to several individuals, including Leonard Peikoff. And that was that. This final communication hurt so much that I have never talked about it until now. In my opinion, based on our last conversation, Ayn Rand died a deist or an agnostic, not an atheist. Sadly, her intense dislike of gays and the gay liberation movement led to our falling out, during that last meeting in January of 1982. I felt that she had replicated the world she had grown up in, where the Tsar — then Lenin — would ostracize (or worse) anyone who disagreed with official attitudes. I will forever reject Rand’s philosophy of Objectivism, because it denigrates the importance of spirituality. It also overlooks the limits of a market economy in solving a variety of serious problems caused by the economics of externalities and public goods. I fully appreciate Ayn Rand’s influence in stopping the worldwide rise of totalitarianism, in encouraging the feminist movement, stimulating discussion of the legalization of victimless crimes, and the jump-starting of libertarian politics . And she was uncannily prescient. Inspired by her, I subsequently spent 30 years teaching at-risk youth and, in 1987, I founded NFTE, where I still teach. Sadly, many of the events she wrote about in Atlas Shrugged are coming to pass.

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Ted Kaufman: Greenspan Is Back to Lead the Charge Against Responsible Regulation

April 21, 2011

Wall Street bankers, with help from key Republicans in the House and Senate, have begun a major campaign across the country to kill the regulations currently being developed to enforce Dodd-Frank Wall Street Reform. A recent speech by the leader of Wall Street bankers, JP Morgan’s CEO Jamie Dimon, took direct aim at financial regulation and new, more rigorous capital standards. The same week, Alan Greenspan — just a year removed from his mea culpa on “self-regulation” — said the Dodd-Frank legislation would create the “largest regulatory-induced market distortion” in the US since wage and price controls. Very shortly afterwards Senator DeMint introduced a bill to repeal Dodd-Frank. And House Financial Services Committee Chairman Spencer Bachus led 34 of the committee’s Republicans in sening a letter to the six agency heads charged with implementing the Dodd-Frank Act stating that the members are “troubled by the volume and pace of rulemakings.” It is very hard to believe that anyone would propose going back to the policy of “self-regulation” on Wall Street and elsewhere. We tried that during the last 20 years, and it catastrophically resulted in the worst financial meltdown in 80 years, almost destroying the US and world financial systems. It caused more than 3 million homes to be repossessed, drove the unemployment rate over 10 percent, and left millions in economic, and emotional, shock. Where was the regulatory backstop that should have been the last line of defense? Completely dismantled by Washington policymakers who bought the view that self-regulation would work and markets could police themselves — the same ideology that they are boldly pressing now, so soon after its complete failure. The question of whether regulation is necessary has been asked and answered, painfully so for many Americans. We are not living in the abstract, debating hypotheticals about what would happen without regulations. Before the meltdown, market fundamentalists and Wall Street bankers argued that our financial actors could police themselves, that their self-interest in remaining financially viable would create sufficient incentive to avoid failure — far exceeding the ability of regulators to limit excessive risk by rulemaking. Systematically, these fundamentalists worked to dismantle many of the prudential New Deal era banking reforms. Their crowning achievement: the repeal of Glass-Steagall (which, passed in the aftermath of the Great Depression, kept our financial system stable and growing for 60 years) in 1999. Wall Street and Washington were possessed by this laissez faire ethos over the past 20 years. It was this philosophy, and the decisions that sprang from it, that led us blindly down the path to the financial crisis. Before his recent (re-)conversion, Alan Greenspan admitted that this dominant concept of self-regulation was ill-conceived. In a speech on February 17, 2009 before the Economic Club of New York, the former Fed Chairman conceded that the “enlightened self-interest” he had once assumed would ensure that Wall Street firms maintain a “buffer against insolvency” had failed. Mr. Greenspan, perhaps more than anyone else, should have known better. But instead of playing the role of the markets’ fire chief, he played that of head cheerleader. For example, Mr. Greenspan applauded the trend of financial disintermediation, proclaiming that new innovations would allow risks to be dispersed throughout the system. Of course, this was just the tip of the iceberg. Despite having the power to write and enforce consumer protection standards, the Federal Reserve did nothing to combat deteriorating origination standards in mortgage and consumer loans. He could have implemented common-sense rules like minimal capital requirements for systemically important financial institutions. That would have been a critical emergency-brake when the Bear Stearns/AIG tailspin began. Instead, Mr. Greenspan signed off on regulations that gave banks the ability to set their own capital standards. He allowed banking institutions to leverage excessively by gorging on short-term liabilities and, in some cases, creating off-balance-sheet entities to warehouse their risky assets. This makes it hard to believe that Greenspan would return to his old talking points, joining the offensive coordinated by Wall Street banks and others saying that the Wall Street Reform Act will never work, and its implementing regulations should be delayed or watered down. Trust alone will not work in business, just like it does not work in sports. Many of us, as fans, are frustrated at the referees and umpires for constantly interfering with the free flow of the game. But they enforce the rules and regulations developed to keep the game orderly and protect the participants. Perhaps a football game would go smoothly for a bit without referees, but I would not want to be at the bottom of the second or third pileup. Rebuilding effective regulatory policies and agencies will take time, but that work is absolutely essential. Not every business will follow the call to build trustworthy practices. Only the hammer of fair and consistent regulatory penalties and fraud laws will deter wrongdoers.

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Eric Ehrmann: Brazil Doubles Down on China Trade

April 20, 2011

With food and fuel prices causing inflation and strikes, President Dilma Rousseff has returned from China with over $30 billion in deals that will create some high value jobs and help steady the economy. But while the BRIC nations want to do business in local currencies, most of the government and private sector deals linked to the Dilma visit are dollar plays. Further declines in the US currency will require new intervention, complicating efforts to shift the image of Dilma’s government from the left to the center, a move that is key to attracting global capital in today’s currency war environment. The Dilma in China show was low-fi in contrast with the media circus orchestrated for President Obama’s stopover in Brazil last month. But while American consumer culture drives Brazil’s young, wired and affluent, the China deals — a mix of high tech ventures, defense and security moves and agricultural exports — are reminders of why Beijing has pulled ahead of Washington as Brazil’s top trade partner. To help solidify the foundation of the new Sino-Brazilian relationship, the governments have agreed to increase cultural programs and create what will become Brazil’s largest Chinese language training facility under the aegis of the Federal University of Porto Alegre. Although a study by Estado de São Paulo indicates that the boom under former president Lula brought 20 million citizens into Brazil’s middle class and put computers into 100 million households, team Dilma faces a tough challenge keeping up the momentum. CIA Factbook statistics indicate that income distribution actually worsened during Lula’s eight years in office, with less real wealth trickling down to working Brazilians like those in the northeast who need it most. Brazil’s income distribution, which is the worst among the BRICs, rating a GINI index of 56.7, is also the worst in South America after Colombia. For its part, Beijing has agreed to invest in Dilma’s accelerated growth programs that stabilize the lives of the majority of the population who are on the bubble of marginalization, many earning just the minimum wage of $340 a month (540 Reais). In a move that some in Spanish speaking Latin America might call vendepatria (selling the national patrimony), China now controls and buys most of soybean production in Goias State, an agricultural region the size of Germany. Beijing will invest in processing plants in neighboring Bahia State and help develop transport infrastructure to carry soy product to port. In a nation where politicians of all stripes have a quaint fondness of building highways to nowhere, it costs more to get a cargo of soy product from the Mato Grosso to the port in Parnanagua than it does to ship the same quantity from Brazil to China. China is also helping power Brazil’s growth by investing in the power grid technology for the huge Belo Monte hydroelectric project, which when completed will be the world’s third largest generation facility. Belo Monte has been a newsmaker, drawing criticism from US environmental groups and former US president Bill Clinton, among others. Ironically, International Monetary Fund chairman Dominique Strauss-Kahn, a socialist who wants to become the next president of France, has called for Brazil and China to cool down their relationship and focus on reforms, suggesting that the partnership is fueling the currency wars and unfair to other emerging economies, creating global instability among those who haven’t completely recovered from the ongoing crisis. Meanwhile, finance minister Guido Mantega has announced that Brazil will post a healthy 4 percent growth rate for the first trimester of this year. But while Stauss-Kahn evangelizes against economic nationalism from his bully pulpit, the globalist dimensions of the Sino-Brazilian gambit offer new reminders that to get more money into the hands of those who need it, it may be time to start reforming economics and stop talking about economic reform. Offering China the opportunity to lock in price stability that helps avoid food inflation, the $10 billion soybean deal does not create the value added jobs Brazil needs, masking a low-wage peasant economy stuffed in an agribusiness wrapper. And the $12 billion deal to produce and assemble components for Apple and other mobile items is heavily concentrated in the Amazon high tech free trade zone where unions have little leverage to help workers get higher wages; to help win this deal Dilma recently extended by decree the law establishing the zone for 50 years, citing strategic reasons. Foxconn, the company behind the Apple deal, while the largest exporter of mobile components and devices from the Peoples Republic of China, is actually based in Taiwan. While China-friendly, its key board members have been closely identified with US business and communications intelligence interests including Dan Mehan , a former ATT/ Bell Labs cybersecurity expert. With Dilma playing her cards in the fog of the currency wars and global equity packagers recycling weak dollars into Brazil’s inflation prone economy, one wonders whether if the big deals are trade or aid.

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Lynn Jurich: The Rise of the Pocketbook Environmentalist

April 18, 2011

While the down economy has left millions of families feeling battered, Americans aren’t taking it lying down. They are looking for ways to cut back, save money and make ends meet. In this new consumer landscape, saving is in vogue and bargain purchases warrant bragging rights. As the co-founder of a company that addresses this money-saving need by bringing affordable solar power to homeowners, I’ve also noticed that bargain purchases and “green” purchases have finally become one and the same. There is a new wave of environmental consumers I like to call Pocketbook Environmentalists. They’re going green primarily because it makes good financial sense, but the fact that it benefits their families’ health and the environment also makes them feel good. More often than not, they no longer have to choose between their pocketbooks and the planet. The most important values for shoppers — cost, quality, and convenience — haven’t shifted. But, increasingly, green products and services are the superior option in all of these categories. For example, companies like Walmart have stocked their shelves with organic foods comparable in price to non-organic products at mainstream supermarkets, making the decision easy. The Food Institute found that while grocery industry sales grew only 1.8 percent overall last year, organic grocery sales were more than twice that (4.4 percent). Going green is cost-competitive with other products and services, and easier than ever. Another example is Zipcar’s convenient and cost-efficient car sharing service. With Zipcar consumers avoid the upfront cost of buying a car, not to mention gas, insurance, and repairs. Plus, they reduce the number of polluting vehicles on the road. Suddenly the planet-smart carless option is also the convenient money-saving option. What’s more, while Americans battle the recession they also have to deal with rising gas prices and ever-increasing electricity costs. Not surprisingly, soccer moms from the Midwest are trading in their SUVs for hybrids. Sales of Toyota hybrids, including the Prius, have now topped 3 million, while increased demand for fuel-efficient vehicles has inspired nearly every car company to get into the hybrid market. Higher home energy bills have also spurred families to look for alternatives to their utility companies. I’ve met and spoken with them first-hand because they come to solar providers like mine to relieve the burden on their wallets and take control of energy costs. We own, install, insure and maintain the solar panels and all the homeowner does is pay monthly for the power with little or no upfront costs. It’s Pocketbook Environmentalism in a nutshell. Russell Gold of the Wall Street Journal summarized it well recently: “Falling solar-panel prices, generous government subsidies and rising power costs are creating a new breed of solar enthusiasts: people who are installing panels on their roof because they see it as a good investment, not because they are out to save the world.” As a result, new solar panels are showing up in a more economically and politically diverse range of cities. For every family in liberal San Francisco that went solar with SunRun in 2010, nearly eight families in more conservative Fresno made the switch to our solar power service . And New Jersey is now second only to California in the growing nationwide solar market. For Pocketbook Environmentalists, financial savings are the primary motivator. However Pocketbook Environmentalists are changing the face of the market and the planet for the better by demanding that going green saves you money. And that’s a new Earth Day motto we can all get behind. Lynn Jurich is the president and co-founder of SunRun.

