The decline of the image of America

The follow obituary was published in the most recent edition of The EconomistYasser Talal al-Zahrani

Yasser Talal al-Zahrani, a prisoner in Guantánamo, died on June 10th, aged 21
Nonthing much distinguished Yasser Talal al-Zahrani from the 500 or so other prisoners held by the Americans at Guantánamo Bay, in Cuba. In his loose-fitting orange clothes and flip-flops, he spent the long days sitting or lying in his wire-mesh cell. He washed with water from one bucket, made water in another.
Five times a day, when the call to prayer came over the camp PA system (sometimes overlaid, or garbled, with announcements in English), he would spread a towel on the cement floor and pray. At least it was not hard to determine Mecca’s direction. The sun blazed in through the mesh and baked the roof of corrugated iron. If he left his cage to be escorted, in leg shackles, to interrogation or the hospital, humidity quickly soaked his shirts with sweat.
. . .
On June 10th, near midnight, he made his bed to look as if he was in it, wrote a suicide note, pushed a wad of cloth into his mouth, then hanged himself among the laundry drying from the ceiling. His colleagues did the same.
As he had hoped, his death led voices around the world to demand that the camp be closed. One senior American official, immovable, called his suicide “a good PR move”. She may have been right; Guantánamo, alas, remains wrong.

When a magazine such as the Economist feel compelled to make such a statement, something is very wrong. What is happening to that very important intangible asset: the American brand – the image of America? What ever happened to the “shining city on the hill” that Ronald Reagan talked about?

1st quarter 2006 current account

The quarterly current account data for the US came out this morning and the numbers were better than expected – specifically a rise in income payments. According to the BEA:

The balance on income shifted to a surplus of $1.9 billion in the first quarter from a deficit of $2.2 billion in the fourth.
Investment income Income receipts on U.S.-owned assets abroad increased to $140.1 billion from $130.4 billion. “Other” private receipts (which consists of interest and dividends) increased strongly, and direct investment receipts also increased.
Income payments on foreign-owned assets in the United States increased to $136.6 billion from $131.0 billion. A strong increase in “other” private payments (which consists of interest and dividends) and an increase in U.S. Government payments (which consists of interest) more than offset a decrease in direct investment payments.

From the point of view of our pure intangibles trade, there was nothing new in the report – since royalties and business services are already reported monthly as part of the trade figures.
The rise income payments did spark a minor renewal of the dark matter debate. Brad Selzer re-iterated is view that the dark matter thesis doesn’t hold up:

But the big gains came from foreign direct investment. The earnings of US firms abroad increased by $2.6b in the first quarter (v. q4). But even more importantly, the earnings for foreign firms fell by $3.7b. The net swing was $6.3b or so — overwhelming the US interest bill.
Dark matter (though not from Disney)?
Continued gains from the export of US intangibles (just not by Disney)?
Or bad data?

Mike Mandel touted the “Return of Dark Matter”:

What a nice surprise this morning. I looked at the latest current account data, and discovered, lo and behold, that in the first quarter the U.S. earned more money on its foreign investments than foreigners earned on their investments in the U.S.
Not bad for the world’s biggest debtor, eh?

As those of you who have been reading this blog know, I take Brad’s side on this.
Sorry, Mike, but I didn’t hear your talk about the $2.2 billion income deficit in the 4th quarter. And simply asserting that the greater inflow of income over the outflow of payments is due to some mysterious “dark matter” doesn’t make it so. There are just too many more plausible explanations for this occurrence.
I agree that our data is bad and we don’t really have a handle on the flow and the values of intangibles. But we can’t wish away our huge current account deficit and our grow indebtedness on some dark matter.

McCain almost gets it

On Monday, Senator John McCain gave a major economic speech to the Economic Club of New York. While the speech focused on the standard macroeconomic issues of the Federal budget and trade issues, there were a few lines at the end that really caught my eye:

My friends, in the course of my lifetime our economy has undergone unbelievable changes. When I was a kid, our economy grew by producing more and more of the same. We now have an “ideas economy” where growth comes from making new things, not larger quantities of the old things.
If you walked into my house when I was twenty years old, my parents would have proudly displayed the same appliances they had when I was ten years old. Today I walk into my own house and am awestruck by the marvels my family uses – flash drives, Ipods and Tivos, things we never could have dreamed of, have become part of our every day lives.

