Jim Moore’s blog: Innovation, Strategy, Public Policy

What the Bubble Got Right, by Paul Graham

September 30th, 2004 · Comments Off

You have to love Paul Graham–this is one of the most thoughtful pieces I’ve seen on “the bubble”
as well as on how social movements deeply change society.  This is
also the sort of paper that is very effective when published on the
Internet–and such papers are part of how the Internet is changing
society. 
The Second Superpower
does thoughtful analysis and reflection, and recognizes it when it sees
it.  The Second Superpower struglles to know itself, in order to
be more effective.  The reason this paper is powerful, methinks,
is because it helps us recognize things about ourselves that we want to
keep doing, and improve upon.  And these things are difficult to
identify clearly without contributions like this paper.  By the
way, this recursiveness is reminiscent of LISP, a language Paul has worked in and continues to develop with Arc.  Ah, plays within plays within plays.


Here is my favorite excerpt from the paper:

face=”arial, helvetica”>Notice, though, that even with all the fat trimmed off its market
cap, Yahoo was still worth a lot. Even at the morning-after
valuations of March and April 2001, the people at Yahoo had managed
to create a company worth about $8 billion in just six years.

The fact is, despite all the nonsense we heard
during the Bubble about the “new economy,” there was a
core of truth. You need
that to get a really big bubble: you need to have something
solid at the center, so that even smart people are sucked in.
(Isaac Newton and Jonathan Swift both lost money
in the South Sea Bubble of 1720.)

Now the pendulum has swung the other way. Now anything that
became fashionable during the Bubble is ipso facto unfashionable.
But that’s a mistake– an even bigger mistake than believing
what everyone was saying in 1999. Over the long term,
what the Bubble got right will be more important than what
it got wrong.

1. Retail VC

After the excesses of the Bubble, it’s now
considered dubious to take companies public before they have earnings.
But there is nothing intrinsically wrong with
that idea. Taking a company public at an early stage is simply
retail VC: instead of going to venture capital firms for the last round of
funding, you go to the public markets.

By the end of the Bubble, companies going public with no
earnings were being derided as “concept stocks,” as if it
were inherently stupid to invest in them.
But investing in concepts isn’t stupid; it’s what VCs do,
and the best of them are far from stupid.

The stock of a company that doesn’t yet have earnings is
worth something.
It may take a while for the market to learn
how to value such companies, just as it had to learn to
value common stocks in the early 20th century. But markets
are good at solving that kind of problem. I wouldn’t be
surprised if the market ultimately did a better
job than VCs do now.

Going public early will not be the right plan
for every company.
And it can of course be
disruptive– by distracting the management, or by making the early
employees suddenly rich. But just as the market will learn
how to value startups, startups will learn how to minimize
the damage of going public.

2. The Internet

The Internet genuinely is a big deal. That was one reason
even smart people were fooled by the Bubble. Obviously
it was going to have a huge effect. Enough of an effect to
triple the value of Nasdaq companies in two years? No, as it
turned out. But it was hard to say for certain at the time. [1]

The same thing happened during the Mississippi and South Sea Bubbles.
What drove them was the invention of organized public finance
(the South Sea Company, despite its name, was really a competitor
of the Bank of England). And that did turn out to be
a big deal, in the long run.

Recognizing an important trend turns out to be easier than
figuring out how to profit from it. The mistake
investors always seem to make is to take the trend too literally.
Since the Internet was the big new thing, investors supposed
that the more Internettish the company, the better. Hence
such parodies as Pets.Com.

In fact most of the money to be made from big trends is made
indirectly. It was not the railroads themselves that
made the most money during the railroad boom, but the companies
on either side, like Carnegie’s steelworks, which made the rails,
and Standard Oil, which used railroads to get oil to the East Coast,
where it could be shipped to Europe.

I think the Internet will have great effects,
and that what we’ve seen so far is nothing compared to what’s
coming. But most of the winners will only indirectly be
Internet companies; for every Google there will be ten
JetBlues.

Tags: Economics and cybenetics

Swing voters, or non-voters?

September 30th, 2004 · Comments Off

It seems obvious to most political commentators that focusing on swing
voters in swing states makes sense.  These people are going to
vote.   They are looking for input to their choice  In
our electoral-college-dominated process of national presidential
elections, these voters seem to hold the only key to success.

But consider this:  Non-voters make up about half of the
electorate. Studies of young people who are non-voters show that they
are often quite civically engaged–they volunteer time, they join
values-and-faith-based organizations, and they even contribute
money.  Perhaps this is true of many non-voters of all ages. 
Perhaps non-voters care very much about the nation, and about the
future, but they find no reason to vote or participate in electoral
politics.