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Terry Newell: Race to the Bottom: How Low Expectations Are Hurting Us

April 14, 2011

If America is the land of opportunity and optimism, you could be forgiven for wondering where it went as you watch contemporary social and political affairs. From one area to another, we seem driven not by the soaring rhetoric of hope and promise but by the sinking call to lower our expectations. Education is a prime example. The drive for minimum standards of achievement, in recognition of the poor performance of American students matched against themselves and other nations, is a drive of diminished expectations where the phrase “race to the top” gets equated with an educated person. There is no question that these minimum standards are crucial to meet, but what do they say about the importance of exceeding them or the enjoyment of art, poetry, music and literature — as ends in themselves apart from a score on a test — in forming an educated person and a good society? When we define success in education as a passing score, we act as if everything that counts can be counted. Education is not the only field in which minimum standards seems to have replaced the call for American greatness. We have bottom-oriented thinking in mileage standards for cars, in acceptable levels of pollutants in power-plant emissions and other industrial operations and in permissible levels of chemicals in food and drugs. We have minimal requirements of disclosure, transparency and integrity for financial institutions in instruments from home loans to credit cards. While such standards play a useful role in protecting public health and consumer finances, they also signal that anything you can get by with while still meeting this floor is not only acceptable but damn creative. Where is the invitation to excellence? In many of our social relations, we seem to have reached the point where legality is the sole measure of acceptability. Rather than ask how we should behave, we settle for figuring out how we have to behave. If it’s legal, it must be OK. Said another way, you can’t stop me unless you can prove I broke the law. While this has created a boom economy for lawyers, it does not do much to build the moral character on which good societies rest. It is a year after the BP oil spill and we have yet to figure out if anyone at BP can be charged with breaking the law, and meanwhile we watch Transocean claim that 2010 was its best year for safety. How do we signal to them both that there is a higher standard by which we judge them — and by which they should judge themselves? In politics, the race to the bottom is driven by nastiness and the desire to take away anything people don’t have the power to keep. Admittedly, state and federal debts have to be reduced, but must the path to doing so be strewn with vitriolic words and the assumption that the social safety net is the primary place to cut? When we charge public employees with being the “haves” and the rest of the middle class with being the “have-nots,” we are in headlong battle with ourselves that looks down the economic ladder for solutions. It’s as if we’ll be happy when everyone else is as miserable as we are, rather than viewing our relationships as a way to lift each other up. Indeed, we seem to have almost given up hope in raising everyone, a hope that has sustained us for generations. My wife told me once that, as a child, she would tend to look down as she walked on the street. Her mother, a woman whose early childhood photograph is a poster for optimism and who met life more than half-way and expected the best from her children, used to tell her, “Look up; that’s where God is.” Not a terribly religious woman, I think what my mother-in-law meant was that we realize the best that is in us and others when we aspire to the possibilities in the world rather than shrinking from them and limiting our view. After all, if you want to see the sun, you have to look up. Looking down is sure to show you only the shadows. America could do itself a big favor if — whether in education, commerce, politics or social relationships — it looked up instead of joining the current race to the bottom.

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U.S. Nuclear Regulator Lets Industry Write Rules

April 14, 2011

ProPublica’s John Sullivan reports : In the fall of 2001, inspectors with the Nuclear Regulatory Commission were so concerned about possible corrosion at Ohio’s Davis Besse Nuclear Power Station [1] that they prepared an emergency order to shut it down for inspection. But, according to a report [2] from the NRC inspector general, senior officials at the agency held off – in part because they did not want to hurt the plant’s bottom line. When workers finally checked the reactor in February of 2002, they made an astonishing finding: Corrosive fluid from overhead pipes had eaten a football-sized hole in the reactor vessel’s steel side. The only thing preventing a leak of radioactive coolant was a pencil-thin layer of stainless steel. The Davis Besse incident has resurfaced in the wake of the ongoing nuclear crisis at Japan’s Fukushima Daiichi plant. Stories recounting close ties [3] between Japanese nuclear regulators and utilities there have reinvigorated critics who say the NRC has not been an aggressive enough U.S. watchdog. The NRC says that is not the case, and commission Chairman Gregory Jaczko defended the agency’s independence and professionalism. “I have a great staff who are dedicated to public health and safety, and people who interact with this agency, they know that and they see that,” he said in an interview. Critics of the NRC say the problem at Davis Besse, 20 miles southeast of Toledo, is a prime example of the agency’s deference to industry. The inspector general concluded that a conflict between the NRC’s twin goals of inspecting the plant to protect public safety and a desire to “reduce unnecessary regulatory burden” on the owner led to the delay in finding the gaping hole. In 2003, then NRC’s Chairman Richard Meserve disputed the inspector general’s report [4] , which found that the agency’s decision on Davis Besse “was driven in large part by a desire to lessen the financial impact” the plant’s owner. Meserve said the NRC had adequate technical grounds for the delay. The agency insists that it vigilantly watches operations at 104 commercial reactors and frequently issues violations to nuclear companies that step out of line. Since 2001, the agency has averaged about 120 significant enforcement actions a year at power plants and other nuclear facilities it oversees. While the Davis Besse case focuses on singular allegations of influence, critics say the industry routinely exercises its muscle in a more pervasive way: through contributions to NRC regulatory guides [5] that advise nuclear companies about how to best follow the agency’s rules. Large parts of the guides, issued by NRC, incorporate or endorse material written by the industry’s trade group, the Nuclear Energy Institute [6] . The guides – containing detailed technical procedures and reference materials – are a key part of NRC’s oversight. They provide the nuts and bolts advice that nuclear operators follow to stay in compliance but often refer to even more detailed industry guides. The NRC’s guide on fatigue [7] , for example, details how many hours employees in key jobs can work, how to respond when a worker is too tired, and how many days off employees in certain jobs need. It officially incorporates, with a few exceptions, another 60-page guide compiled by the industry group. In an e-mail, Thomas Kauffman, a spokesman for NEI, passed along responses to ProPublica’s questions from the trade group’s director of engineering, John Butler. “NRC endorsement, with or without exceptions, of industry guidance is a common practice,” Butler said. Some examples from a list the trade group provided to ProPublica: How to apply for an operating license extension. Many aging plants are seeking to extend their original 40-year licenses. The 10-page NRC document endorses a 245-page NEI guide [8] that tells applicants how to identify critical equipment and inspect it to be sure it meets relicensing standards. How to protect plants from fires [9] . The NRC’s regulatory guide cites an NEI document that “provides the majority of the guidance applicable” for analyzing fire risk at plants, with some specific exceptions. How to upgrade plant control rooms [10] . The NRC regulatory guide says that “when possible, this guide has incorporated (NEI’s) ‘Control Room Habitability Guide,’ ” again with some limits. The NEI said its role in contributing to NRC’s guides does not mean the nuclear industry has too much influence. Kauffman said the NRC has final say on what NEI adds and frequently makes changes. “They review them completely,” Kauffman said. “It is one thing to draft something and put it out there; it is quite another for the NRC to decide to accept it.” NRC spokesman Eliot Brenner said in an e-mail that the NEI is not the sole source of information in agency regulatory guides and that NRC accepts comment from a broad array of sources. “If any stakeholder – company, industry organization, individual or public group – backs up a request with appropriate information, the NRC will consider it,” Brenner said. “The NRC regularly denies industry requests that lack proper support, and we’ve taken properly supported rulemaking requests from non-industry sources on many occasions.” “The NRC is the final arbiter of what becomes a regulation,” he said, “with safety the total focus of our effort.” But others said the reliance on the industry creates a potential conflict of interest. Jim Riccio, who follows nuclear issues for Greenpeace, said that allowing the NEI to play such a large role means the industry can shape much of what nuclear companies are required to do. Riccio said NRC’s precursor agency, the Atomic Energy Commission, was disbanded after Congress concluded it had become too concerned with promoting nuclear power instead of regulating safety. In a 1974 overhaul [11] , development of nuclear energy was transferred elsewhere and protection of the public was given to the NRC, a five-member body whose members are appointed by the president. Riccio asserted that over the years, NRC has become more accommodating to the industry. “The problem with inviting the industry in is that they tend to dominate the process,” he said. “The NRC has a problem distinguishing between the public they serve and the industry they regulate. “

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Potential State Takeover Looms Over Detroit

April 12, 2011

Detroit must cut $200 million in spending or face a takeover by the state of Michigan, Mayor Dave Bing said on Tuesday. With the city’s population dropping to a 100-year low, while its budget deficit is projected to climb to $1.2 billion by fiscal 2015, Bing outlined a plan to the city council to balance Detroit’s finances over five years. That plan includes cuts in personnel costs, a one-year suspension of a payment to employee pensions, and a temporary gambling tax increase. “If we are unable or unwilling to make these changes, an emergency financial manager will be appointed by the state to make them for us. It’s that simple,” Bing said in his budget address. In March, Governor Rick Snyder signed into law a bill that bulks up the state’s ability to intervene in fiscally troubled local governments and appoint someone to oversee them. The new law also gives state-appointed financial managers the power to modify or end collective bargaining agreements with public sector workers — a move that sparked pro-union demonstrations in the state capitol earlier this year. Bing, who pegged the current deficit at $155 million, said the city council, unions and the pension boards had to work together to turn around Detroit’s finances. Otherwise, he said, the state will step in and “existing contracts will be voided, legislative powers will be stripped and decisions will be made without the input of elected officials or residents.” That reality was not lost on members of the city council. “I want to make sure we’re not the group that’s the answer to the trivia question — Who was in charge of the city of Detroit when the emergency financial manager came in and took over?” said Council Member James Tate. Detroit’s shaky finances are a major concern in the $2.9 trillion municipal bond market, where the city’s bonds are rated in the junk category. Detroit was also cited in a recent Reuters poll as a potential candidate for rarely used municipal bankruptcy. The mayor’s proposed fiscal 2012 $3.11 billion all-funds budget includes nearly $1.22 billion of general fund spending, according to budget documents. Some of Bing’s budget-balancing proposals depend on getting bills passed through the Republican-controlled Michigan Legislature. They include the higher tax on Detroit casinos, pension reforms, the suspension of state driver licenses for three unpaid Detroit parking tickets and the continuation of the city’s ability to collect income and utility taxes. Detroit’s population under current state law must be at least 750,000 to collect the taxes, which generated $265 million last year, Bing said. U.S. Census figures released last month showed Detroit’s population fell to 713,777 in 2010 from 951,270 in 2000, as the region suffered from a struggling automotive industry, plant closures and job losses. Bing said while he believes the final census count will be revised upward, the city must deal with the reality of a shrinking population base and the loss of state and federal funding. State revenue sharing has already been dropping and Detroit expects to receive less than half of the $332 million it got in 2002, according to Bing, who added that talks with the legislature and governor were ongoing. But Council Member Saunteel Jenkins said she will be pushing for revenue alternatives in case Michigan lawmakers don’t pass needed legislation. Detroit, which sold nearly $250 million of deficit financing bonds last year, begins fiscal 2012 on July 1. (Reporting by Bernie Woodall, writing by Karen Pierog, Editing by Chizu Nomiyama) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Bloomberg’s Follies — A Lesson for Other School Districts

April 8, 2011

NEW YORK — Whether circumventing term limits or banning smoking in restaurants, Mayor Michael Bloomberg is nothing if not a politician accustomed to getting his own way — without apologizing for it. Cathie Black’s brief tenure and resignation from post as schools chief represents a serious blot on the mayor’s record. Thursday marked one of Bloomberg’s only public displays of remorse during his three-term reign. But the perceived guilt resulting from the publishing executive’s appointment and abrupt removal from office offers a timely lesson to school districts across the country now searching for new education leaders: a primer on precisely what not to do. Early in Bloomberg’s first term, the same ruthless acumen that made him a billionaire in business was transferred to the governance of New York City. Nowhere was this more evident than in his power over the nation’s largest school system. After wresting control of the largely failing system, he appointed the Department of Justice’s trust-busting attorney Joel Klein to preside over the city’s 1.1 million schoolchildren and their teachers. Dennis Walcott is Bloomberg’s new appointee. Nationally, Klein’s promotion signaled an important shift in what had otherwise been a more traditional governing structure. In other words, Bloomberg brought his private boardroom manner into the city’s grittier public classrooms. A business-minded approach, whether in merit pay or shutting down schools, ruled the day. Seen in this light, and in the light of similar policies promoted by U.S. Secretary of Education Arne Duncan, Black’s promotion as an outsider wasn’t really all that different. But the jury is still out on whether what works in big business can so easily be transposed onto the fixing of schools. “In the business world, there’s an assumption that if you can sell soap, you can sell automobiles,” said Diane Ravitch, a New York University education historian and former U.S. Assistant Secretary of Education. “That doesn’t transfer to education.” Hence, the lesson: Bloomberg’s latest gaffe may have larger implications, especially for cities like Detroit, Atlanta and Newark that are currently on the hunt for new education leaders. The credentials are key, or at least a resume demonstrating some time in the classroom, said Pedro Noguera, an NYU education professor. “Bloomberg defended Cathie Black even though she has no background in education, saying that her managerial experience was more than enough to make up the difference,” he said. Anthony Adams, president of Detroit’s school board, said the decision-making process in New York was botched from the beginning. “The process in New York was handled by the mayor only,” he said. “We’re advocating a much broader process with a lot of stakeholders involved. We’re being more consultative, so we’ll end up with a better result.” His search committee includes deans of education colleges and communicaty education advocates. Adams added that he hopes to announce the name of Detroit’s new chief academic officer — not superintendent, given the district’s emergency management — by June. The recent search for a new leader of New Orleans’s Recovery School District is a textbook example of putting these lessons to use. Just one day before her exit, Black’s deputy chancellor John White, who is a career educator, announced his departure to head the RSD. To Louisiana’s education chief Paul Pastorak, who recruited White, it was important that the next leader of the Katrina-ravaged district have experience in the classroom. That White had already been in the business of restructuring New York’s schools was particularly attractive. A life-long attorney himself, Pastorak said a traditional pathway into school leadership was not necessary — as long as there was some time in the classroom. White rose up through the ranks of Teach for America. Pastorak said that during the process, he was “keen on engaging” educators and the community to understand its educational needs. These superintendent searches, and others in Providence, Chicago, Florida’s Broward County and Montgomery, Maryland are coming to a head as the national education debate takes on a decidedly corporate tinge. Duncan, the current U.S. Secretary of Education who defended Black in December , has been a long-time champion of charter schools, a model embraced by corporate types for its emphasis on accountability, since his days as CEO of Chicago’s schools. Michelle Rhee and Klein rose to national prominence promoting similar big business-backed reforms. “Some believers in this corporate model think there are generic management skills that simply transfer readily from corporation to corporation to the public sector, regardless of the particular industry,” said Jeffrey Henig, a professor of political science at Columbia University’s Teachers College. The question remains: To what extent will the Black fiasco reverberate through the next generation of education reform darlings? Aaron Pallas, a professor of sociology and education at Teachers College, guesses not much. “This will not derail the widespread efforts to look at expertise outside of education,” he said. “I suspect this is going to be an aberration — not viewed as any kind of bellwether.” Likewise, his colleague, Henig, isn’t waiting for a sea change. “I don’t think it will cast a shadow on the Michelle Rhee/John White model, or folks in charters and new venture funds,” he said, referring to the recent wave of outside hedge funders who have stepped in to reform education. “At least Rhee and White have the educational credentials. And I don’t think they were particularly Cathie Black fans, either.”