Close, but not quite. Senator McCain, like most of Washington, is still thinking of innovation and ideas as making new things — not as solving problems better and doing things in new ways. In this I-Cubed Economy where much of our innovation comes in the services and intangible goods area, the focus on “new things” misses the point. Unfortunately, this gadget mentality still plagues our policy debates.
However, I am extremely heartened by the Senator’s understanding of how the economy has changed. And I do heartily agree with him when he stated, “as our economy has changed, too often, Washington has not kept pace.” I may not agree with some of his solutions – which imply that all we have to do is get government out of the way. But that is the debate we should be having. Hopefully the Senator’s remarks will help start that debate.

Innovation and Design: Keeping America Competitive

a Congressional briefing luncheon
with

 

Roger Martin, Professor of Strategic Management and Dean of the Rotman School of Management, University of Toronto

John W.
Leikhim, Director, Corporate Innovation Capability, Procter & Gamble


Moderated
by Congressman Dave Hobson (OH-7)


hosted by
Athena Alliance and
the Congressional
Economic Leadership Institute

Held at the Rayburn House Office Building, Washington, DC
June 14, 2006

Click here to download a PDF
version
of this report.

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don’t have the ability to read PDFs? Get Acrobat now by clicking
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.

Click here to view Dr. Martin’s full remarks.

Click here to view Mr. Leikhim’s full remarks.

 

The
session began with welcome and preliminary remarks by Dr. Kenan Jarboe,
President of Athena Alliance, followed by David Klaus, President of CELI, who
introduced Congressman Hobson.

 

Rep. Hobson opened the seminar by noting the large number of young
people in attendance, saying that America’s
future is in science and it is important that more young people become involved
in science. After briefly describing what Congress was doing to fund science
and technology, he turned to the focus of the seminar: what makes American
companies fertile ground for innovation, design, and product development and
the policies and programs Congress should consider to support them.

 

Rep. Hobson introduced Professor Roger
Martin, Dean of the University of Toronto’s
Rotman School of Management, who is leading a ground-breaking effort to
redefine business education for the new design-based economy. Dr. Martin is a
leading expert in using design as a way of approaching and sustaining
innovation. Rep. Hobson then introduced John Leikhim, Director of Corporate
Research and Development Innovation and Capacity at Procter and Gamble. Mr.
Leikhim has served as the company’s Director of International Technology
Coordination, Director of New Business Development Organization, and Director
of Corporate Innovation Capacity. Rep. Hobson said Mr. Leikhim would share how
design and innovation really happen in the corporate setting and what types of
policies can strengthen America’s
leadership.

 

Dr. Martin began by talking about challenges to the competitiveness
agenda, especially in a world that is becoming more focused on innovation and
design, and suggested how the agenda could be improved.

 

He said he is especially fascinated
by the difference between the approach scientists take to their work and the
approach they take in the world, where they are less scientific—if not
superstitious—in their thinking about the American economy. If we are to have
an innovation policy that best serves the nation, he asserts that we need to
think more factually about what is happening in the economy.

 

As an example, Dr. Martin
challenged the National Academy of Science report called Rising Above the Gathering Storm. The report asserts that emerging
countries are catching up to the United States
in scientific and technological know-how. To prevent the United States from
falling behind, the report calls for greater
government support for science and math education, more federal funding for
science and engineering research, greater support for higher education, and
more generous tax credits for corporate R&D.

 

This presents a vision of the U.S.
economy as losing ground economically, where the high-tech sector is key to economy vibrancy.

 

The report contends this vibrancy
is threatened because each year China
produces 600,000 engineers, India
produces 350,000, and the United States
produces just 70,000. Dr. Martin said it is true that the Chinese and India
economies have grown as a percentage of the world economy, as their populations
have grown. However, he said, the real numbers of scientists and engineers at
the undergraduate level are closer to 350,000 for China,
112,000 for India,
and 137,000 for the United States.
So rather than the United States
being way behind at the index as the percentage to population, we see the United
States. at 100, China
at 58, and India
at 22. In addition, America
employs one-third of the world’s science and engineering researchers; 35
percent of science and engineering articles are published in America;
and the United States
spends 40 percent of the world’s R&D dollars. So it is hard to argue that
the United States
is not strong and leading the world in science and engineering.

 

Second, Dr. Martin argued that,
contrary to popular opinion, in the United
States the high-tech sector is tiny compared
to the overall economy. The six sectors of information technology,
communications technology, aerospace vehicles, aerospace spending, medical
devices, and pharmaceutical and biotech account for about 1.96 percent of U.S.
jobs.

 

This
compares to one single sector—financial services—which at its narrowest
definition is 3.23 percent of all jobs (which is 65 percent bigger than the high-tech
sector) and at a broader definition is actually 6 percent of jobs (or three times bigger than all the high-tech
sectors combined).

