He was right.

Bardacke, a respected labor activist and educator based in Watsonville California, was first mentioned in this blog six years ago in connection with his research on Cesar Chavez. Like Bill Gates and Mark Zuckerberg, he dropped out of Harvard after his freshman year and moved west to change the world. Unlike them, he joined the Berkeley Free Speech Movement and has had an abiding interest in radical politics ever since. In the early 70s, I traveled to China with Bardacke to get a first hand look at Mao’s proletarian dictatorship. Frank admired all things proletarian; I feared the dictators. Bardacke often views the world through a different template than I do, but I have learned a lot from him and continue to have enormous respect for his views.

Bardacke became a farmworker – one of a handful of Anglos and surely the only former Harvard student to work the celery fields. He became fluent in Spanish and formed friendships with many of the union staff and farmworkers who appear in his book. He spent more than a decade interviewing every major participant in the drama, reading every known book on the farmworkers and scouring every archive. He received help in managing this massive project from faculty in history and politics at nearby UC Santa Cruz.

The result, Trampling Out the Vintage: Cesar Chavez and the Two Souls of the United Farmworkers, is the most complete account yet of the rise and fall of the UFW. It is also an epic, Shakespearean drama with all of the elements of a Hollywood blockbuster. The pitch meeting would be surreal:

OK, picture this: we have a conservative Catholic who fasts and marches like he’s Ghandi. He courts progressive clerics and hires liberal Jews and alienated Anglos to mobilize immigrant Mexicans and Philipinos to fight Slavic and Italian growers. At first David slays Goliath, but then he morphs into King Lear and destroys his newly built kingdom amidst slaughter and recrimination. We’ve got side plot romances between devotees who work for $5/week and bad food trying to raise farmworker pay. We’ve got violent Teamster, UFW, and grower thugs straight out of the Sopranos. We’ve got a certifiably batshit human potential guru who wreaks havoc getting everyone to criticize everyone else. And under the carpet here somewhere, we may even have communists trying to advance a proletarian revolution without a proletariat. How can we miss?”

Astonishingly, it is a true story and Bardacke delivers it with intelligence and compassion. Unique among labor historians, he grounds his analysis in “the work itself”, with brilliant, memorable descriptions of how different stages of production for different crops in different regions of California all affect the ability and willingness of different crews to self organize. He describes clearly why organizing was often sustained by the tight-knit, highly skilled lechugeuros or the celery cutters, not the garlic or asparagus workers or those in ladder crops. He describes the skill and endurance that the work requires, introduces leaders that arise from various crews, and captures in fine detail how they interact with a union that was built on a very different set of principles from farm work. In a decade spent organizing waiters, housekeepers, nurses, bartenders, machinists, cannery workers, and assembly workers, I observed precisely these differences. The work itself shapes our propensity to organize. Bardacke is the first writer to apply this principle to the fields and he does so with a deep understanding and compassion for the work.

Bringing an existing union into a workplace is an act of industrial combat not for the faint of heart — but starting a new union from scratch is a herculean task that almost always fails.  I started a company that has lasted more than a decade, a public agency that lasted three years, and a union (United Espresso Workers – I was a bit early) that lasted all of three weeks. With the proud exception of the United Farmworkers, I cannot think of a single independent union formed in the United States in the past 50 years that was not sponsored and controlled by an incumbent union (I can think of several that tried and died – but none who made it).

This was not always true — new unions once spawned regularly in the US. There are many reasons for the change, but the lack of competition between unions has positioned them nicely for extinction. Organizations evolve through the mutation, variation, and selection that is always produced by competition. The labor movement stopped growing the instant the AFL joined with the CIO and prohibited unions from competing with each other. When two teachers unions competed, both grew. The instant the Teamsters stopped raiding the UFW, growth stopped. I hated the Teamsters (who were kicked out of the AFL-CIO for corruption and are not subject to the noncompete provisions) and I took a nasty beating from them once, but like sharks or wolves, they have their place in the ecosystem. (I am aware of no union leader who agrees with this view, by the way. Most feel that they have all the competition they can handle from employers).

But for a brief moment following the civil rights movement in the 1960s, a new labor union arose in the United States and in the least likely place. If you had asked in 1960 where in the economy a new union might appear, you would never have selected the farmworkers of California. Organizers prefer workers who are tied to one place and to one employer, not workers who are seasonal and often itinerant. Probably wrongly, organizers prefer workers who are covered by labor laws, which had always exempted farmworkers. Organizers like English-speaking Americans, not Tagalog or Spanish-speaking immigrants or Braceros who are tolerated for a season then ushered back to Mexico. A dozen or so failed efforts by farmworkers to form agricultural unions seemed to validate Marx and Lenin’s belief that workers would organize once they were forced into factories and worked for a single employer.

Bardacke demonstrates that Cesar Chavez succeeded in organizing farmworkers because he was, at heart, a brilliant and hard-working Alinksy-trained community organizer. As a community organizer, Chavez pioneered an enormous innovation that had the potential to transform labor organizing: he mastered the secondary boycott (illegal for most workers under the federal labor law, which thoughtfully excludes farmworkers). Chavez tirelessly organized enormous boycott operations in grapes, lettuce, and against major retailers including Safeway.

Farmworker boycotts were the Occupy movement of the 70s and 80s – a way for college students, community activists, and middle class young people to participate directly in the tough work of social change. And credit Chavez’s brilliant leadership, it worked magnificently: faced with effective boycotts, growers raised wages and improved working conditions and politicians begged the army of grass-roots Chavistas to help register voters and turn them out on election day. The UFW became a powerful force for social change.

But the UFW was only briefly a powerful labor union. Bardacke correctly diagnoses the boycott as creating a formidable tension within the UFW. He frames the tension between labor and boycott organizing as a struggle between the “two souls” of the UFW. The metaphor is fraught. As Bardacke demonstrates, the UFW collapses not because it has two souls, but because none of its activities were organized, financed, or led in a manner that enable them to grow. The problem is not that community organizing is a distraction – most American labor unions lack a community service organization and are much the weaker for it. This is tragic: having discovered and refined one of the few recent innovations in union organizing, Chavez cannot let it grow. Instead, he strangles his own child.

One of the heros of Bardacke’s book is Marshall Ganz, one of America’s most innovative labor organizers. Ganz also dropped out of Harvard, but moved south to organize for civil rights before heading west. After his exile from the UFW, Ganz helped the Silicon Valley Central Labor Council build a powerful neighborhood-based political organization for the 1984 elections. He was terrific at posing fundamental questions – and at directing me and others to writers and thinkers who helped answer them. In 1984 he urged me to read, of all things, a business book, In Search of Excellence. I quickly developed an appetite for business writing. decided to get trained in it, and ended up working with the book’s authors. Marshall returned to Harvard, got his degree after a 28 year hiatus, and now teaches at the Kennedy School. (His version of the UFW story, told in Why David Sometimes Wins, is a fine companion volume. It suffers for being his PhD dissertation and dwells more deeply on theories of organizing and less on the dynamics of local struggles).

So let’s ask a Marshall Ganz-like question: what does it take for an organization to grow successfully? Venture capitalists, a group not deeply concerned with the welfare of those who produce their salads, obsess about this question. There are at least as many answers as there are VCs, but common elements include:

• A big market. If there is not substantial demand for the product or service an organization produces, the organization cannot get very big.

• Positive unit economics. If serving one more person imposes more cost on the organization than it generates in revenue, then growth makes no economic sense and the organization will depend for growth on funding from charity or government. Anyone can sell a dime for a nickel; selling a nickel for a dime means that an organization has to add at least a nickel’s worth of value if it wants to grow.

• Customer or member acquisition costs that scale. Every organization has a cost of acquiring a customer that must be repaid over the lifetime of that customer or member. Smart organizations exhibit declining COA: the cost of acquiring each incremental customer declines with scale. Very smart organizations (and effective social movements) are viral: COA approaches zero as current participants recruit new ones. See Facebook, Google, or Arab Spring.

• Leadership. Growth is very, very demanding on an organization. Everyone in a fast-growing organization has to grow with it: jobs change radically every few months. Not everyone grows at the same pace, so leaders must recruit furiously, communicate direction and values continually, promote and replace people regularly, and test what works all the time. It is stressful and a lot of fun – ask anyone who has been involved in a fast-growing company, boycott, strike, or organizing campaign.