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Steve Rosenbaum: Can Venture Capitalize on Curation?

April 8, 2011

The sheer volume of Web content makes it clear that content without curation is simply noise Yuri Milner, the VC whose Russian Digital Sky Technologies (DST) group has put money into Facebook, Zynga and Groupon, was quoted at the Abu Dhabi Media Summit as saying, Curation is the next big thing. Said Milner: “The question is, ‘How do you select what’s relevant for you?’ And my guess is that it’s probably going to be 50% driven by your network and 50% driven by algorithms.” Upon hearing Milner’s prophetic words, thousands of PowerPoint decks were reworked overnight to find a way to edge the word “Curation” into executive summaries. An understandable impulse. But perhaps premature. What Yuri meant, and what venture is now scouring the incubators and business plan competitions for, is a way to manage the madness that is promiscuous production of data. But first, let’s look back at the history of why venture has been allergic to content. In order for investors to be able to put a small number of dollars in — and get an outsized return out — businesses need to be able to grow very large with relatively little human intervention. The portfolio theory of investing requires that the hits are big, and the misses are manageable. Content hasn’t ever fit into this equation. Studios tried to balance hits and misses, but the spiky nature of hits and the relatively large cost of failures has made hollywood a game that only those with money to lose could afford to play. VCs never liked those odds. Now, along comes curation with an entirely different economic bargain. Curation is the mixing, and re-mixing of content to create things that are partially or wholly new. Quickly, venture took notice. Why? Because now content wasn’t about ‘creation’ it was about finding, sorting, filtering, contextualizing. Sure, there was a human element to curation. But the venture economic could kick in, in ways it never could. Audiences and revenue could grow, and margins could grow while the costs of curation remained relatively fixed. There are some early wins already. Huffington Post’s $315 million exit to AOL was like a starting bell for venture sized returns. So where are VC’s looking in the curation space? There are three categories that have the potential to attract venture dollars. Curation software . There are already a large number of software solutions looking to act as curation solutions. Many of them curate the growing twitter content stream, while others look to offer users a way to search multiple social networks, and produce a single curated content output. Venture would do well to look for a service that breaks out ahead of the pack – and bet the market leader. Curated content platforms . Sites like SBNation, a collection of over 290 individual communities, each with coverage and conversation led by fans. There’s no doubt that the larger of these communities themselves will catch the eye of the Venture community. (Comcast Interactive Capital (CIC) and Accel Partners are in SBNation). Their move in to tech with the announcement of a deal with the former editors of Engadget is a sign of things to come. Platform Services. The rapidly growing nature of web content makes it critically important that curation and publishing platforms are SaaS offerings that have access to scale and support. This means that while some folks will try to build curation platforms, the large majority of content oriented entrepreneurs will choose to build on existing or emerging curation platform offerings. Curation has come of age. The sheer volume of Web content, and the increasing demand of both content consumers and Web advertisers makes it clear that content without curation is simply noise. There is huge value that will be created as the web shifts from content created for search to curation built to find and contextualize. Stay tuned for big wins in this space.  (Originally published in Vator News )

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Video: Cohan Calls Goldman Embodiment of `Wall Street Shark’

April 8, 2011

April 8 (Bloomberg) — William Cohan, author of “House of Cards” and a Bloomberg Television contributing editor, talks about his new book. “Money and Power: How Goldman Sachs Came to Rule the World,” which chronicles the history of Goldman Sachs Group Inc. Erik Schatzker reports on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

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George Roberts to Lead Hy9 Corporation Engineering and Product Development

April 7, 2011

HOPKINTON, MA–(Marketwire – April 7, 2011) – Hy9 Corporation ( http://www.hy9.com ), a leading manufacturer of hydrogen generators and hydrogen purifiers for energy and transportation applications , announced the appointment of George Roberts as Vice President of Engineering. Mr. Roberts comes to Hy9 from UTC Power Corporation, where he managed UTC’s fuel cell technology cost reduction initiatives, and W. L. Gore & Associates, with engineering positions in the Industrial Products Division. 

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U.S. Regulators Privately Doubted Nuke Plants Despite Expressing Public Confidence

April 6, 2011

BOSTON (By Scott Malone) – U.S. regulators privately have expressed doubts that some of the nation’s nuclear power plants are prepared for a Fukushima-scale disaster, undercutting their public confidence since Japan’s nuclear crisis began, documents released by an independent safety watchdog group show. Internal Nuclear Regulatory Commission e-mails and memos obtained by the Union of Concerned Scientists questioned the adequacy of the back-up plans to keep reactor cooling systems running if off-site power were lost for an extended period. Those concerns seem to contrast with the confidence U.S. regulators and industry officials have publicly expressed after the world’s worst nuclear accident since Chernobyl began to unfold on March 11, UCS officials said on Wednesday. “While the NRC and the nuclear industry have been reassuring Americans that there is nothing to worry about — that we can do a better job dealing with a nuclear disaster like the one that just happened in Japan — it turns out that privately NRC senior analysts are not so sure,” said Edwin Lyman, a UCS nuclear expert. The e-mails in question are part of an NRC review of how the operators of nuclear plants in Delta, Pennsylvania, and Surry County, Virginia, would cope with a prolonged power outage that knocked cooling systems offline, as occurred at the Tokyo Electric Power Co-operated Fukushima plant. In a July 28, 2010, e-mail, one NRC staffer said that contingency plans for Exelon Corp’s Peach Bottom nuclear plant in Delta “have really not been reviewed to ensure that they will work to mitigate severe accidents.” Another document, undated, said backup plans included just having equipment on the plant grounds that could be useful “when used by knowledgeable operators if post-event conditions allow.” The document went on to note: “If little is known about these post-event conditions, then assuming success is speculative.” A nuclear industry lobbying group criticized the UCS’ disclosures. “UCS conveniently missed the point of a Nuclear Regulatory Commission study,” said Steve Kerekes, a spokesman for the Nuclear Energy Institute. He noted that the NRC’s review concluded that the risk of plants releasing radiation after an accident was lower than the agency had previously assumed. The Peach Bottom site uses a General Electric Co reactor with a similar design to four of the reactors at Fukushima. Officials at the NRC and Exelon did not immediately respond to calls seeking a comment. The UCS said it obtained the e-mails through a Freedom of Information Act request. The Surry County nuclear power station is operated by Dominion Resources Inc. (Reporting by Scott Malone, editing by Dave Zimmerman and Gerald E. McCormick) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Dean Baker: It’s Time for Representative Ryan to Man Up

April 4, 2011

Congressman Paul Ryan is the new darling of both the Republican Party and the major media outlets. He has put forward bold plans for dismantling Medicare, Medicaid and Social Security. Congressman Ryan is prepared to tell tens of millions of workers that they can no longer count on a secure retirement and decent health care in their old age. In Washington policy circles, this passes for courage. Outside of Washington, people have a different conception of bravery. After all, over the last three decades the policies crafted in Washington have led to the most massive upward redistribution in the history of the world. The richest 1 percent of the population has seen is share of national income increase by close to 10 percentage points . This comes to $1.5 trillion a year, or as Representative Ryan might say, $90 trillion over the next 75 years. That’s almost $300,000 for every man, woman and child in the United States. This upward redistribution creates the real possibility that many of our children will be poorer than we are. If Representative Ryan and his followers really cared about future generations, then we might expect him to push for policies that reverse some of this upward redistribution. For example, we could break up the large banks (e.g. Goldman Sachs and J.P. Morgan) that operate with implicit government protection. This allows them to borrow money at below market interest rates and undercut their smaller competitors. By my calculations, the size of this subsidy to the largest banks is close to $35 billion a year , almost half the size of the long-term Social Security shortfall that concerns Mr. Ryan so much. If Mr. Ryan could man up a little, maybe he would have the courage to tell the big Wall Street banks that they will have to compete in a free market without this subsidy from the government. It’s not only the big banks that make Representative Ryan cower. He’s also scared of the pharmaceutical industry. As a result of government-enforced patent monopolies, we spend close to $300 billion a year on drugs that would cost us around $30 billion a year . The potential savings of $270 billion a year is about three times the size of the projected Social Security shortfall. Representative Ryan is a big fan of Medicare vouchers, however his voucher system does nothing to address our broken health care system while virtually guaranteeing that most seniors will not be able to afford decent health care. How about a voucher system that gives Medicare beneficiaries the option to buy into the more efficient health care systems in Europe and Canada, with the taxpayer and beneficiary splitting the savings ? Well, that one could hurt profits of the insurance industry and major health care providers, so Mr. Ryan is against it. We also could have freer trade in physicians’ services . If we paid the same wages to our doctors as countries in Europe and Canada, it would save us close to $90 billion a year. While our trade pacts ensure that our manufacturing workers have to compete with the lowest paid workers anywhere in the world, our doctors are still largely protected. If autoworkers enjoyed the same protection as doctors, they would all make $150,000 a year and we would still be buying all our cars from GM, Ford and Chrysler. But the doctors’ lobbies are powerful, so Mr. Ryan is not interested in this one. How about reining in the excess pay of top executives at U.S. corporations? Our top executives not only get paid far more than ordinary workers, they also get paid far more than top executives at large successful corporations in Europe and Japan. The government sets the rules for corporate governance just like it sets the rules for union governance. While Mr. Ryan’s friends have been anxious to use the heavy hand of government to weaken the power of unions to push on behalf of workers, they become timid when it comes to preventing corporate abuses. Suppose that the compensation of top executives had to be approved at regular intervals by shareholders, where only shares directly voted counted. (This means that mutual fund managers could not support big pay packages for their CEO friends in the name of the people for whom they are investing.) How about reducing military spending to the same share of GDP as it was in 2000? The savings of 1.6 percent of GDP (at $240 billion a year) is more than two and a half the size of the projected long-term Social Security shortfall. But this would hurt the defense industry, so again Mr. Ryan is not interested. The basic economic reality is very simple and everyone in Washington knows it. There is no way that future generations of workers will be poorer than the current one due to benefits like Social Security and Medicare. They could end up poorer if we continue to see the benefits of growth shifted to the top. The latter is the result of the corruption of politics in Washington. And at the moment, Mr. Ryan is the poster boy for that corruption. If he gets his way, your children and grandchildren can count on a very bleak future.