Swing voters are about %5 of the total potential electorate nationwide, and non-voters are about %50.

Does anyone else see an opportunity?  If just %10 of the
non-voters became voters, their numbers would equal the current swing
voters.  If %20 of the non-voters became voters, we would have an
electoral revolution.  Hmmm.

This is a lot of people to influence, but on the other hand, the
behavior change we are asking for is not difficult.  It involves
filling out a small form in advance of election day, and then filling
out another form–an absentee ballot–or spending a few minutes in a
neighborhood poling place on election day.  We are not asking
folks to give up smoking, or even to use seat belts regularly. 
Physically, we are asking for a small change.

The current national campaigns of Republicans and Democrates together
are on track to spend about a billion dollars this round.  Most of
this expenditure has been focused on re-assuring swing voters that all
candidates share the same “center” position on issues, and then seeking
to differentiate these highly similar candidates in order that some can
defeat others.

Does any else see the contradiction here?  As a marketing manager,
how would you like to have the job of simultaneously convincing people
that Bud lite is just like Miller lite except that Miller light is evil
and Bud light is good?  Hmmm.

The two parties have just spent a billion dollars doing just
that.  For the first time in history, Democrats have spent almost
as much as Republlicans–but it has been spent likening and then
differentiating Bud from Miller.  Are we surprised that no headway
has been made?  Are we surprised that many citizens are confused
by the message?

What would have happened if Democrats had gone after the non-voters
with an authentic message and with creative approaches to our most
important problems? What if Democrats had invited people in?

Howard Dean and Dean for America did engage non-voters and turned many
of them into activists.  Our message was “you have the power.”
While we had our internal failings, the Democratic establishment killed
us. They killed in large measure by redesigning the primary process to
give extraordinary   power to Iowans.  This reward
campaigns that were focused on anything but the non-voter.  In
Iowa, the caucus process puts up a very high barrier to polical
participation–one that is daunting to most Iowa voters, and much more
to non-voter.  In Iowa a small group of very active
politicos–those who are willing to spend several hours on a cold
January night arguing publicly for their candidate–prevail. And these
active politicos represent members of  a rural state with an
aging, declining population.  Iowans are nice people–I grew up in
Cedar Rapids–but they are very different in lifestyle, age, and values
from most people in the rest of the nation.

The Democratic party took the candidate that won Iowa–that won with
hard-core Democratic activists in a rural state–and planned a program
to go after middle-of-the-road swing voters in states ranging from
Florida to Maine, to Ohio to Washinton State. 

This campaign ignored by design most of the nation–including
non-voters.  It ignored “red states” as unwinable, and ignored
“blue states” as unloseable. 

The Democratic campaign’s strategy was to spend massively on a few
states–in order to win a large share of the small numbers of swing
voters.  Unfortunately, these swing voters were also targeted by
an even more powerful Republican campaign, on behalf of a sitting
president.  Democrats attacked a defended hill, and found
themselves in a war of attrition where neither side would win a
decisive victory.

I would have prefered to attack the undefended hill, particularly given
that the hill of non-voters is ten times larger than that of swing
voters.  I would have preferred to spend heavily to engage a small
share of this much, much larger population of non-voters.  I would
have prefered to flank the Republicans by engaging with citizens that
they too have ignored.

As a strategist, I believe such a strategy could have won the
election for Democrats.  Perhaps as importantly, this strategy would have
advanced citizen empowermennt, dialogue and political participation in
the country.  Win or lose, this initiative would have improved our
democracy.  Win or lose, this initiative would have improved our
party.  We would have created in the Democratic party the ability
to speak to new people, the ability to bring non-voters in and include
them, and the ability to learn from these people new ways to address
the challenges facing our country.  All of these things, by the
way, were at the core of the capabilities being developed in the Dean
campaign.

Even if the Kerry Democratic campaign succeeds, its strategy has left
out most of the electorate.  It has left out the “base” of the
Democratic party, which is to the left on the conventional
spectrum,.  It has left out the larger number of non-voters–who
live on spectra the Democratic establishment has not even tried to
understand.

Leaving out people is a poor way to prepare the ground for
governing.  Little relationship has been made with most citizens.
Yet political engagement is at the heart of what a democracy requires,
not only to pick leaders, but to be willing to follow them.  Tough
choices always have to be made by leaders, and people must be moved to
contribute to making these choices successful. Being left out of the
electoral process does not encourage such later participation.