 

There
is also the widely held belief that high-tech sectors are important because
they provide high-wage jobs. In fact, financial services wages are 13 percent
higher than high-tech sector wages.

 

In addition, there is the concern
that government funding for R&D is declining. Absolute government R&D
spending has actually increased since 1953, but has fallen as a percentage of
the economy. Private-sector spending has increased and become the real driver
of R&D.

 

Thus, it is hard to support the
conclusion that the United States
is way behind in science and technology and that increased support of the
high-tech sector is needed.

 

Rather than focus on high tech, Dr.
Martin said, broad-based innovation is much more important to the economy.
Research show that the largest increases in productivity in the 1990’s came
from six industries: wholesale trade,
retail trade, securities (financial sector), semiconductors, computer
manufacturing, and telecommunications. He noted that wholesale trade, retail
trade, and securities cannot be defined as high-tech sectors. He also noted
that productivity research shows these sectors are highly competitive and that
this competition is a key feature for productivity growth.

 

Another factor for innovation is
producing business leadership. Among America’s
seven global leaders that are high-tech companies, only two of their CEOs have
any scientific training of any sort. According to Dr. Martin, people outside America
recognize better than we do our massive investment in business education, with
22 percent of undergraduate degrees and 25 percent of master’s degrees in the
discipline of business.

 

Thus, Dr. Martin sees the policy
recommendations of the various pieces of innovation legislation as incomplete. Investing
in R&D is fine, but more needs to be
done to meet the competitiveness challenges.

 

He specifically cautioned against
the recommendations on R&D tax credit. For many years, he said, Canada has
had one of the world’s most generous R&D tax credit regimes, returning 25
percent of R&D spending compared to just 6 percent for America. Yet Canada’s
amount of corporate spending on R&D is among the worst in the OECD. He said
there is absolutely not a shred of proof anywhere in the world that increased
R&D spending is based on the R&D tax credit.

 

What
would be more helpful for policy is the explicit recognition that innovation is
in the other 98 percent of the economy, not the 1.96 percent of the economy represented
by the high-tech sector. Given this, innovation policy needs to focus on companies
like Procter and Gamble, which are in that 98 percent that we believe is
responsible for economic prosperity. Business model innovation is as important
as R&D-driven innovation. Many innovation companies, such as Wal‑Mart,
Dell, Federal Express, Southwest Airlines, and Vanguard Financial, are not seen
as innovative companies because they don’t do a lot of what is traditionally
seen as R&D. But this is the kind of innovation that makes a difference.

 

Rather than focus on R&D, tax
policy should focus on business investment. America
is a low-tax country (the third lowest in the OECD), but has a shockingly high taxation of business investment
(second highest in the OECD—only
Canada is higher). Right now, the U.S.
and Canadian tax systems discourage business investment. Sweden actually has a much smarter tax system than the United States or Canada, with a margin effective tax rate on business
investment of 12 percent.

 

Dr. Martin closed by stating that
he thought the overall U.S.
competitiveness agenda was good, but dominated more by superstition than fact.
The United States
could create a much better policy if people would take a closer look at what
the economy actually is like and base their policies on those facts.

 

 

top

Mr. Leikhim opened his presentation by pointing out that innovation
is not just a good idea, but rather ideas that consistently translate into
great products and services that improve lives and win in the global
marketplace. Systematic, sustained innovation is the foundation of our economic
engine—not only for P&G, but also for America
overall.

 

Mr. Leikhim described P&G’s
innovation as “a kind of magic that becomes part of people’s lives”; that is why, even though P&G is a
knowledge-based company, it does not spring to mind when people think of
cutting edge science and technology. Innovation is P&G’s life blood of
growth, and the company invests over $2 billion in R&D each year—placing
its R&D spending in the top 15 U.S.
companies outside the pharmaceutical industry. While P&G taps the
innovation source of the globe, the United
States is the heart of its R&D
enterprise. P&G’s R&D
competencies include chemistry, engineering, material sciences, biological sciences,
medicine, veterinarian science, and mathematics—a breadth driven by the
company’s purpose of providing consumers with a range of products that improve
the quality of their lives.

 

Mr. Leikhim used the example of
Crest White Strips, explaining that to develop the product P&G worked
backwards from the consumer need for a convenient, affordable solution to
whiter teeth. Their R&D solution resulted in a new product category that
went from zero to $300 million in two years—launched from the United
States to the global market. P&G’s growth from this and other product
innovations fuels growth across the U.S.
economy, generating business for its domestic suppliers totaling $8 billion a
year.