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Black Unemployment Rises Even As Overall Jobless Rate Drops

April 2, 2011

Two weeks. That was the longest stretch of time Michael Seals, 58, has ever looked for work. That was the longest stretch, until now. Seals, an Atlanta native, has watched his hometown grow from charming city to thriving metropolis — and the fortunes of many fellow African Americans grow with it. He describes himself as a man who is good with his hands, having spent nearly a decade as a supervisor at an area cabinet company. The firm specialized in outfitting kitchens and bathrooms in the high-rises that changed Atlanta’s skyline, and in the subdivisions that transformed what had been the countryside into sprawling suburbia, in places as far away as North Carolina and Tennessee. “By 2008, the housing market here, it just plain fell out,” Seals said. “The owner came to me and said they had to cut back. That was the end of my job and the beginning of a very rude awakening.” Overall unemployment fell to a better-than-expected 8.8 percent in March as the economy added roughly 216,000 jobs, the Labor Department announced Friday. Those are the kind of figures that economists say indicate a strengthening recovery, though they caution that it’s well below the rate of job growth the nation needs to see — uninterrupted, for years — if employment is ever to return to a level comparable to the years before the Great Recession. Still, labor-market watchers and many ordinary Americans may be breathing shallow sighs of relief. But others, like Seals, cannot. Black unemployment actually increased in March, from 15.3 to 15.5 percent. At the same time, 7.9 percent of white workers were jobless. Black would-be workers, particularly black men, haven’t begun to experience the kind of slow, slight but real declines in unemployment that white workers are experiencing. In fact, when overall unemployment peaked in October 2009 at 10.1 percent, prompting a national epidemic of hand-wringing, black unemployment sat almost unnoticed at 15.3 percent. And while the overall unemployment rate began to edge down, black unemployment continued to fluctuate until it peaked at 16.5 percent in March and April 2010. “In all my working years, I’ve never seen anything like it,” Seals said. When the recession began in 2007, black and Latino workers lost their jobs at a faster clip, said Roderick Harrison, a Howard University sociologist and demographer who is also a fellow at the Joint Center for Political and Economic Research, a Washington, D.C.-based think tank. Now, despite the recession’s official end and incremental job gains for all types of workers, it’s black and Latino workers who are having the hardest time finding work again. The industries that added jobs during the recession — health care and educational services — and those that have begun to do so now have historically employed more women then men. That’s why the uptick in black unemployment in March was driven largely by black male unemployment, Harrison said. Black workers are typically less educated than white workers. But before, during and after the recession, black college graduates have been far more likely than their white peers to be unemployed, Harrison said. And for more than a decade, the ability to get to a job in a car has become the key to work. Office jobs — the kind this month’s job report indicated are being created — are by and large located in far-flung suburbs, not in the cities and inner-ring suburbs where most black people live, Harrison said. “The jobs are being created in the sorts of places you can’t get to without a car or without dedicating significant time and significant resources to the commute,” Harrison said. Even before the recession began, there are several key factors that made elevated black unemployment a virtual rule. In addition to the education disparity, black workers are, by and large, younger than white workers, said Gary Burtless, an economist at The Brookings Institution, a Washington, D.C.-based think tank. Younger age is, like lower education, associated with higher unemployment. Another factor that’s frequently overlooked, said Burtless, is the ample evidence that employers evaluate more harshly a job application bearing a name they believe to be African American. When workers with the same qualifications and even the same resume have been sent out on interviews to test this thesis, white applicants received callbacks and job offers far more frequently than black applicants, he said. But the period since the recession ended hasn’t been particularly good for either black or white workers, Burtless said. The overall share of adults who are actually working hasn’t changed much since late 2009. “That’s bad news for everybody,” he said. “Unemployment may be rising among black workers, but employment is still virtually flat.” What Harrison and Burtless see in the data, Dorothy Chambers, the executive director of downtown Atlanta’s Midtown Assistance Center, sees in the lives of the people her agency serves. Atlanta’s population is more than 50 percent black, as are about 92 percent of the people the Midtown Assistance Center serves. By the end of last year, Atlanta also had one of the largest black/white unemployment disparities in the nation. In Atlanta, 15.7 percent of black adult workers were jobless, compared to just 7 percent of their white peers. The Midtown Assistance Center was founded by 11 interfaith congregations seeking to fight homelessness by helping people looking for work or those who have just started a job cover their rent, utilities and basic needs for short periods of time. “The assistance is meant to be temporary,” Chambers said. “We’ve had to redefine ‘temporary.’” The agency is also seeing an increase in the number of people who have been out of work for more than a year forced into the sort of choices that make finding or keeping work hard. “Many of our clients are struggling to cover the basics – rent, food and utilities. So, a lot of them have given up their cars. Just given them back,” Chambers said. “But the loans that go with them don’t go away. And the few jobs that are out there aren’t easier to reach without a car. It gets harder and harder to find work, or get to work if you don’t have a job or the funds a job can bring.” In fact, for those who have been looking for work for 27 weeks or more, finding work appears to have become a more difficult prospect. In March 2010, 42.8 percent of the unemployed had been out of work for at least 27 weeks. Now, nearly 45 percent have been. The Great Recession has introduced more people to the possibility that how hard they look doesn’t determine whether they’ll find a job, Harrison said. But, he added, that doesn’t appear to be a concept that has taken root with the employed general public. “You always hope that in these teachable moments people will learn and the base lesson in labor economics: jobs don’t appear because people want them. People get jobs because there is a need for labor,” Harrison said. “The fact that we aren’t as a nation having conversations about the fact that we may have reached a point where the economy, on its own, does not create enough work for the population tells me that the lesson is not being absorbed. Instead of talking about all kinds of policy, we’re having conversations on which kinds and how many tax cuts will help the market create jobs.” There are probably few people who want a job as badly as Seals, the former cabinet company supervisor. This year, he interviewed for a variety of jobs — including children’s ride operator, ticket-taker and greeter — at the Atlanta Zoo. He’s also interviewed for security guard and plane-cleaning positions at the Atlanta airport. The interviews seemed to go well, Seals said. No offers followed. Seals said he still believes in the power of prayer, a positive attitude, a good personality and a well crafted resume. But he’s gone though his limited savings and finds himself fretting over $30 car repairs. “It feels like if you sneeze to hard you are going to mess something up,” he said. “I’ve just never had to live that way before.”

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Video: Tepco Reactors May Take 30 Years, $12 Billion to Scrap

March 30, 2011

March 30 (Bloomberg) — Damaged reactors at the crippled Fukushima Dai-Ichi nuclear plant in Japan may take three decades to decommission and cost operator Tokyo Electric Power Co. more than 1 trillion yen ($12 billion), engineers and analysts said. Bloomberg’s Sara Eisen reports. (Source: Bloomberg)

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Mike Lux: Wall Street Banks: Making Enemies Everywhere

March 29, 2011

In a post a few days back , I observed that the big Wall Street banks were in for a fall because they had become so arrogant in their power and wealth. One example of this is on the swipe fee issue, where their over-the-top market manipulation and hyper-aggressive political tactics are ticking off not just old progressive populists like me, but a lot of the rest of the business community. Small retailers, grocers, restaurant owners, gas station owners, and cabbies have become incensed at the way these banks and their credit card companies charge exorbitant swipe fees and will not negotiate on the matter. I have started working with retail business groups on this issue simply because I’d much rather see these Main Street business folks get more of the $48 billion going out the door in swipe fees than the big banks that control more than 80 percent of the market. This issue is likely to come up for a vote within days in the Senate, so raise some hell. Here’s a new Web ad an organization I chair, American Family Voices , just put up that does a great job of talking about this issue from the small business point of view. Check it out : Over the weekend, I wrote about an ad on the Clean Air Act that AFV had just put up. Yesterday, I wrote about the Social Security and Medicare issue . While these are very different issues in one way, they all have one thing in common: They are about attacks on the American middle class. Wealthy special interests, along with their allies in Congress and the right-wing flacks like Glenn Beck that defend them (have you seen Beck’s high-pitched whining over the last week about the outrageous idea that people might actually want to take to the streets to challenge Wall Street on foreclosures?), want the ability to run roughshod over the American middle class — even if it means poisoning your kids, telling your Grandma she’s just going to have to get by on less, or taking money out of the pockets of consumers and struggling small businesses on every credit/debit card transaction. Washington is dominated by these behemoths, so even when standing up for policies that so obviously benefit the vast majority of middle-class Americans, it is difficult to fight them. These Wall Street banks are the worst of the special interests. It is not enough to have crashed the entire world economy with their speculative bubbles and financial fraud; it is not enough that in their determination to continue to manipulate their books and inflate their assets they are foreclosing on millions of homeowners rather than writing down their mortgages; it is not enough that they fight tooth and nail against every tiny little bit of oversight that sensible folks want to place on them; it is not enough that the six biggest banks already own assets equaling 64 percent of our nation’s GDP. None of that wealth, power, and hubris is enough for them. They also want to gouge every mom-and-pop businessperson who wants to let customers pay for things with a credit or debit card. The first step in restoring the American Dream is to take these wealthy, arrogant Wall Street guys and other wealthy special interests out of the temple of our government . Mike Lux is the President of American Family Voices.

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Gayle Tzemach Lemmon: Why Do We Think Small When It Comes to Women?

March 28, 2011

We think small when it comes to women. Micro, to be exact. When I first started reporting on women entrepreneurs in conflict and post-conflict zones in 2005, nearly everyone, from IMF officials in their offices to development workers in the field, told me the only women I would find would be “selling cheese by the side of the road.” Women, I was told again and again, did not own the kind of growing businesses that created jobs and economic growth. This, it seemed, was strictly the purview of men. One customs official even joked that they were not sure why I had taken a week-long trip to Afghanistan to interview businesswomen when surely my interviews would all fit into the space of a single afternoon. What I found when I began reporting, however, was that even in the poorest and most traditional countries, women owned businesses that went well beyond the micro. In Rwanda, I met a gas station owner with several workers and a woman selling fruits and vegetables — not on “the side of the road” but rather for export to Belgium twice a week . Her work created jobs for eight people at the time, including her husband, and supported her own and several other adopted children. In Sarajevo, I met a textile entrepreneur with a new factory near the old frontlines whose company selling bed and bath linens employed 20 people, mostly women, who could now afford to send their own children to school. And in Afghanistan, famous for being among the toughest environments for women to thrive, I met a young woman who dared to turn down a well-paying job offer filled with perks from an international aid organization in order to start a business consultancy which she believed would create jobs for herself and many others. “If I go and work with an international agency, they will give me a very high salary, but it is just for me and my family, it will not support other people,” Kamila Sidiqi told me at the time, in 2005. “If I work to start my own company, I will train a lot of people, I will help a lot of people.” The story of the business she built under the Taliban, The Dressmaker of Khair Khana , is now a book recently published by HarperCollins. Sidiqi’s belief in the power of growing businesses to help lift her country out of poverty was shared by the women I met across borders and geographies. Though the context was different, the challenges they faced looked remarkably similar: Finding capital was nearly impossible. Reaching international buyers proved too expensive to make economic sense and their networks paled in comparison to the men they knew when it came to finding new business opportunities. None of that stopped them. Today their tenacity should be matched by an investment in resources to tap their entrepreneurial potential and ease the path to taking small ventures and building them bigger. Small- and medium-sized businesses create jobs and help countries grow. Mentoring the women starting them and creating financial products targeting them would benefit not just their families, but their economies. As it is now, many of the women leading these get stuck using cash from their profits to sustain their businesses, a limitation that hampers their ability to invest and to take on larger contracts, keeping women from joining men in greater numbers among the ranks of small business owners. Already, organizations like Bpeace and Peace Dividend Trust have focused their attention on these businesswomen in nations like El Salvador, Liberia and Afghanistan, helping entrepreneurs unearth market opportunities and learn the skills their growing ventures require. Their work should not be the exception, but instead become the rule as the world moves beyond the micro — and dreams bigger for women. In the past decade, microfinance has won converts worldwide as the best way to lift women out of poverty. Stories of women owning cows, selling flowers, and sewing handicrafts have spread while the recognition of women’s importance as partners in fighting poverty and creating a more stable world has grown. Yet while microfinance is undoubtedly part of the solution, we now risk confusing it with the entire solution when it comes to women. While glorifying the very small, we have ignored the medium, along with the contributions and the struggles facing women worldwide, working to grow new businesses into large businesses.

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Venture Capitalist: ‘Entrepreneurs Have A Lot Of The Power’

March 28, 2011

Ann Miura-Ko is known for using the term “ninja assassin” in describing the kinds of technology entrepreneurs she likes to invest in as a venture capitalist and co-founder of Silicon Valley’s Floodgate Fund. Reuters recently caught up with one of the country’s up-and-coming VCs , after Miura-Ko attended at a Washington, D.C. conference addressing financing options for small companies. Q: You’ve said you are concerned about impending regulatory restrictions on small investment firms as the Dodd-Frank Wall Street Reform and Consumer Protection Act takes effect. Why? A: This comes out of the result of some bad behavior on the part of investors. But what they’re (government is) trying to do is mitigate risk for the whole economy by having smaller investment firms also register with the SEC. As a small fund myself, that doesn’t have a lot of overhead, we don’t have a lot of back-office people working for us. The amount of reporting that is required relative to the amount of risk it de-risks for the entire economy, I think that the cost benefit doesn’t really make sense to me. We as a really small fund would have to start registering with the SEC pretty soon, and the amount of back-office work that would be required is kind of ridiculous. Q: You’re interested in easing residency restrictions for foreign-born entrepreneurs. Why? A: One of the topics I love to talk a little bit about is the concept of the startup visa, which would enable founders to be able to stay in the United States longer and be able to start their companies here. I recently did a study on some of the top (startup) exits that have happened over the course of the last five years. What’s really outstanding is the number of founders who come from outside the United States. I’d like to foster that. I look at fellow graduate students from Stanford and where they ended up. I see really a lot of technical talent staying here even after they get graduate degrees and I think that’s also going to work for a competitive advantage. Q: What is the environment like for early-stage companies seeking funding options? A: Over the last five or ten years, the amount of information for entrepreneurs on how to work with investors, the amount of information is huge. There are blogs out there now. There are resource centers like Venture Hacks. The transparency in the industry has increased. For entrepreneurs who want to find that information, there is plenty of information to be found. This kind of information didn’t exist even three, four, five years ago. I think that’s why you find people talking about the democratization of entrepreneurship and innovation. It’s really a time in which entrepreneurs have a lot of the power. Copyright 2011 Thomson Reuters. Click for Restrictions .