Back to the fields. Boycotts have completely different economics than labor organizations. Boycotts have huge markets: liberals eager to shop their conscience. Churches and colleges do the recruiting at very low cost to the boycott sponsors. Every convert adds more value (the grapes they don’t buy) than cost (the very low cost of volunteers leafleting).

Unions are different. The market for a membership organization of farmworkers is not small, but it is small enough that the UFW needed to capture almost all of it because, as Bardacke notes, organizing half an industry penalizes the organized growers. A union has a responsibility to organize the remaining growers and will frequently be cheered on quietly by those who have signed. More fundamentally, unions need to grow big enough to achieve minimum economic scale: they cannot fund the fixed cost of their operations if they are too small. Unions with fewer than a half a million members are nearly always too small to operate efficiently across the US (meaning that most unions in the United States waste money because they are too small). The UFW never had 100,000 members — although its field operations were mostly in California. Bardacke would counter that the democratic character of the union matters more than its size, which is true, but creating organizations that are not economically sustainable is a bad idea. Unions do this all the time.

Unions have a second problem, to which Chavez developed a unique but ultimately unworkable solution: the economics of labor organizing are often unattractive. Campaigns, negotiations, and strikes are expensive and uncertain of success. If unions file for elections on half of the campaigns they run, win half of the elections they file on, and negotiate contracts successfully 80 percent of the time, then every successful contract has to finance four unsuccessful campaigns and potentially a strike. If the campaigns and the negotiations are labor intensive and the union bears all of those costs, then the economics of organizing turn heavily on the cost and productivity of staff and on the cost and duration of strikes.

The Chavez solution to this dilemma was simple but utterly unsustainable: pump talented people through the organization. Those of us who worked boycott operations worked 14-16 hour days, often 7 days a week. We were paid $5/week and had to beg for donated food to eat. Once we were burned out, the UFW happily replaced us in a process Chavez once compared with pumping water. At any given time during large boycots, hundreds of young people slaved on the campaigns for months and sometimes years. Staff at headquarters (located in the small misnamed town of La Paz), were likewise furnished with living quarters, food, and a miniscule stipend. Chavez personally approved all expenses. From here, it looks like a cult – although from inside the cult, it looked like La Causa and stands today as some of the best work many of us ever did. Regardless of how it feels or looks however, and regardless of the ethics of exploiting volunteers on behalf of underpaid farmworkers, an organization without a core of talented, motivated leaders simply does not scale. Volunteers are not enough — and finding people like Marshall Ganz and Eliseo Medina to fight year after year for farmworkers without paying them even farmworker wages is simply unrealistic.

Bardacke does not go deeply into union economics in part because there is a much bigger tension restricting growth: a command and control organization. Chavez not only micromanages, but much worse, he prohibits local labor or boycott operations. Centrally led boycott operations could work: boycotts demand a consistent message and negotiations with a single adversary and since allied organizations delivered most of the volunteers with help from a skeletal UFW staff, there were relatively few local issues to resolve. But labor organizations are built in hundreds of unique workplaces. This is in part due to the work itself: the problems of lechugueros are simply not the same as tomato workers or lemon pickers. More important however, is that without elected reps, stewards, and ranch committee members, contract negotiations suffer because strike threats lose credibility. Without a credible strike threat, backed in this case by a credible boycott threat, growers rationally refuse to negotiate. Chavez tried to run the union from the top, like he built and ran the boycott. When George Meany and others derided the UFW as “not a real union”, they were wrong at the level of the fields. But in their description of La Paz, they were right.

Bardacke reveals Cesar Chavez to be a brilliant community organizer who campaigned for farmworkers but did not empower them. Bardacke plots the tragic trajectory of the UFW from an authentic movement led by a charismatic leader to one paralyzed by demoralized staff that could see no way to grow a union beyond the constraints imposed by its increasingly unstable founder. Chavez died afraid of his own organization, which he had shriveled into a family business devoted to nonprofit services, La Raza not La Causa, and promoting the Chavez legacy. The union was all but gone.

Bardacke masters an enormous amount of material to relate these events skillfully. He salts his prose with stories and characters straight out of Steinbeck. He rarely leaves the reader guessing about his point of view: Walter Reuther, the brilliant activist who built the United Auto Workers (and marched with Cesar in Delano) is a worthless hack because he voted against seating the Mississippi Freedom Delegation in 1964 and drove communists from the union. Those who cross the US border illegally are noble immigrants deserving of union embrace; those who cross picket lines legally are scabs deserving of UFW tire-slashing and intimidation (but not of UFW efforts to call La Migra and send the illegals among them home). Teamster and grower goons are thugs; Manual Chavez, designated hitter for his nonviolent cousin and other UFW punks are charming rogues who firebomb field sheds and beat their opponents. Those who seek to impose Synanon’s destructive ideology on the UFW are obviously crazy and should be driven from the union; those who seek to advance various communist or nationalist ideologies within the organization are dedicated activists who should be protected. Trampling Out the Vintage is a beautiful work despite these caricatures; it would be even stronger without them. It is a book that deserves a wider distribution and better copy editing than Verso, a niche left publisher, can provide. It would also be nice had Verso published the book electronically (then again, Frank confesses in the postscript that he composed the early chapters of the book on a typewriter!)

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On September 7, Amazon relented and made a deal to pay sales taxes on shipments to California (no doubt the trenchant analysis that follows persuaded them to do the right thing). For details of the deal see http://goo.gl/kNwjQ.

Now every other state in America needs to make a deal with Amazon — even if they have fewer than California’s 10% of the population. This reinforces the need for Congress to enact a cross-border VAT and to rebate 100% of the funds to the state to which the product ships.

==

Amazon’s refusal to collect sales taxes is bad for the company’s reputation, bad for honest retailers, and bad for state governments. Six states have taken modest steps to level the tax playing field, causing Amazon to respond with a business, political, and legal offensive to protect its tax-avoidance strategy. The first battleground will be California, where Amazon and national retailers will fight a very expensive ballot initiative. Longer term however, Congress should close the unintended sales tax loophole created by Article I of the US Constitution.

One-click Tax Evasion?

Unlike almost every modern country, the US has never had a national sales tax. Most states tax sales within their state but are rightly prevented by the Constitution from taxing out of state transactions. Amazon has turned this important limit on state tax authority into a major piece of its business model. Unfortunately, a smart tactic is becoming a stupid strategy. Congress needs to level its head — and then level the playing field.

From its first day of business, Amazon.com has taken extraordinary measures to avoid collecting sales taxes. It locates distribution centers in low population states to minimize the number of customers for whom it must collect sales taxes. It builds complex software to ensure that every possible product ships across state lines so that customers have no tax obligation. It puts engineers and logisticians to work in shell corporations even if they work on Amazon’s retail website just to avoid creating “taxable nexus” — which obligate Amazon to collect sales taxes. It hires legions of attorneys to minimize and manage the inevitable tax claims. When states like Texas attempt to collect taxes, Amazon retaliates by closing facilities and filing f-you lawsuits. When states declare that Amazon’s hundreds of thousands of third party sellers and affiliates amount to a physical presence in the state, Amazon simply closes the programs — as it did last week in California. Today Amazon went even further: they filed a state ballot initiative in California that will let Californians vote on whether or not to pay sales taxes on third party purchases. National retailers are gearing up for a mammoth fight.

California Turns Green

Amazon is now America’s Number One Tax Evader. The company says that if you buy Hot Freddy’s Thai Salsa from a Los Angeles seller on Amazon, the sales taxes on the transaction are for you and Fred and the state to sort out. Unlike the corner grocery store, they won’t collect these taxes. Nobody disputes that Fred owes taxes on his sales to Californians, but Amazon says that collecting them is Fred’s job, not theirs. Since, as a practical matter, it costs California more to chase Fred than it is worth, Amazon’s policy needlessly costs California tax revenues and denies Californians badly needed public services.

So California sensibly joined five other states that require Amazon to collect sales taxes on the intrastate sales of third party sellers. The law goes further, and declares that third party sellers or affiliates (sites that earn commissions on traffic they send Amazon) constitute taxable nexus — as do subsidiaries. Jerry Brown signed the measure into law on June 30, whereupon Amazon immediately notified all California third party sellers and affiliates that they were discontinuing their program.