Tags: Presidential politics

Kerry’s last stand

September 30th, 2004 · Comments Off

Tonite seems to be critical to John Kerry’s campaign.  Or more
properly, tonight plus the next three days of spin will be vital. 
Kerry is far behind in electoral votes, his candidacy has not generated
excitement, and his message is unclear to most voters. 

I support John Kerry for president.  Unfortunately, the John
Kerry I know is not the one that has come through in this sad
campaign.  The combination of the Kerry Campaign’s drive to the
right and focus on the mythical swing issues of swing voters in swing
states–combined with well-targeted Republican attacks, has turned John
into a national caricature of himself. 

Tonight is John Kerry’s historic opportunity to show himself as he
really is.  Tonight is his time to show his true “being” and not
his “doing.”  Tonight is his time to make the case for
intelligence and honesty and care–real care backed by analysis rather
than ideology.  I truly pray he achieves this tonight, that the
American people resonate with him, and that the news media–feeling
this resonance–are willing to give it its day.

I have met with John Kerry and talked with him directly about difficult
issues, including his support for the Iraq war, with which I strongly
disagreed.  On the other hand, we have talked about intellectual
property rights and innovation policy, about bridging the global
digital divide and supporting human rights, and about helping the
capital markets correctly evaluate environmental risks facing companies
and thus reward good stewardship.  On these issues we largely
agreed–yet because John is smart and honest he carefully explored the
places where we differed.  This is a man who is willing to ask
tough questions, who is willing to challenge his allies, and who tries
to be guided by facts and reflection.

The John Kerry I know is lightning smart, courageous, and creative. For
example, John Kerry called me one day in 2001 and asked, “What would it take to buy out the coal industry?”  This
was a serious question.  Sometimes it is in the national interest
to have a particular industry slow down or shut down, and in a
capitalist society the way to do that is by buying out the companies
and the jobs involved.  For example, this year the US quietly and
for billions of dollars, bought out the tobacco industry.  Sweden
bought out shipbuilding many years ago, and retained the jobs in the
auto industry.

Slowing down the coal industry for a few years might have very positive
effects for the US.  It would reduce the plague of acid rain that
has ruined lakes across America.  It would save the coal for
future generations, when it will be needed to replace
diminishing oil supplies, and when technology will be available to burn
the coal cleanly and efficiently.  It would stimulate the
development of energy conservation and alternative energy.  It
would accelerate business development in the energy field, and might
set the stage for US global technology and product leadership in this
important future industry. This general argument, for the long-term
industry and job creation payoff of envoronmental investments, has been
convincingly made by Mike Porter of the Harvard Business School. 
Finally, slowing the coal industry would
also be a huge plus for the environment of the coal-producing
region, allowing healing and regeneration of the regional
ecosystems. 

I made some quick calculations.  The coal industry is concentrated
among a few big players. The approximate cost to buy out the companies
was $7 billion, and the cost for severance and retraining people for
new jobs, estimated to equal total industry wages and benefits for one
year, was another $7 billion.  So for about $15 billion or so, one
might make this bold intervention.  Interestingly, just prior to
George W. Bush becoming president, the combined market capitalization
of the largest coal companies was closer to $3 billion.  The
capital markets more than doubled the value of the industry with the
installation of a Republican president.

$15 billion dollars is a lot of money.  Energy costs would also
rise temporarily across our economy.  But in the long run, an
energy policy based on buying out the coal companies might generate
powerful benefits for out nation.  The direct cost would be about
that of the “Big Dig” road and tunnel project in Boston.  The Iraq
war has so far cost 13 times as much, and may have fewer long-term
benefits, and more long-term costs.

Now I want emphasize that John Kerry in 2001 was not yet anywhere near proposing
buying out the coal industry
as policy.  He was exploring options, he was testing visions.  What is terrific is that John was doing a bit of
creative big thinking, and asking
friends for their help in fleshing out the idea to the point where
it might be serously considered.  And overall, what he was mulling
about was how to save the environment and establish long-term
conditions for American leadership. 

This is the kind of creative long-range thinking that our country needs
on a whole range of issues.  We need thinking that is bold and
fact-based, and non-ideological.  John Kerry is a person who could
lead the nation on such a course.  We are blessed with some of the
most advanced thinking in the world on a range of questions–and we
need to engage our best resources on our major problems.  As Kerry
said at the Democratic Convention, we need a president “who believes in
science.”  I thought this was Kerry’s best line.