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Marshall Auerback: We Aren’t Greece — But We Could Be Japan if Flawed Logic Persists

March 28, 2011

Influential journalists are making persuasive cases that austerity is the wrong approach in fragile economies. That’s good news. But discussions still get muddled in ways that can have perverse effects. Take the case of Japan. Last week Bill Mitchell wrote an excellent blog post discussing Martin Wolf’s article on Japan’s fiscal position following the earthquake. Wolf suggested that the “national insolvency” threat allegedly posed by the earthquake was vastly overstated. He argued that the sums involved were too small to matter. Mitchell agreed, but went further, challenging Wolf’s implicit suggestion that the Japanese government faced a solvency risk of any kind : The reality is that the Japanese government has no solvency risk at all in relation to its net spending position and the debt issuance that matches it (nearly). It is grossly misleading to leave the impression that it is just because the reconstruction sums are small that there is no insolvency risk. As Mitchell put it, Wolf’s assessment was so close to comprehension, and yet so far. I had a similar sensation reading Paul Krugman’s latest challenge to the prevailing fiscal austerity mania now gripping most of today’s leading policy makers in the global economy. Krugman rightly exposes the central flaw inherent in the deficit reduction hysteria: Why not slash deficits immediately? Because tax increases and cuts in government spending would depress economies further, worsening unemployment. And cutting spending in a deeply depressed economy is largely self-defeating even in purely fiscal terms: any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks. The article moves along swimmingly until Professor Krugman invokes the dreaded example of Greece: But couldn’t America still end up like Greece? Yes, of course. If investors decide that we’re a banana republic whose politicians can’t or won’t come to grips with long-term problems, they will indeed stop buying our debt. But that’s not a prospect that hinges, one way or another, on whether we punish ourselves with short-run spending cuts. No, no, no! There is no debt crisis in sovereign nations such as the U.S., Japan, the U.K., or Canada. Barring a decision by Congress to give up the dollar and adopt, say, the Mexican peso, we can never end up like Greece. Nor will Japan, which does not need to “dip into its rainy day fund,” as Carmen and Vince Reinhart wrongly suggested last week. To clarify, the nations of the European Monetary Union have given up their monetary sovereignty by giving up their national currencies and adopting a supranational one, the euro. By divorcing fiscal and monetary authorities, they have relinquished their public sector’s capacity to provide high levels of employment and output. Non-sovereign countries are limited in their ability to spend by taxation and bond revenues, and this applies perfectly well to Greece, Portugal, and even countries like Germany, which continues to champion the cause of fiscal austerity under the respectable sounding guise of “sound finances.” This distinction is key, but it gets lost in our economic debates. Happily, Dean Baker gets it , but for the most part our inability (whether through misunderstanding or ideology) to distinguish between issuers and users of currency continues to provoke perverse policy responses, notably in the countries that remain sovereign in regard to their monetary/fiscal operations, such as the U.S. As my friend Warren Mosler always likes to say, “Because we believe we can be the next Greece, we continue to work to turn ourselves into the next Japan.” The only public debt problems that have emerged in the current crisis have been in non-sovereign countries. Even then, with appropriate “fiscal support,” those crises were managed largely through the expedient of the ECB’s ongoing purchases of PIIGS’ debt in the secondary bond markets — which amounts to a fiscal act within a flawed monetary system. But blurring the distinction between sovereign and non-sovereign nations is the starting gate for this muddled discussion that persists when we invoke Greece as an example of what we could become. Those of us who make the key distinction between a non-sovereign country like Greece and a sovereign one like the U.S. accept that the prevailing concern about Portugal, Ireland, Italy, Greece and Spain (PIIGS) and even other Euro nations is justified. But using PIIGS countries as analogues to the U.S. is a result of the failure of deficit critics to understand the differences between the monetary arrangements of sovereign and non-sovereign nations. Greece is a user of the euro. It is not an issuer. In that respect, it is more like California or even New York City, which are users of the U.S. federal government’s dollar. The hysteria, which Paul Krugman rightly decries, comes from a flawed understanding of how the monetary system works. It also partly explains why even in sovereign monetary/fiscal systems, conservatives continue to impose arbitrary constraints on our government’s ability to provide policies that generate full employment. Which is precisely what we need right now. Sovereign governments have been led to believe that they need to issue bonds and collect taxes to finance government spending and that good policies should be judged by their ability to enforce fiscal austerity. The guardians of the status quo know that the fear of rising public debt can be politically manipulated and demonized, and they do this to put a brake on government spending. But there is no operational necessity to issue debt in a fiat monetary system. In fact, in the case of sovereign nations, it is a logical impossibility for households and nonbank firms to finance the budget deficit by paying taxes and buying government bonds. The private sector cannot create money (and bank-created money is not a net financial asset for the private sector, as the private deposit holders cancel out the private borrowers). The domestic private sector has to first earn the money by net selling goods and services (to the federal government) and net selling assets (to the central bank) before it is in a position to pay taxes or buy government bonds. Mainstream economics has guided policymakers into imposing artificial constraints on fiscal policy and government finances, such as issuing bonds when running deficits, debt ceilings, forbidding the central bank from directly buying treasury debt, allowing the markets to set interest rates on government bonds, etc. This is a huge conceptual flaw that is currently paralyzing the Governor of the Bank of Japan, even as his country reels from its greatest disaster since World War II. It is also destroying the U.K. economy, as both Krugman and John Cassidy have recently highlighted. All these constraints, sadly, are self-imposed and voluntary. As my colleague Randy Wray has put it , it is as if someone would tie his/her feet together and then complain about the inability to walk. It may seem petty to criticize otherwise strong critiques of the current thrust of self-styled deficit hawks. But we have to be on guard against conceptual confusion that can hamper our ability to act decisively to do what it is certainly in our power to do: namely to stop choking our economy and put Americans back to work. Cross-posted from New Deal 2.0 .

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Steven Crandell: A New Strategy for Business Success in the 21st Century

March 25, 2011

A small Atlanta design firm is attempting to redefine success for corporate America. Unboundary , which lists companies such as FedEx, Coca-Cola, AT& T, IBM, HP and Charles Schwab as clients, believes the way to change the world is to re-think and broaden business strategy. The Power of Purpose In the 20th century, business success was often defined in terms of profit and growth. Ironically, such a limited definition in the 21st century can constrain potential profit and growth and worse yet, endanger a company’s ability to stay in business. Unboundary — which often works with companies in the midst of change — believes that society expects more of business today, that firms with true loyalty and support are those who pursue purpose as well as profit. Unboundary says this new world demands a new business standard for success. They call it significance. By that unboundary means significant to society as a whole. In other words, companies must consider creating and maintaining a meaningful relationship with everyone effected by the company’s operations, not just shareholders. “We’ve seen the power of companies when they pursue a well understood purpose. Our aim is to use our talents for the greatest good, on behalf of our clients and everyone whose interests and lives they touch. ” – From the unboundary website If the quote above sounds to you remarkably similar to something you might hear from civil society, then you have picked up on a key point. Unboundary’s new focus on significance rejects last century’s for-profit/non-profit dichotomy. It suggests that good business in the 21st century will be business that is good for humanity. Constant, Conscious Evolution Tod Martin is the CEO of unboundary. He’s the lead the company for 12 of its 24 years, always with the aim of pushing the leading edge of design, strategy and communications. Martin says unboundary chose to stay small and resist being put in a niche. Somewhere along the way, probably in 1997 or ’98 , we were this mustard seed-sized company [16 people] which had had a pretty amazing impact — on the turnaround at IBM, helping [ Roberto] Goizuetta quadruple the market value of Coca-Cola — so some fairly significant things. And lots of people were attracted to our work, so opportunity was ripe and yet we were trying to figure out… what is it that we’ve created and how do we make sure we don’t lose it. And I think it was a great moment of reflection, conscious introspection, but also a recognition that it wasn’t about trying to stay what we were. It was about trying to know what was valuable about what we were and how would we evolve with that… And that’s an important part of the operational story internally here — that we can and should constantly, consciously evolve. The Path to Purpose & Significance Martin gave me an insight into how unboundary found its current business approach. Here are some of the key points: Where Businesses Get Stuck — Umair Haque, who blogs on the Harvard Business Magazine, wrote: Most companies have only ever conceived of themselves as being in business.” This may sound self-evident, but Martin says it’s very important. “They’ve never really thought of themselves as citizens. They have citizenship programs, and corporate social responsibility and philanthropy but … most companies never deliver on what really counts — making people, communities and societies tangibly better off. This is where businesses get stuck . Declaration of Purpose — “There is a need… to be declarative about what it is you’re trying to create — a sense of purpose,” says Martin: There is probably no greater example than the Constitution of the United States of America which is actually a document created out of a certain bit of anarchy. The Constitutional Congress was actually an illegal meeting, done in a backroom. Ratification was a fairly crazy part of the life of the country where you had Federalist against anti-Federalist … This whole sense is that purpose doesn’t necessarily come about in a completely orderly fashion, that someone has to … push for something more and defend why it might be good. The Great Re-Think — We believe there is a great re-think going on in the world, that people are questioning lots of things and that the questioning is driven by technology… People once thought [they had] isolated or individual opinions. They’re now discovering that actually lots of people think like them and it’s driving a conversation about capitalism, education, health care, transportation, energy, right down the line. And in that context, there are a lot of companies who are beginning to say we have a conventional way of doing things, but we either see that things are changing or we believe that there’s a better way of doing it. “Spear Through the Chest Epiphany” — The InterfaceFlor Example Martin tells the story of an unboundary client, InterfaceFlor, the world’s largest manufacturer of carpet tile, to illustrate how purpose can transform a company. In this case, the epiphany of a CEO turned InterfaceFlor into a leading green manufacturer. What does that mean? Well, InterfaceFlor has promised to ensure its operations have no negative impact on the environment by 2020. “A group of InterfaceFlor’s sales people were starting to get asked about their policy on the environment. This was back in the late 80s. And they set up a meeting with CEO Ray Anderson where they wanted him to tell them, a group of sales people, what Interface’s position was on the environment. And he’s thinking, I don’t know what to say except compliant. Compliant with whatever the government tells us we need to be… Somebody leaves on his desk a copy of Paul Hawken’s book The Ecology of Commerce . He reads it through the weekend and describes it as this spear through the chest epiphany. He realizes that what Hawkins is talking about is a company like his, a take-make-waste, entirely petroleum-based business. And literally in that weekend, he comes to [the realization] … that I’m robbing from my grandchildren. Comes in on Monday and everybody’s a little floored [no pun intended] at what he starts saying … which is that InterfaceFlor is going to become the first sustainable manufacturing company in the world… What he started doing then was sharing the epiphany with everybody.” — Tod Martin TedxAtlanta Tod Martin loves evolutionary ideas and the sharing of those ideas. So when Chris Anderson announced the Tedx concept in 2009, Martin jumped at the chance to create it in Atlanta , becoming the first city in the Southeast to do so. He says he did it for three reasons: To enable his staff to enjoy TED’s stimulating experience of ideas and people. To create “one of the most unique audiences in Atlanta,” a “cross-pollination” of business leaders and local creative folks. To give back to his community. “I worry about whether our thinking is agile, modern, forward-thinking enough ,” Martin says. He wants to provide the stimulus to consider new ideas, solutions and innovations so Atlanta can be a “great, brilliant, wonderful, sustainable place to live.” Martin says the latest one, focused on creativity and featuring singer/songwriter India Arie and others on March 16, was an “amazing success.” Not surprisingly, Martin talks about the event as a true believer, with conviction and passion. Oh, and with purpose, too.