Amazon has built its business model around a court decision. In 1992, the Supreme Court ruled  in Quill Corporation v. North Dakota that a state can compel a company to collect taxes only if they have a physical presence, or a nexus, in the state. Absent nexus, the court held that online retailers and mail-order companies can sell products across state lines without collecting the tax. This decision reflects the current law and our national architecture as a republic formed in an era when very few goods were traded across state lines. It also reflects an odd twist in the way the US collects sales taxes: by taxing transactions based on where the seller does business not based on where the buyer lives, we effectively tax selling, not buying. In old fashioned Main Street America it doesn’t matter: every sale is local. But the rise of mail order and online retail meant that our peculiar approach created a giant loophole. I am aware of no other country that makes this mistake.

Your sales taxes have arrived...

The cost of this loophole is huge. According to the New York Times, “The state Board of Equalization, California’s tax collector, estimates the unpaid taxes at $1.15 billion in the last fiscal year, and estimates it will grow to almost $1.2 billion this year and $1.27 billion in 2012.”. For California, this is roughly the size of the state’s cuts to higher education. Not all of these taxes would have been collected by Amazon, but as the largest retail site in the world and the most aggressive defender of the interstate shipping loophole, they symbolize the problem.

Six states, including California, Texas, and Illinois, have now demanded that Amazon collect taxes based on the existence of third party sellers in their state. In each case, Amazon has killed third party and affiliate sales rather than comply. More states are likely to follow. Jeff Bezos has become an outspoken opponent of any move by states to cooperate on taxing cross-border sales and opposes any effort by Congress to resolve the issue. Amazon collects sales tax in only five states — Kansas, Kentucky, New York, North Dakota and Washington — where it has offices or another physical presence (and it suing New York). To avoid collecting taxes in several other states, it simply operates warehouses as subsidiaries which do not sell anything and are not subject to sales taxes. In California, Amazon hires engineers under the name of A9, its search subsidiary, and Lab 129, which digitizes books for the Kindle. In fact, these engineers all contribute directly to Amazon.com retail sales. Amazon does not even operate a search business in California or anywhere else and 100% of Kindle sales take place on Amazon — but Amazon is fighting for its right to use state resources without helping pay for them. A9 hires Silicon Valley engineers but argues that it creates no taxable nexus because it is a separate company and not itself a retailer. The new law makes this impossible. Amazon, of course, is suing.

Once upon a time, policymakers justified online sales tax exemptions on the grounds that e-commerce was an “infant industry” entitled to a break. The infant is now grown: online sales are now almost $200 billion. Soon, a majority of all media (books, movies, music, games) will be purchased online and the online share of many other retail categories will exceed 20%.

Amazon’s policy is narrow and short-sighted. Instead of building a finely tuned sales tax evasion machine, they should help shape a level playing field. Instead of crippling the tax base of states, they should lobby Congress for a national tax on interstate sales. This tax would only apply to goods shipped across state lines — something the commerce clause clearly lets Congress legislate. The taxes would be collected federally but rebated to states according to the ship to address. This would be the first step in rationalizing consumption taxes to actually tax buyers instead of sellers. Amazon could ask for two tax exemptions: for downloaded digital media because it is essentially a service — you cannot resell digital goods as property. Second hand items would be exempt, as they are in many states already, on the grounds that they were taxed once already.

Amazon is not going to do this, so citizens should. We could design the interstate tax as an education tax to build political support. Of course, any such measure would require Congressional tax leadership, a complete oxymoron at the moment. Amazon has effectively made a large business bet that Congress will be unwilling to enact a national consumption tax. But if national retailers and states combine to lobby Congress for a national sales tax on goods shipped across state lines, they have a powerful argument leveling the playing field and closing the loopholes that Amazon has invested far too much IQ figuring out how to exploit.

Besides, Amazon does not need a tax advantage in order to succeed. The company has a built a powerful brand by offering customers a great selection, a fine shopping experience, convenience, and low prices. The low prices are not simply the result of not charging taxes — they are the result of a much more efficient delivery system. Amazon has overhead that is radically lower than retailers like Home Depot, Barnes & Noble, or Sears. Amazon customers are not going to stop shopping online because they have to pay the same sales tax they would pay at the local store. With public pressure for Congressional leadership, Amazon will quickly figure out that the cost of collecting sales taxes is trivial relative to the cost of being branded the nation’s number one tax evader. If ever there were a time for retailers to organize a campaign to boycott Amazon, it is now. Independent booksellers should be especially easy to mobilize, since most are terminally ill and have nothing to lose.

Amazon is is rightly admired by consumers, investors, and business partners. It is suicidal for them to risk this reputation by becoming a poster child for tax evasion. With states struggling to finance basic health and education services and tens of billions of revenue dollars now at stake, Amazon should send a message that it is a public-spirited brand.  It owes us, and itself, a much higher standard of corporate citizenship.

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If the global financial collapse has a silver lining it’s the Vanity Fair accounts by Michael Lewis of how three different European countries responded to the meltdown. We can only hope that Lewis adds to these reports and turns them into another best-selling book.

Lewis (Liar’s Poker, Moneyball, The Blind Side, The Big Short) is a genius who is studied by every serious business writer. A local guy who finds drama and comedy in high finance and sports. Lewis is funny and astute. He exposes fools with a touch so deft that they become his friends. The man appears incapable of producing a dull paragraph. 

In his Euro DisasterLand trilogy, Vanity Fair serializes Lewis’ accounts of the financial collapse of Iceland, Greece, and Ireland. In each country, cheap and unregulated money created a very different disaster. In each case, Lewis notes, “An excessive faith in free financial markets led people to be allowed to do things with money they should have never been allowed to do.”

• <Wall Street on the Tundra> describes how a group of Nordic Alpha Males pretending to be investment bankers looted and wrecked the economy of Iceland, which is now run mainly by women. 
• <Beware of Greeks Bearing Bonds> tells of Lewis’ visit to a wealthy monastery to meet monks who exploit the uniquely Greek combination of extremely generous social services and rampant tax evasion.
• <When Irish Eyes are Crying> Lewis finds a housing bubble which is a parody of the US experience. Without a single derivative, the Irish bid their real estate to spectacular levels and dump the full cost of the resulting bank collapse onto taxpayers.

Lewis brings an innocent eye to these stories of nations seized by financial foolishness. It helps that he does not have a deep background in these countries. As he did in The Big Short, he meets people who saw the crisis coming (an in some cases profited from their insight).

Lewis is of course anything but innocent. Having documented the foibles of his reckless co-workers who traded bonds for Salomon Brothers, exposed the fact-averse pretenders who ran baseball teams, and shamed willfully blind US regulators, rating agencies, and derivatives investors, he knows that the story will end badly. You know it too, but you press on because, like any mystery novel, you want to see the bad guy go down. 

Unfortunately, in matters of global finance, the victims are not always the bad guys. Lewis asks who, when the dust finally settles, pays for all of this foolishness? Iceland seems determined to bootstrap its way back by rebuilding its banks. Greece, a nation that appears even less numerate than our own, looks to be in complete denial. Ireland, astonishingly, elected to impose the full cost of brain-dead banking on its taxpayers — for now. 

This will be a fine book — but it’s not worth the wait. If you have not followed the Euro DisasterLand trilogy, chase the links and treat yourself to some of earth’s finest business journalism.

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Towards the end of last year’s hit movie, The Kids are All Right, Nic and Jules (Annette Benning and Julianne Moore) drop off their daughter Joni (Mia Wasikowska) to begin her freshmen year at an attractive, unnamed college. The campus was gorgeous — its stately buildings and lawns captured the promise of a nourishing and provocative undergraduate experience.

Although it received no mention in the film’s dialog or credits, the scene was shot on the campus of Mills College in Oakland. I recognized the location only because I had visited the campus just a few hours before seeing the movie. The campus is five minutes from my house and I married a professor, but this was only my second visit to Mills in three decades of living in the Bay Area.

Mills College is a hidden treasure that gets little recognition on screen or off. The school is a stranger to Silicon Valley and unknown to residents of Northern California outside of its passionate alumnae. This group includes several accomplished Bay Area women (and Dave Brubeck, since the graduate fine arts program admits men).

The college recently named a new President, Alecia DeCoudreaux, a Wellesley grad who brings a first-rate business, legal, and nonprofit background to her work. She may prove to be an inspired choice because she is better equipped than most academics to help Mills find three important things that it currently lacks: 

• A renewed raison d’etre. Women’s colleges survived secularization, discrimination, and patronization. But what is the role of an all-women’s college when the average US campus is 60% female? 
• Money. Mills subsidizes the cost of its degrees, but is dangerously under-endowed compared with peer institutions.
• Partners. Nearly every other national women’s college participates deeply in academic consortia with adjacent colleges, allowing women access to a full range of courses and to men as an elective in social and academic settings.