Tags: Economics and cybenetics

Bush v Kerry tonight, 9 PM EST

September 30th, 2004 · Comments Off

 “People tune in these debates for the same
reason they watch NASCAR races on TV,” said Larry Sabato, a University
of Virginia political scientist. “They hope to see a crash. That’s the
whole mystery. And there’s always something.”

     Kerry
will fire away at Bush’s leadership on Iraq, while the President will
ridicule Kerry as a wobbly political weathervane prone to wild swings
on vital issues.

     “It’s
a test for whether this president is finally going to come clean and be
straight with the American people about what’s going on in Iraq,” said
Kerry running mate Sen. John Edwards [related, bio] (D-N.C.) – foreshadowing a Kerry line of attack.

     Trailing
with just over a month to go, Kerry, an agile debater, will be
straining to create a breakthrough moment.

     The
senator must convince skeptical voters he would be a strong
commander-in-chief while dispelling the notion he is a flip-flopper.

     “Kerry
needs to remember this is not Harvard against Yale,” said Chris
Lehane, former Vice President Al Gore’s spokesman. “You don’t win it
on debate points. People watch these like they watch `Friends’ or other
sit-coms. They want to connect with the person on TV.”

     A
more risk-averse Bush, meanwhile, hopes to skate through the debate
without any major stumbles to maintain his lead.

     “The president is ready,” said Bush adviser Karen Hughes.

from the Boston Herald (!)

Tags: Presidential politics

The Bush/Kerry debate tonight on foreign policy–here are some questions I’d like to ask:

September 30th, 2004 · Comments Off

1. Is it desirable and practical to base US foreign policy on
consistent support for human rights? Might this help in the struggle
with terrorism, by taking away some of the rationale used by terrorists
to recruit–and by enhancing respect for the United States among
ordinary people around the world?

2. We now have the “Bush doctrine” of preemptive strikes on sources
of threat to the United States, wherever in the world these are lodged.
Would it make sense to have an equivalent doctrine in the case of gross
violations of human rights? The Genocide Convention would seem to have
been an attempt at promoting such a doctrine among the signers–of
which the US is one.

3. The Iraq war has shown the cost of intervening in other nations
alone and–it seems–the Sudan genocide has shown the cost of trying to
work through the UN. Both have run into problems. What is the right
formula for effective action? What are the right uses of unilateral and
multilateral action–given that unilateral action can leave us
isolated, and working through the UN can tie our hands? Are there
alternative institutions and networks that would be more effective than
either approach, such as working more closely with the African Union
and other regional organizations?

4. Secretary General Kofi Annan is proposing to reform the United
Nations and especially the UN Security Council. Do you have confidence
in this process? How should such a reform be carried out? Will the
United States be able to exert its leadership on the reform process
effectively?

5. The UN has been notably slow to take action in Sudan. In
particular, Secretary General Annan is seen by some observers to be an
ineffective leader of the United Nations, more interested in pleasing
all sides than in taking principled action. Do you agree or disagree
with this assessment? If you agree, what should the US do about this
problem in the short and long term?

6. Syria is the head of the UN council on human rights. Sudan has
been strongly supported in its human rights violations by a number of
members of the UN. What would it take to reform the UN so that it
supports other values than simply national sovereignty of each member,
and continuous discussion?

7. Could the world’s nations create a new world institution that has
a value base, and that requires members to meet certain standards of
behavior, including in respect of human rights, in order to join and to
remain in good standing? Would you support this if the United Nations
cannot be improved? Would you support this in any case, to provide
competition to the United Nations? How might this be accomplished?

8. There has been talk by National Security chief Rice of
establishing a new source of peacekeeping forces with rapid response
capabilities, under the auspices of the G7 group of nations. What do
you think of this proposal? Would it have been more effective in
responding to the genocide in Sudan?

9. China has been a major source of support for the government of
Sudan, and China has blocked US-sponsored action in the UN Security
Council. China has been joined in this by Pakistan. Egypt and Saudi
Arabia have taken up the cause of the government of Sudan in the Arab
League and other forums. All have gained stature in the Arab world at
US expense, by siding with Sudan.

China is a large US trading partner, and both Pakistan and Egypt are
recipients of US military and other forms of aid. Saudi Arabia is a
major trading partner. Why have we not been able to gain the help of
these nations in putting pressure on Sudan? What more should be done to
ensure that they help stop the genocide in Sudan, rather than enabling
it and raising their own political profiles by showing themselves
allied against the United States?

Tags: Economics and cybenetics

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