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Ron Ashkenas: Let’s Talk About Culture Change

March 23, 2011

All change in organizations is challenging , but perhaps the most daunting is changing culture . There are at least two reasons for this: (1) Culture is a soft concept . If there’s no concrete way of defining or measuring culture, then how can you change it? And (2) culture represents collective norms and behaviors . It’s hard enough to change one person’s behavior — how can you change the behavior of an entire organization? But if managers want to build high-performing organizations, they need to address culture change . Here’s an example that my colleague Keith Michaelson shared with me of how one manager succeeded in changing the culture of his operation: Ted Wilson* had spent his entire career with a large electric utility when he was asked to become plant manager for one of the company’s generating stations. The only problem was that its weak operating record and long history of internal conflicts had given this station the reputation of being a tough place to work and an even tougher place to manage. For a manager with bigger career aspirations, Ted realized that changing this reputedly negative culture would be key to the plant’s success — and his own success as well. To get started, Ted made himself visible throughout the station, talking to people on all three shifts. During one of his walk-arounds, he went into the control room on the third shift where one of the operators asked, “Who are you?” Ted introduced himself, and the operator replied, “I like you already. We never met the last plant manager.” But Ted quickly realized that being a nice guy wasn’t going to make enough of a difference; especially when his observations revealed the negative attitudes of many workers and conflict between the functions, shifts, and individuals. To tackle these detrimental aspects of the culture, Ted convened his leadership team to develop a vision and values statement for the station — something they had never done before. After something of a struggle, they developed a highly aspirational vision (“… to be the standard against which all other power stations are measured…”) and a set of values/behaviors for achieving that vision. These included statements such as “Embrace Conflict Resolution,” “Show Confidence in the Chain of Command,” “Have a Questioning Attitude,” and “Take Ownership for Our Performance.” Most of these core values were missing on a day-to-day basis, and they provided a true north so that the leadership team could have a common direction for change. The real challenge of course was translating these behaviors — which would constitute the new culture — into reality. Knowing that the usual communications channels would be inadequate, Ted instructed his managers to model the behaviors, and use real-time day-to-day interactions for teaching and reinforcing. If they could “convert” people, even one at a time, eventually there would be enough critical mass for the new culture to take hold. For example, when Ted or his managers heard workers using profanity (a common occurrence in a power plant) they would tell them, “You’ve got to stop with the obscenities. If we’re going to be a place that other power plants want to emulate, we can’t talk that way.” Initially this was met with skepticism or disbelief, but with time and repetition the idea took hold. Similarly, when Ted saw that many employees were habitually extending their “ten-minute” breaks to thirty minutes or more, he called the shop stewards together and (instead of starting disciplinary actions) enlisted them in getting people to take more ownership for their own performance. In addition, Ted practiced more proactive teaching, such as bringing together previously warring groups or individuals with an internal expert in conflict resolution and visibly celebrating key performance improvements in the plant. As a result of all this work, one year after Ted became station manager the operation had improved performance on almost all of its metrics, and had gone 250 consecutive days without a safety incident (a major achievement). And while the culture had not changed completely, it was definitely moving in the right direction. What are the key lessons from Ted’s experience with culture change that might be applied in other organizations? What could he have done differently? What other suggestions would you add? *Name has been changed. Cross-posted from Harvard Business Online

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Sarah O’Leary: Sadly, There’s No MBA for Imagination

March 22, 2011

There are some indisputable facts in our glorious world. Men can’t give birth. You can’t cheat death. And you can’t educate your way to creativity. Northwestern University’s prestigious Kellogg Business School doesn’t have an MBA that teaches people how to see what’s not yet there. Harvard can’t coach its highly intelligent student body how to become imaginative. You can ask people to think outside of boxes, but the mere question should tell you the shape you’re in. In many marketing circles, the client’s education has become a hazard bigger than the sand traps on the golf courses that used to define the business elite. More than a few “B-schools” have fostered a false sense of deity among its student bodies, and the danger is that rice paper on the wall is becoming a more powerful driver than the gifts of imagination, innovation and creativity. Traditional “creatives” don’t typically get MBAs, because education beyond the basic tools of the trade (art and writing) have been long since considered damaging to one’s imagination. (You don’t want to be “boxed” in by unnecessary parameters and case studies of others’ work and numbers when you think. You want to have as unfettered a path as possible.) And yet, creative ideas must fight their way through the sea of formally educated minds in order to see the light of day. Pushing creative ideas through people who aren’t creative is a massive feat, especially given the layers of bureaucracy in corporate America today. Innovative minds rarely talk about their formal education, unless it’s to joke about their failure within it. Historically, great creative minds often bomb as students of other’s thinking. Instead, innovators like to hang their hats on ideas, not ideology . And that’s the big difference. Sam Walton, the grand innovator he was, wouldn’t get hired at Wal-Mart corporate today. Ray Kroc, the hustling milkshake salesman who never attended college, wouldn’t find a place for his box-less thinking at today’s McDonald’s. Willy Wonka, if he had existed, never would have made it inside the hallowed halls of Hershey simply because of the creative way he dressed. There was a time that the MBA was simply an extension of the golf course boys club. It proved to be an efficient way to pass over candidates who didn’t have one without seeming discriminatory. It wasn’t because a pass over was female or minority or old or didn’t swim in the right social circles, but that he/she didn’t have a piece of paper that said they were properly trained. It was a convenient filter to keep the club in good standing. But a superior course load does not build creativity and great ideas are not reserved for the educated. The mind either has it, or it doesn’t. When players and coaches witness natural skills on the playing field, they’ll quip, “Hey, ya can’t teach that.” So it is with imagination. It is a gift, a way of viewing the world that is manna from heaven. Some people are great with numbers, some with science, some with analysis. And then there are the rare among us who can create new ideas in business, and in particular marketing, which engage consumers and motivate them to take specific sales-driving actions. One of the saddest trends in marketing today is agency “death by marketing department.” This occurs when the marketing department of a corporation overrules its agencies time and time again, instead opting for its own ideas and turning agency creative minds into hand servants of the marketing department’s work. And then, when the multi-million dollar initiatives fail to perform, the brand manager fires the ad agency because the spots didn’t work and the marketing agency because sales were flat. Agencies have moved more and more often into a vendor rather than partner relationship. In the end, this power shift compromises imaginative solutions and endangers brand success. Creativity is a gifted way of thinking, an art not a science. It cannot be birthed from pie charts and graphs and analysis. It looks simply at the people it’s trying to reach and figures out a way to reach them. What is Suzie Shoppers want/need/desire? What innovation will get her attention? Motivate her to take action? Make her feel good about her decision? It’s often said “a good idea can come from anywhere.” Yes, it’s true. But a good idea can’t come out of thin air. It’s the massive exception not the rule when an uncreative mind hits pay dirt. In today’s marketplace where competition for the consumer’s attention has never been greater, “What would Sam Walton do?” Simple. He would search out the innovators, not necessarily the ones with rice paper on the wall. Advanced educations are outstanding business assets, he’d agree, but creativity and innovation can’t be learned in a classroom. Sarah O’Leary is a creative marketing expert, consultant and author. She may be reached at soleary@thelogicagency.com.

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Japanese Automakers Further Delay Restarting Factories

March 22, 2011

TOKYO (Reuters) – Sony Corp (6758.T: Quote, Profile, Research, Stock Buzz) cut output at five more plants and Toyota Motor (7203.T: Quote, Profile, Research, Stock Buzz) further delayed restarting its Japanese assembly lines, as the country’s catastrophic earthquake plays havoc with the global supply of parts and products. Global electronics and autos companies have been hardest hit by the turmoil, but in an illustration of how the ripples are spreading, global miner Rio Tinto (RIO.L: Quote, Profile, Research, Stock Buzz) (RIO.AX: Quote, Profile, Research, Stock Buzz) warned the disruptions posed a threat to its expansion plans. More than 10 days after a 9.0 magnitude earthquake and 10-meter tsunami struck the northeast of Japan, manufacturers are struggling to get back up to speed as factories grapple with power cuts, crippled infrastructure and a shortage of parts. Such is Japan’s position in the global supply chain that companies from Apple Inc (AAPL.O: Quote, Profile, Research, Stock Buzz) to General Motors Co (GM.N: Quote, Profile, Research, Stock Buzz) and Nokia (NOK1V.HE: Quote, Profile, Research, Stock Buzz) are feeling the impact. Toyota, the world’s largest automaker, said all 12 Japanese assembly plants would remain closed until at least Saturday and it was not sure when they would reopen. Production lost between March 14-26 would be about 140,000 units. Toyota had hoped to have resumed assembly on Tuesday. Electronics giant Sony said five more of its plants, mostly in central and southern Japan, were hit by parts shortages stemming from the disaster and would close or reduce output until the end of the month. “If the shortage of parts and materials supplied to these plants continues, we will consider necessary measures, including a temporary shift of production overseas,” the maker of PlayStation games consoles said in a statement on Tuesday. The plants make products such as digital and video cameras, televisions and microphones, Sony said. A sixth plant in Chiba, north of Tokyo, was set to resume production on Tuesday, but it could be interrupted by rolling blackouts that are affecting some areas supplied by Tokyo Electric Power (TEPCO) (9501.T: Quote, Profile, Research, Stock Buzz), the operator of the stricken Fukushima nuclear plant. Including two factories only partially restarted last week, 15 of Sony’s 25 Japanese plants are currently affected. It has a total of 54 plants worldwide. TECH CHAIN VULNERABLE Japan’s grip on the global electronics supply chain is causing particular concern. It produces around a fifth of the world’s computer chips and exported 7.2 trillion yen ($91.3 billion) worth of electronic parts last year, research from Mirae Asset Securities shows. “There are a huge number of little bits of the high-tech food chain which are done nowhere but in Japan,” said Sam Perry, senior investment manager of Pictet Japanese Equity Selection Fund. “Nobody else has the quality or the consistency, and in some cases the technology, to do it.” Japan dominates with the supply of LCD film and sealants for semiconductors, among other areas, Perry added. “You simply can’t do high-tech without Japan.” Fujifilm Holdings (4901.T: Quote, Profile, Research, Stock Buzz), the largest producer of triacetyl cellulose film used in making LCD panels, said its main factories are all west of Tokyo and were not directly affected. It has other facilities in northeast Japan, but said any disruptions were unlikely to damage its earnings. Konica Minolta (4902.T: Quote, Profile, Research, Stock Buzz), the second-largest maker of the LCD film, said its three factories in the Tokyo region had been affected by the rolling power cuts. Company officials declined to specify what these factories produce. Camera and copier maker Canon Inc (7751.T: Quote, Profile, Research, Stock Buzz), which has suspended all its domestic camera production until at least Thursday, said a lack of gasoline was affecting distribution and stopping staff getting to work in areas such as the island of Kyushu, where train services are minimal. Nikon (7731.T: Quote, Profile, Research, Stock Buzz), which makes cameras and precision equipment, said it expects to resume production at all its north Japan plants by the end of March, but warned power cuts and shortages of parts could make a return to full production difficult. Renesas Electronics Corp (6723.T: Quote, Profile, Research, Stock Buzz), the world’s No.5 chipmaker, restarted operations on Saturday at a semiconductor plant in Yamagata prefecture, in northwest Japan, a company spokeswoman said on Tuesday — leaving output suspended at six of the firm’s 22 factories in Japan. RIPPLES SPREAD Rio Tinto, the world’s No.2 iron ore miner behind Brazil’s Vale (VALE5.SA: Quote, Profile, Research, Stock Buzz), is worried the disaster will disrupt supplies of mining equipment, tires and parts, which could set back some of its expansion plans. “The impact of the Japanese earthquake and tsunami have been many and diverse, and they affect us,” Rio’s head of iron ore Sam Walsh told an industry conference in Perth. “Some steel mills have suspended operations and suppliers of heavy equipment, such as Hitachi, have been impacted,” he said. Hitachi Construction (6305.T: Quote, Profile, Research, Stock Buzz), Japan’s No.2 maker of earthmoving equipment, said five plants in Ibaraki prefecture, north of Tokyo, closed after the quake. Three have partially reopened, but there is no timetable for re-opening the others. Tsunami damage to the nearest port means Hitachi is shipping some products from Yokohama, near Tokyo. Car makers are also struggling to get production lines restarted. On top of Toyota’s delays, Honda Motor Co (7267.T: Quote, Profile, Research, Stock Buzz) (HMC.N: Quote, Profile, Research, Stock Buzz) was also extending its production suspension until Sunday from Thursday. A fifth of Honda’s leading Japan-based suppliers affected by the earthquake have said it will take “more than a week” to recover, Honda said late on Monday. In a sign of some return to normality, Japan’s top three steelmakers reported some progress in restoring production. Nippon Steel Corp (5401.T: Quote, Profile, Research, Stock Buzz) said output at the three blast furnaces at its mainstay plant in eastern Japan had recovered to pre-quake levels, while JFE Steel Corp (5411.T: Quote, Profile, Research, Stock Buzz) said two blast furnaces at its 10 million tonnes-a-year plant near Tokyo were now operating normally. (Additional reporting by Junko Fujita and Nathan Layne in TOKYO and James Regan in PERTH; Writing by Lincoln Feast, Editing by Ian Geoghegan) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Dave Johnson: What "Free Trade" Has Cost The World