The Landscape

Because most US colleges and universities were all male, women’s colleges arose more out of necessity than preference. Once all-male universities began to admit women, most women’s colleges began to admit men. As a result, women’s colleges today are strongest in countries whose major universities exclude women. Japan has more than seventy women’s colleges. India has more than sixty. Canada, in contrast, has one all women’s college left, Australia has two, the UK has ten and continental Europe appears to have no remaining secular women’s colleges.

During the past two centuries, more than 140 women’s colleges have closed their doors, more than 90 have gone co-ed (and at least a half dozen have done both, occasionally more than once). Only ten women’s colleges in the US went co-ed prior to World War II – but at least 34 took this decision in the sixties and seventies as women entered higher education in force. 

My own family illustrates the trend towards co-ed schools. My grandparents met at Pomona College in the 1920s at a time when most colleges were still all male. Pomona had been founded as a co-ed college 1887, but while my grandparents dated and married in the campus chapel, Claremont established Scripps, an all-women’s college. By the time my mother attended Pomona in the late 40s, the Claremont Colleges had started an all-men’s school thanks to the surge of GI Bill funding. My mom’s college roommate was Panzy Pitzer, whose family endowed another Claremont College that was, for many years, a second all-women’s school. Pitzer became co-ed the year I applied to Pomona in 1970. CMC renamed Claremont-McKenna, followed suit in 1976. Likewise, my in-laws attended segregated colleges (Harvard and Radcliffe) that are now merged and co-ed and my wife was in the first class of women at Williams College in the 1970s.

My daughters, had I managed to produce any, would not recognize the campus of their ancestors. Women in the US today make up 60% of college students. Women earn higher grades than men and graduate in higher numbers. Among older students, low-income students, and black and Hispanic students, the student body is even more predominantly female. Indeed, Mills or any other university that wishes to advance black and Latino education needs to focus on the poorly understood and rarely articulated needs of men. 

Now that men’s colleges have all but vanished in the US (we are down to one, by most counts), only sixty US  women’s colleges remain. More than a third of these are Catholic schools. Another 20+ are regional schools (many vestiges of “finishing schools” that were common in rural America, especially the antebellum South).

Success as a 21st Century Women’s College

Nine secular women’s schools in the US can credibly claim national reach: the five surviving “seven sisters” (Barnard, Bryn Mawr, Mount Holyoke, Smith, and Wellesley), all founded in New England between 1837 and 1889, plus Scripps, Simmons, Spelman, and Mills. Seven of these nine schools have substantial endowments. Eight of the nine participate in meaningful academic consortia. Only Mills does neither.

The chart on the left shows the respective endowment of leading women’s colleges, normalized for undergraduate enrollment (unlike most sisters, Mills has graduate programs, so the comparison is even worse for Mills using total enrollment). For a college the size of Mills, a smaller endowment translates directly into higher pressure on annual fundraising campaigns, since Mills provides more than 90% of its students with financial aid, which totals about $15m annually.

The second disadvantage facing Mills is its relative academic isolation. As the table below illustrates, most national secular women’s colleges participate closely with adjacent colleges. This involves much more than cross-registration for classes. Consortia schools share libraries, divide specialized departments, train faculty, engage the local community, and provide a range of common services. As important, women in consortia schools are able to interact with male students academically and socially at whatever level they judge optimal.  Mills serves women for whom the, optimal level of contact with men is fairly low — and I imagine that many women at Mills learn more and learn better as a result. The challenge for Mills is that the battle for female educational equality is won and then some. It must now bet its future on women who need more than 60% of their classmates to be female. 

Future

What should Mills do? Here are three interesting scenarios.

1. Straighten up and go co-ed. Bad idea and in any case  off the table after a passionate strike successfully reversed a decision by the trustees to do this in 1990. But Mill has a gorgeous campus, a proven ability to attract a capable teaching faculty, and to build a very engaged and passionate alumnae network. Can this group raise money for Mills? Yes, with continued focus and renewed leadership, it can. Stronger ties to Silicon Valley would not hurt, but the school might need to muzzle its proud anti-corporate ethic to achieve this. Appointing a President who is a former drug company executive is a solid start.
2. Stay the course. Mills can try to remain a proudly idiosyncratic gem that caters to women for whom 60% female is not female enough. It’s a tough group to bet on, since it is not a group that seems likely to grow as the years pass. On the other hand, it doesn’t need to grow, since nobody is going to start another women’s college. Mills may want to simply continue to provide women with an undergraduate experience that they are proud of and willing to support. This limits the scope of innovation available to the campus, but the kids are all right and hidden treasures are treasures nonetheless. 
3. Build the consortium. Can Mills overcome the lack of a meaningful consortium and rival Scripps as a premier west-coast women’s college? Yes, but only if it takes on the Claremont Colleges, not just Scripps. This implies two big changes: a focus on undergraduate education and a commitment to diversity that draws more from Oxford than from Oakland.

Mills should phase out its business and education programs. The business school is a comic disaster: architecturally and pedagogically barren and economically unnecessary. The education school is renowned, but pointless. Plenty of research demonstrates that if you want a better history teacher, you teach them history, not education. Ed schools simply do not produce better teachers. 

Instead of graduate programs, DeCoudreaux should build a three school version of the Claremont Colleges: convert the Lokey Business School to a high quality co-ed but heavily female science and technology school, where a focus on women makes a lot of sense. The school should rival Harvey Mudd. Endow it with Valley money from technologists who value this sort of training (Andreesen College, anyone?). Then turn the Ed School into a large, high quality, fully co-ed college to rival Pomona. The schools would share a range of services from libraries to placement, social events, and faculty development. Mills would be enhanced as a fully competitive, high quality all-women’s school. In twenty years, Mills would rival not only Claremont, but the surviving sisters. Hard to see that happening any other way. 

Mills has a choice, not between women’s vs co-education but between being a tiny university with underfunded graduate programs and group of a very high caliber colleges focused on outstanding undergraduate education. From here anyway, it’s clear which direction Mills should go.

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For good reason, California never shared my enthusiasm. Diesel engines coughed up a lot of particulate, which ended up suspended over Los Angeles, especially near the ports, where hundreds of trucks would idle for hours waiting to load and unload. In many areas, including Oakland, asthma rates near the port skyrocketed.

Europe didn’t mind a bit of soot. Partly because Rudolf Diesel was European, (born in France to German parents who fled to England) diesel was very well established in Europe by WWII, a war fought almost entirely with diesel engines on the ground, air, and seas. 

After the war, European cities often stank of diesel fumes from trucks, trains, and cars. Diesel is significantly cheaper to refine than gasoline (although the economics of limited distribution means it often costs no less in the US).

Soon the EU required that cars with engines bigger than two liters of displacement run on diesel. Today 60% of all cars in Europe are diesel, compared with 5% in the US. Over time, the EU forced diesel to clean up its act — reducing permitted particulate from 50ppm to 10ppm since the 1980s. The forthcoming Euro 6 standard meets California emission standards, which are among the highest in the world. Diesels in both the EU and the US now burn almost exclusively ultra low sulfur diesel and unlike clean coal, clean diesel is actually very clean.

The result of our different histories makes a visit to Europe torturous for American dieselheads. The roads are full of practical, attractively priced German and even French and Italian diesels. The BMW 520d, for example, is a spacious sedan or wagon that gets better gas mileage than a Toyota Prius — more than 50 miles per gallon. But you cannot buy a 520d in the US — only a 335d, which is a smaller car with a racer’s engine. Any Series 5 BMW sold in the US gets half the mileage of a 520d — if it is going downhill with a stiff tailwind.

To date, German carmakers have introduced diesel into the US only for vehicles that are either very big or very small. BMW carries the compact 335d and its SUVs; Mercedes offers the E320 or an SUV for about the same $60k price. Both have cramped rear seating and are chock full of fiddly gadgets that cost a lot to fix (heated windshield water for your rain-detecting wipers, anyone?). Audi sells the miniscule A3 in diesel as well as the overpowered Q7 SUV. 