 

According to Mr. Leikhim, P&G
believes the key to success in today’s global marketplace is using
innovation—not only in products and technology, but also in the supply chain
business model—to decrease the time it takes to bring a product to market. The
global marketplace is characterized by rapid change, the elimination of
geographic boundaries, and fluid global-based abilities—and founded increasingly on models of open
innovation.

 

As Tom Friedman described in The World is Flat, many countries with
low-income markets are now an excellent source of quality, low-cost manufacturing,
but these markets are also showing rapid geographic growth in
innovation-support industries. And beyond manufacturing and services, these
markets are providing new pure innovation services in material, products, and
manufacturing processes.

 

Mr. Leikhim said the harsh
reality is that if U.S.
companies don’t keep sustaining innovation at the forefront, economic growth is
going to happen somewhere else. Other nations are investing in both leading
edge research and on expanding their talent pool. We need to form collaborative alliances in
which academia and industry, enabled by government, drive innovation together.
He said the National Science Foundation has the potential to be the premier
federal resource for creating high-tech products and stimulating our nation’s
innovation leadership.

 

For example, Mr. Leikhim said,
the development of biologically derived raw materials from renewable
resources—biopolymers and biofactors from plants—provides a win for both U.S.
agriculture and consumers seeking sustainable materials. For a large commercial
enterprise like P&G, the present and future are driven by such creative
scientific thinking. However, the National Academy of Sciences, in Rising Above the Gathering Storm, and
the Council on Competitiveness, in Innovative
America
, outline problems facing the United
States that P&G believes need to be
addressed to maintain our leadership in innovation.

 

Mr. Leikhim said the NAS report
makes a compelling case for the decline in U.S.
science, technology, engineering, and math capabilities, reflected in K-12
education, a shortage of university graduates and basic research staff in these
fields, and somewhat decreased attention to these fields in society as well as
public policy. NAS recommended changes to education, research, higher
education, and economic policy that are captured in several bills before
Congress. P&G supports these initiatives because investment in innovation
will boost the economy and strengthen the company’s ability to succeed
effectively in the rapidly changing global environment.

 

According to Mr. Leikhim, we need
new approaches to collaboration among academia and industry, enabled by
government policy, which maximize the strength in the university and the
corporate R&D communities. Business input can mean studying the correct
target, increasing the probability of pulling emerging technology into the
economy.


Mr. Leikhim concluded by defining
three major shared responsibilities for addressing the innovation challenge:

 

·       
Creating interest and passion in physical
science and mathematics through high-quality education.

·       
Sustaining the creation of important new
technology platforms in order to create “new-to-the-world” businesses through
leadership and basic research.

·       
Bringing innovative talent and innovative
research together to transform scientific advancement into practical new
products and services, launched through the creation of knowledge-based
businesses.

 

top

Rep. Hobson then opened the session to questions. He began by
commenting that over the last 25 years there has been a shift among
corporations away from the research portion of R&D toward more of just the
development part. Corporations are on a much shorter timeframe. The federal
government has to pick up that research, in the national labs and in
collaboration with the universities. But even government research, such as the
Defense Advanced Research Projects Agency (DARPA), which was a premier
long-term research agency, have shifted to a shorter-term view. He thinks that
is the basic problem for the future of competitiveness in this country: how we
fund it. His congressional committee has taken on that challenge and
dramatically increased the investment in science.

 

A participant said the number of
business degrees coming out of China
and India may
be more important than the number of science degrees. He asked the speakers to
comment on the fact that India
and China are
increasing the number of business graduates—and whether the increase in trained
managers is a threat to U.S.
competitiveness, given the earlier comments on the importance of business
leadership.

 

Dr. Martin replied that the
Chinese are revving up very quickly, increasing from zero not too long ago to
about 12,000 a year with a goal of 33,000 in three years. America
is at roughly 140,000. He thinks China
and India
absolutely are getting their economies together and increasing their investments.
But he is nervous about the United States
investing in generic science-based research or education as the answer. The
answer is in creating more people that can do the kind of conceptual, creative,
design-oriented thinking which will be needed in the future—not in playing the
old game.

 

Rep. Hobson said it would be
interesting to know how many of those people earning degrees in foreign
countries are trained by people who received an MBA in the United
States. Dr. Martin noted that the Chinese
government’s policy for Executive MBAs is that 40 percent of the courses must
be taught by non-Chinese professors. The schools are thus required to form a
joint venture with business schools outside China
to bring in outside knowledge.