March 21, 2011

If you take a job away from someone who is paid a reasonable wage because they enjoy the protections and prosperity of democratic government, move it across a border, and give it to someone living under a thugocracy, forced to work for pennies with no protections whatsoever, it should be just plain obvious that the worker on our side of the border and the worker on the other side of the border are not going to be better off. And when you do this on a massive scale it just stands to reason that most people on both sides of the border are going to be worse off. But propaganda being what it is we were somehow convinced to try a worldwide experiment in taking good jobs from democracies and turning them into bad jobs in thugocracies. Now, of course, the experiment has run its course and we can see the results. Worker Against Worker Setting worker against worker enabled a few people to get really, really really wealthy and powerful and use that wealth to become even more wealthy and powerful. Our country is in decline, burdened by massive trade deficits because the ones with vested interests in cheap labor won’t let us won’t take on the mercantilists, burdened by budget deficits because those vested interests have bought low taxes and government subsidies, our infrastructure crumbles because multinational business leaders refuse to invest here, with no more need of us as workers, and the resulting hollowed-out middle class can’t consume anymore. Other countries also suffer from similar stresses. Out of this situation a new global elite has emerged, contemptuous of democracy and government and any power but the power of their own money. In country after country, these top few won’t share the proceeds with their own, either, while they keep the world from approaching solutions. In January’s post, Establishment Realizing: When You Close The Factory We Can’t Make A Living , I wrote about how “the establishment,” or as bloggers call it, “The Village” or “Versailles,” are starting to realize that our trade policies just might not be working for us. Of course, they come to this realization only after our trade deficits approach the trillion mark, after we have lost millions of manufacturing jobs, after we have closed tens of thousands of factories, after we have lost the tech manufacturing industry, and after we have abandoned hopes of leading in green manufacturing as well… (We’re still waiting for them to realize that tax cuts do not increase revenue, that spending more on military than all other countries combined might contribute to deficits, that our too-big-to-fail financial sector is capable of causing problems, that the climate really is changing, that allowing corporations to pump money into politics means the end of democracy… but hey, a dollar spent by a vested interest on a politician apparently is a dollar very, very well spent.) In the Washington Post, Steven Pearlstein recently reviewed Dani Rodrik’s “The Globalization Paradox ,” It is dogma among economists and right-thinking members of the political and business elite that globalization is good and more of it is even better. That is why they invariably view anyone who dissents from this orthodoxy as either ignorant of the logic of comparative advantage or selfishly protectionist. But what if it turns out that globalization is more of a boon to the members of the global elite than it is to the average Jose? Right, what if? In “The Globalization Paradox,” Dani Rodrik demonstrates that those questions are more than hypothetical — that they describe the world as it really is rather than as it exists in economic theory or in the imagination of free trade fundamentalists. . . . The starting point of Rodrik’s argument is that open markets succeed only when embedded within social, legal and political institutions that provide them legitimacy by ensuring that the benefits of capitalism are broadly shared. And a unicorn. And a rainbow. The paradox, as Rodrik sees it, is that globalization will work for everyone only if all countries abide by the same set of rules, hammered out and enforced by some form of technocratic global government. The reality is, however, that most countries are unwilling to give up their sovereignty, their distinctive institutions and their freedom to manage their economies in their own best interests. Not China. Not India. Not the members of the European Union, as they are now discovering. Not even the United States. In the real world, argues Rodrik, there is a fundamental incompatibility between hyper-globalization on the one hand, and democracy and national sovereignty on the other. Clyde Prestowitz threw a one-two punch at free trade after Senator John McCain claimed that the iPhone and iPad are Made in America. In Why isn’t the iPhone made in America? at Foreign Policy magazine, Prestowitz wrote, John McCain provided some good laughs and made himself look stupid on a recent ABC news interview by telling Diane Sawyer that the iPhone and iPad are great examples of products that are made in America. They’re not. And given the amount of high technology production in his state, McCain should certainly have known better. The fact that he didn’t does make you wonder about what, if anything, they know in the U.S. Senate. Prestowitz goes on to explain that while the iPhone is manufactured in China, parts, software, design and other components are made all around the world, not necessarily for low wages. He concludes, So if America actually did produce the stuff it says it is good at producing, it wouldn’t have a trade deficit with Asia for which China is the proxy at all. It would have a trade surplus and 20-40,000 more jobs than it has. Prestowitz looks at a smaller picture here of the back-and-forth of trade with the US and China. Design, software and other capital and technology intensive components are not made in China. But the bulk of the jobs are in China. This could work for everyone if people there were paid enough — and allowed by their government — to buy things made here. That would be trade and everyone would be better off. But trade isn’t really the point of “free trade.” Then, in It’s not just the iPhone that America doesn’t make , Prestowitz conitinues, Okay, so yesterday I explained not only that John McCain was wrong to say the iPhone is made in America (as you already knew), but also that most of you were wrong to think it is made in China. I went on to show that the phone is only assembled in China from high-tech parts that are mostly made in Japan, South Korea, and Taiwan. I further explained that production of these parts is not labor intensive, but capital and technology intensive. In other words, these parts are just the kinds of products American economists, Silicon Valley venture capitalists and entrepreneurs, and Washington political leaders always say America is the best in the world at making. … Then I left you with the question of why, if America is so good at making this stuff, it doesn’t. [. . .] it was believed that unilateral free trade (keeping one’s markets open, even in the face of protectionism by one’s trading partners) was a winning proposition. Thus, there was no need to be concerned about things like subsidization of key foreign industries or loss of capability in these fields, and hence no need for trade measures that might upset delicate geopolitical relationships. This economic doctrine has been based upon the assumption of Anglo/American economics that economies of scale either don’t exist in most traded products and industries or are relatively unimportant. That this assumption is dramatically and demonstrably wrong and not accepted by most of the non-Anglo world has not deterred its application to the making of much American and global trade policy. In other words, it doesn’t work. But we already knew that. We can see it all around us. And it is us who have to live with the results. This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture . I am a Fellow with CAF. Sign up here for the CAF daily summary .

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Ann Pettifor: If Japan Can Address Her Crises, Then the U.S. Can Address Job and Energy Insecurity

March 21, 2011

The disaster in Japan is almost beyond comprehension. Without minimizing the scale of the humanitarian tragedy, it is already possible to discern the emerging economic debate. Stock markets immediately anticipated the potential benefits to Japan’s construction industries and their suppliers. Policy makers in the U.K. and Europe, who are busy implementing austerity measures to curb budget deficits, should take note. The valuable argument coming from the ashes of this crisis is simple: Japan can afford to rebuild. The Bank of Japan is clear about this. In asserting this point, and calming markets with massive liquidity injections, the central bank is basing its Keynesian policy on a wholly different analysis from that of economists and politicians promoting austerity measures in Europe and the U.S. The economic possibilities of nations don’t depend on financial resources, but rather on human, technological and organizational power. The banking industry relies on these productive resources. The stability of banks hinges on lending for projects that will generate revenue streams for their own repayment. Power of Banking Japan is replete with all the human ingenuity and dedication that reconstruction and rebirth demands. The power of modern banking can enable Japanese society to deploy all of these resources, irrespective of the condition of Japanese public finances. The domestic banking system can circumvent the naysayers of international finance in a manner that should be understood by all financial authorities and economists. Japan can address this natural and man-made disaster without handing a begging bowl around to other nations. The same logic that enables Japan to solve its multiple crises defies European Union and American politicians who have reacted to the 2007-09 financial crisis with austerity policies. Their doctrine holds that because public finances are in disrepair we can’t address the energy or food insecurity threatening our economies, or to reduce the unemployment that jeopardizes economic, social and political stability. This diagnosis puts the cart before the horse: There is an energy and jobs crisis, not a public-finance one. Affordable Work The state of public finances is primarily a consequence of the financial crisis, the increase in insolvencies and unemployment, and the resultant decline in revenue. If there is reconstruction work that can be done by the people of Japan — and there are people to do it — it is affordable. The marvel of the domestic-banking systems that have existed since the 18th century is to permit this economic process to be stimulated. New work will generate all the public revenue necessary to repay any loans from the banking industry. The nuclear tragedy unfolding in Japan has its roots in faulty logic applied by international financiers and their “hired guns”‘ in the economics profession. Society has been convinced that nuclear power is necessary because it is the only affordable option. But all energy technologies are affordable. The real test of affordability isn’t cheapness but the most effective use of the real resources of society, taking into account threats like climate change and the risks associated with particular technology choices. Man-Made Hazard To have built nuclear power plants in the so-called Ring of Fire was to create an entirely unnecessary, man-made hazard. Decisions as to whether nuclear power is the most appropriate response to energy shortages and the threat of climate change is a question for society — not for business or finance. This is most clearly illustrated in the demonstrations and debates surrounding the forthcoming elections in Germany’s Christian-Democrat-dominated state of Baden-Wuerttemberg. It is our tragedy that policy makers permit a glimpse of these lessons only in times of war. Unemployment in peacetime, combined with risky and reckless investment, is imposed on nations by ignorance, greed and special interests. May the legacy of this appalling and destructive crisis in Japan be the abandonment of such faulty and brutal doctrines, so that the people of Japan and of the world may now turn to the possibilities of what can be achieved to restore financial stability as well as energy and job security.

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Study: 9 Million Laid-Off Americans Lost Health Insurance In Last Two Years

March 18, 2011

WASHINGTON — During the last two years, 57 percent of Americans who lost a job that provided them health insurance — nearly 9 million people — could not afford to regain coverage, according to a new study published by the Commonwealth Fund, a longtime advocate of health care reform. In addition, 19 million Americans who tried to buy a health plan in the individual insurance market between 2007 and 2010 were either rejected due to a prior health condition or unable to find affordable coverage that fit their needs, according to the Commonwealth Fund report. “This means that already stretched family budgets are vulnerable to catastrophic losses and bankruptcy in the event of a serious accident or illness, and that families face significant financial barriers when trying to obtain needed medical care and timely preventive services,” the report’s authors wrote. The authors found that some 52 million Americans had no health coverage in 2010, compared to roughly 38 million in 2001. And nearly 49 million adults spent 10 percent or more of their income on out-of-pocket costs and premiums in 2010, they found, up from roughly 31 million in 2001. High health care costs mean less money to spend on basic necessities. About 22 million working adults couldn’t afford food, heat and rent due to medical bills in 2010, the research found, and health costs forced 4 million people into bankruptcy. The government allows laid-off workers to remain on their former employers’ health insurance via the COBRA program, but workers must pay the full cost of the insurance — their share plus their former employer’s share — which is often unaffordable. The stimulus bill of 2009 provided a 65 percent subsidy for COBRA plans, but Congress dropped the subsidy last May due to deficit concerns. About 50.7 million Americans had no health insurance in 2009, according to the latest government data, and 16.7 percent of the U.S. population was uninsured, the highest proportion since the government began tracking such figures in 1987. Commonwealth Fund President Karen Davis said on Tuesday, however, that last year’s health care overhaul legislation will help ensure that nearly everyone, including the jobless, has access to affordable and comprehensive health insurance by 2014. “The silver lining is that the Patient Protection and Affordable Care Act has already begun to bring relief to families,” she said. “Once the new law is fully implemented, we can be confident that no future recession will have the power to strip so many Americans of their health security.” But the health care law doesn’t prohibit health insurers from discriminating against Americans with preexisting conditions until 2014, meaning those who lose their employer-sponsored health insurance have few options in the meantime. The law did create a program called the Pre-Existing Condition Insurance Plan designed to cover those excluded from the individual market until 2014, but enrollment has been low, with only about 12,000 participants to date. Once the law’s provisions are more fully implemented, uninsured Americans are supposed to have access to affordable health insurance through Medicaid or private health plans available on state-run exchanges, while low-income families will receive tax credits to help them afford coverage. The Commonwealth Fund survey of 3,033 adults between ages 19 and 64 was conducted by Princeton Survey Research Associates International from July to November of last year, according to the report’s authors. The full report is available here

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Dave Johnson: Cutting Government Creates Jobs Like Cutting Taxes Increases Revenue