Which leaves Volkswagen, Audi’s parent and my favorite car company. Most people know that Volkswagen was founded during the Third Reich. Fewer people know is that it was the Nazi trade union, the German Labor Front that developed plans for an affordable car and pressed Adolf Hitler to back it. At a time when the average German rode motorcycles, not cars, the union persuaded Hitler to sponsor a “Volkswagen” program. Hitler dictated that a “People’s Car” had to be able to carry two adults and three children at 100 km/h.

Hitler also backed an innovative scheme to make the cars affordable. Early VWs cost about 30 weeks income for the average German worker. The program enabled people to buy a VW by saving for it over four years and earning interest, not by borrowing and paying interest. (Germans learned to hate debt when the Wiemar Republic collapsed and hyperinflation helped usher in the Nazis). The slogan, still recalled when I lived in Germany in the late sixties was “Fünf Mark die Woche musst Du sparen, willst Du im eigenen Wagen fahren” — “You must save Five Marks a week if you want to drive your own car”. More than 330,000 people eventually paid into the Volkswagen program (VW reportedly repaid unclaimed deposits after the war).

Hitler built an all new factory for VW in what is now Wolfsburg and chose a famous Mercedes designer, Ferdinand Porsche, to design the car. Porsche and his engineers delivered an air-cooled, flat-four, rear-mounted engine housed in a distinctive round shape vehicle that emerged from his pioneering use of a wind tunnel to reduce aerodynamic drag. Porsche went on, of course, to found a legendary sports car company, which used many VW components over the years. It seemed only fair two years ago, that Porsche bought control of Volkswagen.

By rights, VW should not have survived World War II. It’s factory had been bombed and the Allies limited Germany to rebuilding only 10% of its former car industry (the logic of this was obviously political, not economic).

But Wolfsburg was in the British zone, and the British Major in charge, Ivan Hirst, discovered that much of VW’s machinery had survived the war. Attracted to the car’s clever design, Hirst organized and helped finance the resumption of production. He exported to Britain the first Beetles, as the cars were soon known. Today, Hirst is credited with saving Volkswagen.

By the early 1950s, sales of VWs were growing rapidly in North America and became a symbol of a new Germany. Success was due in part to a new factory in Canada and to the clever and stylish advertising campaigns by Helmut Krone and the upstart New York agency of Doyle, Dane, Bernbach.

By the 1960s and 1970s, VW busses and bugs had become powerful symbols of independence and even dissent for young people who bought the cars in droves. Many of us drove our bugs or buses until the engine died (the #3 cylinder never cooled well and always went first). No matter – you could rebuild the engine yourselfusing a hand illustrated book published by a hippie named John Muir (who took the remarkable step of assuring women that they were up to the task. Many discovered that they were). We developed a strong emotional attachment to Volkswagens that in my case has been reproduced by only one other large company — Apple. I have long suspected that Steve Jobs once owned a VW. 

VW pioneered not only a people’s air-cooled gas engine, they pioneered diesel technology as well. VW has sold more than 50 million vehicles powered by the company’s innovative TDI (Turbocharged Direct Injection) engine. Diesel engines are 30% more efficient than equivalent gas engines and emit fewer greenhouse gases. According to the Environmental Protection Agency, four of the ten most fuel-efficient vehicles available for sale in the U.S. in 2004 were powered by Volkswagen TDI engines.

I vividly recall driving a Passat TDI in Italy for six weeks in 2003, the year that VW introduced diesel engines. The car was fast, strong, and quiet. It got 40 miles/gallon (100km on a little more than 5 liters) even with luggage, kids, and hills. It was a stunning vehicle and nearly a decade later cars with a TDI badge populate every street in Europe and are common in South America, or Asia. 

I began dropping by VW every year or two to see when I could get one. But VW and Audi introduced diesel to the states only in very big cars and very small ones. The Jetta came with a TDI, bu was so small that I had to slouch to fit in it — not great for driving. And with large teenage boys, the back seat was a nonstarter.  

Until this weekend.

When my mechanic advised me that the continually flashing lights meant that my Audi wagon needed more work than it was worth, I paid another visit to VW. Again I tried sitting in the 2010 Jetta TDI Sedan and Sportswagen — a sweet design. I tried lowering the driver’s seat all the way and tipping the seat way back, but my head still smacked hard into the roof. I tested a car without a sunroof — slightly better, but the back seat was a disaster.

Then the sales guy said “instead of the 2010, try the 2011 Jetta – they made it a lot bigger”.

What!? It turns out that VW sized the 2011 Jetta for Yanks. It is 3″ longer and a half inch wider, but it they lowered the seats and made remarkable use of the added space.  (For 2011, the Jetta has to fill in for the Passat, which is being redesigned for assembly in Chattanooga, Tennessee and was just relaunched for 2012).

VW will finally offer the TDI engine, but in the meantime, the 2011, sixth generation Jetta is all grown up. It has a massive trunk and back seat — both bigger than the 2010 Passat, Camry, or Accord. It comes with the same 2.0 TDI engine that got me 40+ miles/gallon while tearing through Italy. And unlike my Audi wagon, VW sells the car with a manual transmission. 

Within 3 days, it was Auf Wiedersehen, Audi. I found a mechanic to hook up a PC and disable the annoying electronic beeps and chirps. Once the Jetta was jailbroken, I re-badged it from “JETTA TDI” to “JEDI” – which is what they shoulda named it anyway.

The force is with this car – and I have not had that reaction to an automobile since I was 18 and drove my first bug. The 2011 Jetta TDI is strong, precise, capacious, and green. The build and the appointments are good but not luxurious (the stripped down gas Jetta is $15,000 car; with TDI and goodies it’s $23k).

Like many of VW’s best sedans, Jetta is named for a wind — in this case the Jet Stream. (the old Sirocco was name for a Mediterranean desert wind, Golf is from Golfstrom or Gulf Stream, and Passat is German for trade wind). 

With an impressive diesel lineup and a new US factory, VW is preparing to confront the hybrid onslaught. They need to find a new Helmut Krone and bring back the ads because for the first time in awhile, Volkswagen has something to shout about.

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DeLong recently gave his students some well thought out advice: What Econ 1 Students Need to Remember Most from the Course” followed shortly by “What Econ 1 Students Need to Remember Second Most from the Course“. This is a brief, brilliant introduction to economic thinking (and the comments he received are worth a read as well). With the Jamkid home from Chicago and preparing to enroll in its fabled microeconomics course in the new year, it seems fitting to republish it (although the emphasis is mine). Savor the post like a fine glass of wine and perhaps with one.

“Economics”, writes DeLong, “deals with those things that we want but that are “scarce.” We economists care about commodities whenever there are not enough of them for all of us to be satisfied that we have all that we want. Under those circumstances societies then have to–we have to–figure out whether it is worth making more of these scarce commodities. And then, if we do make more of them, we then need to figure out who is going to get to use them.

Where things are not scarce (the air, for example), that is not economics. Where we do not care that is not economics either. Where things are both scarce and where we care, we have the economic problem.

How ought a society to go about dealing with the economic problem? How should we–collectively–decide whether it is worth our while to make more of any particular commodity? And if we do decide to make more of them, how ought we to decide who is going to get to use them?

At this point I need to pause and note two facts about the world. Most scarce things that we care about are “rival.” And most scarce things that we care about are “excludable.” By “rival” I mean the only one person can use it at a time. I am now using this iPad to read my lecture notes. Because I am now using it, you cannot be. By “excludable” I mean that it is relatively easy to keep someone from making use of a commodity. I can keep your cows from eating my grass by putting up a barbed-wire fence.

Because commodities are “rival,” somebody’s use of a particular good imposes an opportunity cost on the rest of society. Because I am using this iPad, there is one fewer iPad for the rest of you to use. My use restricts your opportunities. A good economic system would make me take account in my decision-making of any reduction in your opportunities and resources that might be caused by my actions.

This is where the market economy comes in.

Let us assign each newly-produced commodity a particular person. Call this person the “owner.” Let the owner decide who is going to get to use the commodity. Let the owner exclude all others who from using the commodity. And let the owner charge the designated user he or she has decided upon a “price” for the right to make use of this commodity.

This simple institutional arrangement has a huge number of advantages as societal mechanism for planning and coordinating the production and distribution of scarce, rival, excludable commodities.

It solves the problem of production–what commodities we should try to make more of. Individuals look forward into the future and recognize that others will be willing to pay them high prices for commodities they greatly desire. That gives individuals an incentive to figure out how to make more of those scarce, rival, excludable commodities that are scarcest.

It solves the problem of economizing--of how to get people to economize on their own consumption and not hog too great a share of society’s total resources for themselves. Because they have to pay the owners the prices the owners ask, their eyes may be bigger than their stomachs but their wallets generally will not be.

It solves the problem of distribution–of determining who is going to get to use newly-produced commodities. The owner has an incentive to choose the person willing to pay the highest price–and the person willing to pay the highest price is, in some sense, the person who values it the most, to whom it is scarcest.

Moreover, it solves the problem of coordination: As long as market prices are free to move to equalize quantities supplied and demanded, there does not need to be any huge centralized computer bureaucracy keeping track of everything and making sure that plans add up. The market will coordinate itself.

And it solves the problem of information: In a market economy with commodities with owners, decision-making is pushed out to the periphery of society where people already know what is going on. You don’t need any huge centralized computer bureaucracy collecting and processing information–and where people do discover that there are things that they don’t know but need to learn, why knowledge of something and that somebody else would like to learn it is also a commodity and those who know those two facts are its owners.

It is hard to imagine a simpler institutional framework–owners and prices–that could solve those five problems so very well.

At this point I need to pause and point out a lucky consonance between the requirements of a societal institution for producing and allocating rival, excludable, scarce commodities on the one hand and the psychological propensities of us East African Plains Apes on the other. That we believe that things are ours and that we own them is perhaps not so surprising–it appears deeply deeply engraved in mammalian psychology. Squirrels certainly act as though they believe that they “own” nut-foraging sites. Dogs believe that they “own” bones. We East African Plains Apes, however, not only believe that we own things–we like to give them away. We are animals that solidify our own societal bonds via relationships of gift-exchange. And it is this psychological propensity to engage in gift-exchange–what Adam Smith called our natural propensity to truck, barter, and exchange in such a way that both sides are happy because they feel that they have gained something from the deal–that serves as the underpinning of our market economy.

That is the first thing I want you to remember from this course: The market economy, based on deep human psychological propensities, is an extraordinarily effective societal instrumentality for planning and coordinating the production and distribution of scarce, rival, excludable commodities.

Remember this. Keep it as an active process running on your wetware always. Lay up this idea in your heart and in your soul. Bind it for a sign upon your hand, that they may be as frontlets between your eyes. Teach it to your children when thou sittest in thine house, when thou walkest by the way, when thou liest down, and when thou risest up. And write them upon the door posts of thine house, and upon thy gates: that thy days and the days of thy children–or at least the commodities they own–may be multiplied.

What is the second most important thing for an econ one student to remember? It is how stringent the requirements for any form of “market efficiency” are: how many ways a market economy can go wrong and go badly wrong. I count seven ways that market economies can and do go badly wrong:

First, the market will go wrong if the wealth distribution is wrong. The market judges value by willingness to pay, and the rich are much more willing to pay them the poor, and those without wealth or income have no willingness to pay at all. If your wealth and income are zero, then the market literally does not care whether you live or die–it is of no interest to it at all.

Second, the market will go wrong if commodities do not have the proper characteristics. Remember: rivalry, excludability, and also information–people have to know what they are buying. An absence of or imperfect rivalry–increasing returns to scale in production or consumption of any sort–and the market will go wrong. An absence of or imperfect excludability–free-rider problems of any sort, or any failure of property rights definition or enforcement–and the market will go wrong. An absence of good information about exactly what you are buying or selling–adverse selection or moral hazard problems of any sort–and the market will go wrong.

Third, the market will go wrong if market agents do not take the prices at which they buy and sell as given but rather have some control over the prices at which they transact. The belief that the market is efficient hinges on the absence of market power–as well as on the proper income distribution, and on the proper characteristics of commodities.

Fourth, the market will go wrong if prices do not equalize quantities supplied and quantities demanded at every moment. “Price stickiness” for any sociological or psychological reasons disrupts the market’s ability to function.

Fifth, the market will go wrong if Say’s Law breaks down (MM: I did not take the course, but Says Law says roughly that we will not have failures of either aggregate supply or demand. The market will always clear.) If there is substantial downward pressure on spending on currently-produced goods and services because of an excess demand for financial assets of a kind that the private sector cannot immediately and instantaneously generate on a large scale, then the market will go wrong and we will have a downturn and a depression. If there is substantial upward pressure on spending on currently-produced goods and services because of an excess supply of financial assets of a kind that the private sector cannot immediately and instantaneously shed, then the market will go wrong and we will have a burst of inflation that will disrupt the functioning of the price system.

Sixth, the market will go wrong whenever its prices function as forecasting mechanisms. A proper forecasting mechanism would weigh each individual’s opinion by the precision of his or her knowledge. A market tends on the contrary to weigh each individual’s opinion by his or her wealth. This means that whenever economic processes tend to revert to seem average level that the market is likely to get things wrong, for when prices rise above average those who are optimistic become richer and their opinions carry more weight and so prices tend to rise further above their likely long-run fundamental values. Bubbles and crashes, manias and panics, are thus built into the system.

Seventh, the market will go wrong whenever individuals are bad judges of their own long-term interests–note that I say when, not if. Humans are very bad at assessing and dealing with risk. Humans are not that great at appropriately weighting different conflicting pieces of information. And humans are absolutely horrible at dealing with substances or patterns of behavior that can be addictive.

Whenever the system falls into any one of these seven arenas of psychological, behavioral, or institutional myopia and market failure, the market will go wrong. A good government will put its thumb on the scale in order to offset all of these seven forms of market failure. A great government will have foresight and take care to structure political-economic institutions to make these seven arenas of myopia and market failure as small as possible.

Remember this too. Keep it as an active process running on your wetware always. Lay up this idea in your heart and in your soul. Bind it for a sign upon your hand, that they may be as frontlets between your eyes. Teach it to your children when thou sittest in thine house, when thou walkest by the way, when thou liest down, and when thou risest up. And write them upon the door posts of thine house, and upon thy gates: that thy days and the days of thy children–or at least the commodities they own–may be multiplied.

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Part of the problem is that many technology leaders are neurotic. They need to be: nobody really knows what is going to work and your idea will most likely fail. So we favor CEOs who combine unjustifiable confidence, foaming and often justified paranoia, youth, and an engineering degree. Stir in a large quantity of money and you are more likely to breed a predatory peacock than someone with memorable management insights.

The great exception is Andy Grove, the legendary CEO of Intel, termed by historian Richard Tedlow “one of the master managers in the history of American business.” Many Silicon Valley CEOs are in awe of Grove – and this is not a group that is easily awed. In the early 1990s, Intel was a successful fast-growing public company that had created and dominated the global market for memory chips. Grove stood up and announced that memory chips had become a lousy business, so Intel would abandon it and start selling microprocessors instead. This was like McDonalds announcing that they were quitting the burger business and would instead become a chain of gourmet espresso cafes. They would still be in the food business, but the skills, the product marketing, the branding, the pricing, the customers, would all need to change radically and quickly. Grove pulled it off and, perhaps as remarkably, wrote two classic management books afterwards: High Output Management and Only the Paranoid Survive.  

If Andy Grove has a doppelganger, it is surely Ben Horowitz. Both are foreign-born: Grove is Hungarian; Horowitz is technically a Brit. Grove graduated from UC Berkeley in the early sixties, while Horowitz grew up in Berkeley in the mid sixties. Both have Jewish ancestors in a valley that seldom acknowledges the leadership contributions of those raised Jewish (a quick count would seem to include current or past leaders of Intel, HP, Google!, Yahoo, 3Com, Oracle, Facebook, and Applied Materials). Horowitz joined Silicon Graphics out of college and followed its CEO Jim Barksdale to Netscape, where he went to work for Mark Andreessen, the wunderkind author of the first practical web browser and popular symbol of technology entrepreneurship. Horowitz became Netscape’s first product manager.

After AOL bought Netscape, Horowitz and Andreessen teamed up to form Loudcloud, one of the first companies to host software as a cloud-based service. Horowitz served as CEO. The company was founded on 9/9/99 and went public in 2001. Shortly thereafter, Horowitz had his Andy Grove moment: like memory chips, cloud hosting was quickly becoming commodity. Horowitz sold the managed services operations to EDS in 2002 and focused instead on selling the software that they had developed to run Loudcloud. Enterprise software was a completely different business than managed services, which at the point Horowitz made the change accounted for 100% of Loudcloud’s revenues. Horowitz renamed the business OpsWare, aquired several companies, grew OpsWare to $100 million in revenue and sold it to HP for $1.6 billion in cash. After a stint as a senior VP at HP, Andresseen and Horowitz formed a venture fund and now dispense wealth and wisdom from a nice suite of offices on Sand Hill Road. (They invest in more than startups; among other things, they own a majority of Skype).