March 18, 2011

A ” report ” from Republican staff of the Joint Economic Committee says that the path to job creation is cutting … the very things that create jobs. This is like saying that cutting taxes increases revenue. We know how that worked out, and the job-consequences of budget cuts are going to be just as disastrous. Sometimes you can cut through ideology by looking at what actually happens in the real world. Reagan cut taxes: huge deficits resulted. Clinton raised taxes, the deficits went away. Bush cut taxes, we went back to huge deficits. And you can see the same thing when you look at government spending and jobs. England and Greece are trying austerity, and their economies are sinking as a result. In 1937 the United States learned this lesson, succumbing to deficit cutting which choked off the recovery from the depression. On the other hand, the “stimulus” boosted the economy, held off a depression and created millions of jobs — but not enough jobs to overcome the Bush years. Here is the chart — note the obvious effect of the stimulus and of the end of the stimulus on the jobs picture: Cut Cut Cut To Grow Grow Grow? Republicans say that cut cut cut leads to grow grow grow. Their prescription is to cut taxes to “reduce uncertainty” which they say will result in job creation. Never mind that Clinton raised taxes and then the economy boomed. Then Bush cut taxes and then gave us the worst job-creation record in decades, even before the recession started! From The Hill, GOP study backs ‘cut and grow’ but says new jobs could take time , House Republican leaders on Tuesday released a study that they said shows their “cut and grow” strategy will boost the economy. 
The study argues that reducing uncertainty about future taxes will increase household spending and business investment, spurring growth and hiring. House Majority Leader Eric Cantor (R-Va.) said the report shows “less government spending means more private sector jobs.” Just how will “certainty” about tax cuts create jobs? The study argues that “non-Keynesian effects” result from government budget cuts. It says households expecting future taxes to pay for government spending will purchase more homes and durable consumer goods once uncertainty about future taxes is erased. Right, knowing that taxes will be lower, people will go out an “purchase more homes.” The people funding the Republicans will just go buy an 8th house with their tax savings. And maybe a Maybach or two. Plutonomy in action! No Path To Jobs Laying off teachers and firefighters is not the path to jobs. Cutting government cuts the very things that nurture the soil in which business can thrive. We need a modern infrastructure to compete in world markets, bu t they are cutting back on infrastructure spending. We need a well-educated population to grow the economy, but they are cutting back on education. Cutting is clearly not the path to more people having better-paying jobs: Congress takes aim at jobs program , Becky Thompson of Sioux Falls turns 72 next month, and she is quietly grateful that she has a job working in the computer lab at Experience Works, an agency that helps older workers find employment. . . . But now she and other older workers are worried that all this – the training, the support, the camaraderie – will disappear in the next round of budget cuts. That’s because more than 60 percent of Experience Works’ budget comes from the Senior Community Service Employment Program, the only federally funded job training program for low-income seniors – and one of many programs targeted for reduction in the Republican spending bill that passed the House last month. Economists, Analysts, Everyone Says Budget Cuts Will Kill Growth Isaiah Poole summed it up in, More Than 300 Economists Repudiate Right-Wing “So Be It” Economics , Today the Economic Policy Institute and the Center for American Progress jointly released a statement signed by nearly 320 economists from around the country, including Nobel Prize winners Kenneth Arrow and Eric Maskin, former Vice Chairman of the Board of Governors of the Federal Reserve System Alan Blinder, and former Chair of the President’s Council of Economic Advisers and Director of the National Economic Council Laura Tyson. That comes a day after Mark Zandi of Moody’s Analytics released a report that estimated the House budget cuts would result in a loss of 700,000 jobs by 2012. That finding evoked a “so what?” from House Majority Leader Eric Cantor that was remarkably in line with the dismissive “so be it” comment that House Speaker John Boehner made earlier in February in response to concerns that budget cuts would result in job losses. If people had good jobs that paid well the deficit would be a heck of a lot lower than it is. People would be paying taxes instead of collecting unemployment. Cutting the things that create jobs is certainly not a path to creating jobs. England is learning this, our Congress is not. No Job Creation Programs At All Republicans have held the Congress for months but have not introduced a single job-creation program. In GOP Bait And Switch On Jobs , Anne Thompson lays it out, , The House Republicans have developed a track record of bait and switch when it comes to their approach to job creation. Last week, House Republican leadership released a PowerPoint by Congressman Paul Ryan that they are using to educate the Republican Caucus on their top policy priorities. Ryan laid out the “Jobs Deficit” as the number one challenge facing America in his very first slide. Yet he failed to focus on jobs until the very last slide, which reads: “Keep taxes low; spur job creation and growth.” Not quite the robust plan we need to put millions of Americans back to work. Is There At Least A Secret Plan? It appears — and this kook “study” confirms — there is no real plan for jobs. But is there at least a secret plan in operation? Secret plan? When they said that cutting taxes increases revenue they knew it wouldn’t — they had a hidden agenda . They knew better than to actually believe that cutting taxes would actually increase revenue to fund the government. They said so. The r esulting deficits were the agenda. The plan was to ” cut their allowance ” and ” starve the beast ” to create a debt crisis , then demand that government cut back the things it does to protect and empower We, the People. What is the agenda behind this job-destruction agenda? If there is a secret agenda behind destroying so many American jobs — and the ability to create new jobs that pay well — then what is it? They can’t be crazy enough to destroy the economy just to increase their 2012 electoral odds, can they? On the other hand, no one has ever finished the sentence, “Republicans aren’t crazy enough to …” without being proven wrong. Sign up here for the CAF daily summary . This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture . I am a Fellow with CAF.

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Regulators Knew Of Understated Seismic Risks To Nuclear Plants For Years

March 18, 2011

By Jim Morris and Bill Sloat The Center For Public Intergrity Nearly six years before an earthquake ravaged Japan’s Fukushima Daiichi nuclear power plant, U.S. regulators came to a sobering realization: seismic risks to nuclear plants in the eastern two-thirds of the country were greater than had been suspected, and engineers might have to rethink reactor designs. Thus began a little-noticed risk assessment process with far-reaching implications despite its innocuous-sounding name: Generic Issue 199. The process, which was supposed to have been finished nearly a year ago, is still under way. It is unclear when it will be completed.GI-199, as it is known, was triggered by new geophysical data and computer models showing that, as the Nuclear Regulatory Commission put it in an August 2010 summary document, “estimates of the potential for earthquake hazards for some nuclear power plants in the Central and Eastern United States may be larger than previous estimates.” Data from the U.S. Geological Survey and other sources suggest, for example, that “the rate of earthquake occurrence … is greater than previously recognized” in eastern Tennessee and areas including Charleston, S.C., and New Madrid, Mo., according to the NRC document. There are 11 reactors in Tennessee, South Carolina and Missouri. GI-199, a collaborative effort between the NRC and the nuclear industry, has taken on new urgency in light of the crisis in Japan. “Updated estimates of seismic hazard values at some of the sites could potentially exceed the design basis” for the plants, the NRC document says. NRC spokesman Roger Hannah said the exercise was never meant to provide “a definitive estimate of plant-specific seismic risk.” Rather, he said, it was done to see if certain plants “warranted some sort of further scrutiny. It indicates which plants we may want to look at more carefully in terms of actual core damage risk.” The information collected under GI-199 has been shared with operators of all 104 reactors at 64 sites in the U.S., Hannah said, and NRC officials are in the process of determining whether any plants require retrofits to enhance safety. He added that the assessment indicated “no need for any immediate action. The currently operating plants are all safe from a seismic standpoint.” Every proposed nuclear plant in the U.S. already must undergo an extensive environmental review that examines the site’s seismology, hydrology and geology, NRC spokesman Joey Ledford said. The Nuclear Energy Institute, a trade group, said in a statement this week that nuclear plants “are designed to withstand an earthquake equal to the most significant historical event or the maximum projected seismic event and associated tsunami without any breach of safety systems.” The U.S. Geological Survey updates its seismic hazard analyses roughly every six years, the institute said, and “the industry is working with the NRC to develop a methodology for addressing” newly recognized hazards. Asked why GI-199 has taken nearly six years, Ledford said, “These are very complicated issues. We’re talking about 64 plant sites. It’s not a small task.” According to a January 2010 NRC document, GI-199 was to have been completed last April. An agency document dated January 2011 says the completion date is “to be determined.” The NRC blamed the delay on issues relating to the release of a copyrighted Electric Power Research Institute report to an NRC contractor and on “the desire for internal and external stakeholder agreement.” Over the years, the NRC often has been criticized for taking too long to resolve important safety issues. One example: what’s known in the industry as a loss-of-cooling accident, regarded as the most serious event that can happen at a reactor. Since the 1980s, the NRC has been looking into the problem of clogged emergency core cooling pumps in boiling water reactors. The issue has not been resolved. The Fukushima Daiishi reactor and 35 reactors in the U.S. are boiling water reactors. Japanese regulators, too, recognized that they had understated seismic risks to their nuclear generating facilities, and were pushing utilities to engineer plants better able to resist tsunamis. At a previously scheduled NRC conference in suburban Washington last week, just days before the 9.0 earthquake that crippled Fukushima Daiichi, Japanese officials briefed their American counterparts on four quakes in Japan since 2005 that exceeded design standards for some nuclear plants. In no case was the damage severe. Nonetheless, the Japanese were re-evaluating seismic data and moving to buffer the plants. At the conference, the Japanese delegation said that tsunamis were a particular concern for coastal plants located in seismic zones. The officials said the industry should build upon “significant progress in tsunami hazard assessment, tsunami warning and mitigation and tsunami resistant design.” EVENTS GET AHEAD OF THE REGULATORS Earthquakes can occur in all sorts of locales. In January 1986, a late-morning quake measuring 4.96 on the Richter scale was blamed for cracks in the Perry Nuclear Power Plant on Lake Erie near Cleveland. At first, people thought it wasn’t a quake; speculation focused on an explosion somehow related to the Challenger space shuttle disaster or an attack on New York City. The newly licensed plant’s reactor was to be fueled for the first time the next day. Officials and the public were caught by surprise; few suspected Northeastern Ohio was in an active seismic zone. But it is. Experts determined that the quake’s epicenter was 11 miles from the plant, which has been dogged by controversy ever since. A previously unknown fault line also runs near the Indian Point plant, 24 miles north of New York City. Indian Point’s two units are up for relicensing by the NRC in 2013 and 2015, respectively, and a fierce battle is expected. New York Gov. Andrew Cuomo, while campaigning last year, called for Indian Point to be closed. Now he has ordered a safety review of the plant. In a 2008 paper, four researchers from Columbia University reported that “Indian Point is situated at the intersection of the two most striking linear features marking the seismicity and also in the midst of a large population that is at risk in case of an accident at the plants.” Indian Point’s two reactors, the researchers noted, “are located closer to more people at any given distance than any other similar facilities in the United States.” The plant’s operator, Entergy Corp., issued a statement saying all its nuclear plants “were designed and built to withstand the effects of natural disasters, including earthquakes and catastrophic flooding. The NRC requires that safety-significant structures, systems and components be designed to take into account the most severe natural phenomena historically reported for each site and surrounding area.” Even where nuclear plants have been built in established zones of potentially severe earthquakes, such as California, scientists are often far ahead of the regulators in raising questions about the safety of the plants. The California Coastal Commission, for example, has been sparring with the NRC over what the commission claims are under-appreciated seismic risks at the San Onofre plant, on the Pacific Ocean south of Los Angeles. After a review several years ago, the commission said “there is credible reason to believe that the design basis earthquake approved by [the NRC] at the time of the licensing of [San Onofre Units] 2 and 3 … may underestimate the seismic risk at the site.” Mark Johnsson, a geologist with the commission, said GI-199 suggests that the NRC is taking such risks more seriously. “In California, we’ve had our differences with the NRC,” Johnsson said, “but they are saying there is credible evidence the earthquake risk in large portions of the country may have been underestimated for decades. We have objected to things they have done. We have not particularly relied on their work here in California. But in this instance they are trying to get it right, I think. They are looking at the new science and are open to it. Right now, there is insufficient data to understand how these faults work at great depths under these power plants.” The Coastal Commission has accused the NRC of trying to weaken safety regulations for spent fuel storage sites in areas prone to tsunamis and quakes. It said the most likely incident on the West Coast would involve a major earthquake “immediately followed by inundation of the damaged facility by a tsunami.” That is exactly what happened in Japan. In a 2002 letter to the NRC, the commission’s executive director, Peter Douglas, said the storage areas should have safety standards “consistent with the requirement for nuclear power plants.” He said the NRC hadn’t offered any logical explanation for trying to weaken the rules. Douglas wrote, “It is especially important that an appropriate standards for … tsunamis be applied because perhaps the most likely scenario for release of radiation to the environment is damage to an [independent spent fuel storage installation] or [monitored retrievable storage installation] during a major earthquake, immediately followed by inundation of the damaged facility by a tsunami.” The NRC rejected Douglas’s complaint and lowered the seismic standards for spent fuel storage. Joe Litehiser, a Bechtel Corp. researcher, has studied the implications of earthquakes on licensing of proposed new nuclear plants in the central and eastern U.S. Litehiser said there is more seismological information available now than there was decades ago, when the existing plants were built. Scientists now believe, for example, that major earthquakes occur around Charleston, S.C., every 550 years instead of several thousand years apart, as industry models had assumed. This is relevant not only because South Carolina has seven active reactors, but because four more units are planned for the state. Applications filed by the proposed operators, Duke Energy and South Carolina Electric & Gas, seek NRC permission to build Westinghouse Advanced Passive 1000 (AP1000) reactors in Fairfield and Cherokee counties. In a March 7 letter to NRC Chairman Gregory Jaczko, U.S. Rep. Edward Markey, D-Mass., wrote that one of the agency’s own experts believes the AP1000’s shield building could “shatter like a glass cup” in the event of an earthquake or a similar disaster. Aaron Mehta and Susan Stranahan contributed to this story. What are the risks of an earthquake beneath a reactor near you? This image combines a 2006 map by the United States Geological Survey showing varying seismic hazards across the U.S. with locations of nuclear reactors. Reactors in black are active; reactors in blue are proposed sites for the new model known as the AP1000. Probability of strong shaking increases from very low (white), to moderate (blue, green, and yellow), to high (orange, pink, and red). Credit: Kimberly Leonard/Center for Public Integrity. For more information on each nuclear reactor in our map, d ownload the list. ” target=”_hplink”> map by the United States Geological Survey showing varying seismic hazards across the U.S. with locations of nuclear reactors. Reactors in black are active; reactors in blue are proposed sites for the new model known as the AP1000. Probability of strong shaking increases from very low (white), to moderate (blue, green, and yellow), to high (orange, pink, and red). Credit: Kimberly Leonard/Center for Public Integrity. For more information on each nuclear reactor in our map, d ownload the list.

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