Following his hero Grove, Horowitz has taken to the pen. This being 2010, he publishes blog posts, not books. Most posts are truly insightful, sharply written, and prefaced by an epigram from a rap artist or two (a flourish that somehow escaped Andy Grove).

A sample from Ben’s Blog: 

• Why We Prefer Founding CEOs. 

“The technology business is fundamentally the innovation business. Etymologically, the word technology means “a better way of doing things.” As a result, innovation is the core competency for technology companies. Technology companies are born because they create a better way of doing things. Eventually, someone else will come up with a better way. Therefore, if a technology company ceases to innovate, it will die.

“These innovations are product cycles. Professional CEOs are effective at maximizing, but not finding, product cycles. Conversely, founding CEOs are excellent at finding, but not maximizing, product cycles. Our experience shows—and the data supports—that teaching a founding CEO how to maximize the product cycle is easier than teaching the professional CEO how to find the new product cycle.

• Ron Conway Explained 

“… Ron Conway has invested in a huge percentage of the top technology companies in the world, but entrepreneurs often ask me why Ron would be a good investor for them. When I talk to venture capitalists, they know that Ron is important, but they seldom know why. Gary Rivlin, despite writing an entire book on Ron, completely failed to understand what Ron does (which is why the book is so bad and not worth reading). Speaking as an entrepreneur, if I were to start a firm today and could only have one investor, it would be Ron Conway. This post explains why…

“….we were really in trouble because the customer was signing a long-term contract with our competitor later that week. We had already appealed to the President of the division; the only further escalation points were to the CEO or Chairman. We had already tapped out our VC contacts. If we lost this customer, as Alfred dryly pointed out, it was unlikely we’d be able to get our revenue over our fixed costs in any reasonable timeframe. I asked Alfred what about any of our angel investors, so we went through them and none seemed likely to be able to pull this off.

“Alfred said, “Well there is this one other investor, Ron Conway.” I didn’t know Ron at the time, and his investment was quite small. But we had nothing to lose by reaching out. So sometime after 11pm, I wrote Ron and essentially said: “hello, you don’t know me, I’m an executive at a company you’re an investor in, and we need a meeting—in person—with the CEO himself of this Fortune 50 company—this week—and if you can’t make this happen, hey that’s ok, but we may be going down—sorry.”

Ron wrote back in literally 2 minutes and said, in what I have learned is Ron’s distinctive email style (immediate, short, all caps), “AM ON IT.” The next morning, Ron had done it. Tellme went on to win an eight figure contract that led to a nine figure contract. That’s a lot o’ money from a desperate email from someone he’d never met at 11pm.

• Why is it Hard to Bring Big Company Execs into Little Companies? 

“So you’ve achieved product market fit and you are ready to start building the company. The board encourages you to bring in some “been there done that” executives who will provide the right financial, sales and marketing expertise to help you transition from a world-class product to a world-class business. You see a few candidates that you like, but the VC on the board says: “You are under shooting. This is going to be a huge company. We can attract better talent.” So you aim high and bring in a super accomplished head of sales. This guy has run huge organizations with thousands of employees. He has stellar references and even looks the part. Your VC loves him, because he has an awesome resume.

Six Months Later…

“Fast-forward six months and everyone in the company is wondering why the sales (or marketing or finance or product) guy who has produced nothing got such a monster stock option package. Meanwhile, the people doing all the work have much fewer options. Even worse than not getting your money’s worth, now the company is in trouble, because you’ve been missing the numbers as your super expensive executive sits on his butt. What the frak just happened?

Horowitz writes as a guy who has been in enough technology startups and seen them through enough crises and stages of growth that he gets it. He may not have the network of a Ron Conway (although he is in the Conway network, so he automatically does) but he has real pattern recognition when it comes to the aches and pains of growing a technology business. He is worth reading not only for managers in technology companies – but for managers in industries with less competitive pressure as well. He is a huge talent and it is not hard to see why Marc Andreessen chose to go into business with him again. Publishers take note: a business best seller is taking shape before your eyes.

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The culprit was cheap crap from Africa – and it made me smile. One of her grad students, back from a stint in Uganda, had given her a very attractive bracelet, which was making its debut on Independence Day. The indigo dye in the blue beads was water soluble, so after a bit of kitchen work, the beads were bleeding like a leaky pen. 

I smiled because I remember disparaging cheap Japanese crap for a decade starting in late 1950s. Cheap Taiwanese crap followed in the 1970s and we joked about at it for perhaps 3-4 years. Korean crap was only cheap for a year or two. Each country industrialized faster, transferred quality standards and management technology more rapidly, and imposed lower per capital environmental costs than its predecessors. Today, nobody laughs at China — even when it occasionally exports crap.

Finally — finally, Americans are importing our cheap crap from Africa. Thanks to the World Cup, Africa has been on the world stage for the past two weeks. There are good economic reasons for this. Time Magazine reported that in 2006, foreign investment in Africa exceeded foreign aid for the first time. According to the IMF, “sub-Saharan Africa today resembles Asia in the 1980s. The private sector is the key driver and financial markets are opening up.“ In March, the African Development Bank forecast 4.5 percent real GDP growth for Africa in 2010 and 5.2 percent in 2011. Growth is broad-based, with more than 15 countries projected to grow by more than 5 percent in 2010. The IMF notes that “War is down. Democracy is up. Inflation and interest rates are in single digits. Terms of trade have improved”. As a result, growth is taking off. 

Some of this is growth is due to China’s growing need for energy and raw materials. Trade between Africa and China has grown an average of 30% in the past decade and topped $106 billion last year. Chinese engineers help mine copper in Zambia and cobalt in the Democratic Republic of Congo and they help drill for oil in Angola.

But China is not simply another neo-colonial power. In exchange for access to raw materials, China has built roads, railways, hospitals and schools across Africa. Nonetheless, McKinsey reports that a recent study of 24 countries conducted by the African Development Bank estimated that the total cost of bridging Africa’s infrastructure gap over the next decade will be about $93 billion a year, with about 40 percent of this in the power sector alone.

These sums are no longer unthinkable. Almost alone among world economies, Africa has not suffered a recession during the current economic crisis. Fortunately, African financial institutions were too “primitive” to speculate in collateralized debt obligations built on dicey US mortgages. Poor savages.

Africa, of course, is not a simple story or even a single one. 

• Africa is not a culture any more than Asia is. It is home to 14 percent of the world’s population, to more than 1,000 languages and to 53 countries (54 if you accept my eighth grader’s count of teenie Mayotte as separate from tiny Comoros — which I do). About 20 percent of all land on the planet is in Africa (much still unexplored), along with about 30 percent of all mineral reserves.
• Africa remains a continent of commodities — with its forests, oil fields and mines. Commodity prices have fallen since the 90s (as they tend to over the long run in any case). The McKinsey Global Institute just completed a massive study of African economic development and rates commodities well behind consumer goods and near agriculture as an investment opportunity.
• Parts of Africa remain a basket case. Darfur, Somalia, Congo, and Zimbabwe are, along with North Korea, the worst places on earth and run by the worst leaders on earth. But in many other countries, independent courts enforce contracts and property rights, governments are not utterly kleptocratic, and a basic social and physical infrastructure permits rapid and sustained economic growth. 
• African countries can improve. Twenty five years ago, Mozambique, Angola, and Namibia were being torn apart by war. Ghana was lurching from coup to coup. Today the capital of Angola is so short of housing that some surveys declare it the most expensive city on earth — ahead of Tokyo and Dubai.
• Growth affects demographics, which affects growth. The growth economies of Africa are starting to develop an educated middle class. True to form, this group prefers to raise two educated children, not a dozen illiterate ones. A big question for the continent is how long it will take Africa to grow its way to a balanced population. For a perspective on the revolution in first vs third world demographics, consider that in 1950, there were two Europeans for every African. Today, there are two Africans for every European. 

Africa benefits not only from Chinese investment; they also benefit from growing Chinese affluence. With per capita GDP in China already above the world average, China’s days as the low-wage factory of the world are limited. Indeed, China has been shedding manufacturing jobs for the past 3-4 years (and still does not add as much value through manufacturing as the US does, even though we have a third as many people as China). 

But without China, where will our crap come from? Fear not, Africa will soon be the last major low-wage region on the planet. It has an enormous coastline and is actually closer to markets in Europe and North America than China. Just as labor-intensive manufacturing moved from OECD countries to Asia over the past three decades, it will begin to move from Asia to Africa over the next decade. In February, Oxford University economist Paul Collier and Obama Africa adviser Witney Schneidman noted that Africa now offers the world’s highest rate of return on investment. They concluded that: 

Africa, usually the poorest performing region in the world economy, is now likely to be among the best-performing”

But wait. Isn’t this just another example of global capital ruthlessly exploiting cheap third world labor? Yep. Remember: the only thing worse for Africa than being exploited by the developing world is not to be exploited by the developing world. Think of it as Zen economics: a sweatshop can be reprehensible (especially if it keeps a child out of school) and it can simultaneously represent extraordinary economic progress. 

As Stephen Hayes, president and CEO of the Corporate Council on Africa asserts that “Africa offers more opportunity than any place in the world.”  He is paid to say that, but all signs are that Africa can replace China as the world center for low cost production. That day is being hastened by the return from Paris and London of many educated members of the African diaspora. Industrialization may not be pretty, but for Africans, it cannot come soon enough.

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Yunus is in all respects an amazing pioneer who earned his Nobel Prize. I first heard of him when Bill Clinton would scold anyone in earshot that "this guy deserves the Peace Prize". What I had not understood until today was that as Governor of Arkansas in the 1980's, Clinton had persuaded Yunus to help him set up microlending programs in Arkansas. 

Like most Nobel Peace Prize winners, Yunus has plenty of critics and detractors, but what he has done is astonishing. Having earned a doctorate in economics from Vanderbilt University as a Fulbright Scholar, Yunus decided to loan 42 families $27 during the terrible Bangladesh famine. While many of us were paying roughly this price for George Harrison's three-disk Concert for Bangladesh album, Yunus helped women to create small businesses by underpricing the local loan sharks. As a well-trained economist, he believed that the availability of reasonably priced credit would enable women to lead their families out of the pervasive poverty of rural Bangladesh. The loans were part of a research project that Yunus was conducting for the central Bangladesh Bank. 

When the experiment worked, Yunus founded the Grameen ("Village") Bank, which specialized in microcredit loans to rural women to create small scale enterprises. The loans were informal, unsecured, and undocumented. Interest was about 25%, which reflected both the cost of administering small loans and the underlying credit risk. Grameen provided many other services, including higher education loans for the families of borrowers. 

To date, the Grameen Bank has made nearly $10 billion in loans. Most of their capital has come not from deposits but from outside organizations. Early on donor agencies provided most of the capital at very cheap rates. In the mid-1990s, the central Bank of Bangladesh provided funding. Today, part of Grameen is publicly traded and the company sells bonds at above the bank rate. Overseas deposits also provide capital; Grameen now has operations in 43 countries including China, East Timor, Indonesia, India, Lebanon, Pakistan, Philippines, Saudi Arabia, Yemen, Bolivia, Dominican Republic, El Salvador, Haiti, Honduras, Mexico, Peru, Cameroon, Egypt, Ethiopia, Ghana, Morocco, Nigeria, Rwanda, Tunisia, Uganda, and the USA. Grameen has opened three branches in New York and one in Omaha, Nebraska. Yunus announced that they will open a branch in San Francisco and Washington, D.C. soon. (To be sure, the bank extends microcredit to poor American families as well and Yunus denounced pawn shops and payday lenders as "a scar on the face of your nation").

Grameen vigorously promotes a Bengali version of the Protestant ethic with "16 Decisions" that each borrower learns to recite:

1. We shall follow and advance the four principles of Grameen Bank: Discipline, Unity, Courage and Hard work – in all walks of our lives.
2. Prosperity we shall bring to our families.
3. We shall not live in dilapidated houses. We shall repair our houses and work towards constructing new houses at the earliest.
4. We shall grow vegetables all the year round. We shall eat plenty of them and sell the surplus.
5. During the plantation seasons, we shall plant as many seedlings as possible.
6. We shall plan to keep our families small. We shall minimize our expenditures. We shall look after our health.
7. We shall educate our children and ensure that they can earn to pay for their education.
8. We shall always keep our children and the environment clean.
9. We shall build and use pit-latrines.
10. We shall drink water from tubewells. If it is not available, we shall boil water or use alum.
11. We shall not take any dowry at our sons' weddings, neither shall we give any dowry at our daughter's wedding. We shall keep our centre free from the curse of dowry. We shall not practice child marriage.
12. We shall not inflict any injustice on anyone, neither shall we allow anyone to do so.
13. We shall collectively undertake bigger investments for higher incomes.
14. We shall always be ready to help each other. If anyone is in difficulty, we shall all help him or her.
15. If we come to know of any breach of discipline in any centre, we shall all go there and help restore discipline.
16. We shall take part in all social activities collectively.

It would be interesting to hear how these decisions evolve in different countries, but you have to imagine that the recent financial crisis might have been reduced had our bankers practiced "solidarity lending" backed by a borrowers' pledge to "minimize expenditures and collectively undertake bigger investments for higher incomes". 

Grameen requires each borrower to not only recite the 16 decisions regularly, but to belong to a five-member borrower's group. Neither the group nor its members have joint liability —  they don't guarantee each other's loans. Grameen insists that each loan is an individual member's responsibility. But group members often help out those at risk of default because Grameen has a policy of not extending new credit to anyone in a group with a member in default. The groups also create emergency reserve funds, not unlike the tradition of tanomoshi in some Japanese and Okinawan families or Mujin in Korea (it is no accident that Grameen is absent from both of these countries). 

Yunus did not discuss these principals or anything else about solidarity lending even though both are at the core of his approach to microcredit (but hey, he is crowding 70 and this was his eighth city in ten days). One can only imagine being in a borrowing group with someone earning $20/hour who announces his intention to borrow $700,000 for a new home (as happened more than once during the housing credit bubble). When banks are sworn to responsibility along with their borrowers, nobody should be surprised that things work a lot better (Grameen appears not to have felt the financial crisis). I would love to have heard Yunus speak candidly to the question of whether groups of poor women are better credit risks than groups of poor men, but his life testifies to the answer.

Yunus also avoided discussion of microlending default rates (maybe this was his polite payback for the Commonwealth Club twice asserting that he had received the Nobel Prize in Economics instead of the Peace Prize). In truth, lending to poor people is risky (hell, lending to rich bankers is risky — just ask the Federal Reserve). Grameen says that its payback rates are over 98 percent, but in 2001 the Wall Street Journal claims that a fifth of Grameen's loans were more than a year overdue (both statements are unlikely to be true unless Yunus insists that the old loans will eventually be repaid — as US banks do when they wish to avoid marking down their toxic assets). Besides, if default rates are really only 2%, how does Grameen justify 25% interest rates? Another mystery: Grameen Bank is 94% owned by its poor borrowers, most of whom are women. Why aren't the depositors the owners? They are bearing the risk. Or does the 25% interest rate include an implied warrant?). 

Grameen has expanded well beyond banking. They initiated a hugely popular Village Phone Program, through which women entrepreneurs can start a business providing wireless phone services in rural areas of Bangladesh. By serving as the local payphone, thousands of women have built businesses that not only raised their families from poverty but improved the ability of small farmers to discover price information and other critical market news that was previously not available. The Bank now sponsors more than twenty additional enterprises in energy, telecom, education, fisheries, software, internet access, knitwear, and fashion. Then there is the Grameen Struggling Members Program, which targets desparate, homeless beggars (not a priority segment in traditional commercial banking, I assure you). Basically, the bank turns beggars into sellers of trinkets, which is a step up in both livlihood and self respect. These loans are tiny ($10) and about half default, but still… 

Today Grameen has more than eight million borrowers, 80% of whom are women. They loan $100 million dollars every month and the average loan is now $200. More than 50,000 children of poor women are today in college thanks to the student loan program. But w

ill Bangladesh have jobs for these college graduates? Yunus reminds them that this is the wrong question — they are the job creators. 

"Money is not the problem. Come up with good ideas for businesses that solve important problems and we will get you the money. 

"Remember", he admonishes the children of once destitute women, 

"your mother owns a bank".

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