 

Dr. Jarboe expressed concern that
we need people who are not only trained in business and technology, but also
have a creative side. He mentioned the new Stanford
Design School
(D-School) and the Illinois Institute of Technology and asked how the Rotman
School is combining those areas.
Dr. Martin said we have to meld together the best of design education,
engineering education, and business education. He is doing that right now along
with David Kelly, the Design Engineering Professor at Stanford, and Patrick
Whitney, the Director of the Institute
of Design at the Illinois Institute
of Technology. They are working together to forge a relationship between those
disciplines. He thinks we need to produce people who have design business and
technology capabilities wrapped into one—the new 21st Century
skills—and it will be a long time until China and India will be able to catch
up with us in this area.

 

Another participant commented on
some of the dramatic changes occurring in business schools and asked what can
be done to derive innovation generally from higher education, considering the
reductions in science and engineering funding. Dr. Martin said funding things
like the Stanford D-School—an actual integrative effort—would be one. At the Rotman
School, all the funding to do
integrative thinking comes from the private sector because public funding tends
to be based on peer review, and therefore funds only what has already been
done. He added that money for the D-School comes from the founder of the German
software company SAP. So he thinks the government can get in the business of providing
funding for integrative activities at the intersection of technology/design/business.

 

A participant asked about the
significance of a German company funding the D-School and whether there were
institutional mechanisms for this type of funding—which led one participant to
make a comment about Congressional earmarks.

 

Dr. Martin responded that one of
the most important things was to provide encouragement for these types of activities.
Concerning innovation in business schools, he believes that there is innovation
because the schools get ranked by a number of sources, such as Business Week, US News & World Report, and The Wall Street Journal. This type of information—such as requiring
airlines to post on-time departures and lost baggage statistics—is always a
spur to innovation.

Rep. Hobson commented on how the
initial requirement for MBAs and PhDs drives over-specialization. He noted that
when he was a young mail boy at P&G, the company had a program—called
Diamonds in the Rough—to identify outstanding and innovative thinkers who might
not have strong formal credentials. He said the military tries to do that now,
giving an opportunity to people who don’t fit the normal criteria. But this
requires management with the foresight to recognize these special talents.

 

A discussion followed about how hospitals
in Cleveland working together in a new general medicine program—made possible
by funding from a Congressional earmark—brings together people who normally do
not come together except in a competitive role.

 

In response to a question about
patents and patent reform legislation that would remove the automatic
injunction penalty for patent infringement, Dr. Martin questioned whether
patents had gone too far. He said it was a huge step, and an error, when the
patent office decided you do not have to actually deliver a thing to its office
and have the office figure out whether it is patentable; all you have to do is
deliver a concept paper. The result is patenting of concepts and business
models based on incredible vagueness. He also is concerned about the
development of “patent trolls” and the shrinking of the public domain.

A participant asked about what P&G’s
practice of “tapping into more talent pools” means for the United
States in terms of local economic opportunity
and success. Mr. Leikhim described its three dimensions. First, he said P&G
has a large R&D presence outside the United
States and is tapping selectively into areas
where there is the greatest strength of innovation, especially in specific
markets and products. Second, looking at the United
States, with the major scientific pool
facing retirement, P&G sees relatively small pools of candidates and must
choose from a dozen people versus 50. Finally, he said over the next decade we
have the ability to develop the pool here; if we do not, P&G may we be
forced to go overseas.

 

Rep. Hobson added that international
marketing is as important as R&D. He noted that one of P&G’s greatest
marketing successes was to penetrate China’s
beauty market. He believes that P&G probably has one of the best marketing
strategies in the world.

 

The session’s co-host, Mr. Klaus,
wrapped up the meeting by mentioned another P&G marketing success,
Pringles—which were available at the head table. With that, he thanked the
speakers and the moderator and adjourned the meeting.

Design thinking

MIT has posted a great lecture by Tim Brown, the CEO of IDEO entitled “Innovation Through Design Thinking”:

Not so long ago, Tim Brown recounts, designers belonged to a “priesthood.” Given an assignment, a designer would disappear into a back room, “bring the result out under a black sheet and present it to the client.” Brown and his colleagues at IDEO, the company that brought us the first Apple Macintosh mouse, couldn’t have traveled farther from this notion.
At IDEO, a “design thinker” must not only be intensely collaborative, but “empathic, as well as have a craft to making things real in the world.” Since design flavors virtually all of our experiences, from products to services to spaces, a design thinker must explore a “landscape of innovation” that has to do with people, their needs, technology and business. Brown dips into three central “buckets” in the process of creating a new design: inspiration, ideation and implementation.
Design thinkers must set out like anthropologists or psychologists, investigating how people experience the world emotionally and cognitively. While designing a new hospital, IDEO staff stretched out on a gurney to see what the emergency room experience felt like. “You see 20 minutes of ceiling tiles,” says Brown, and realize the “most important thing is telling people what’s going on.” In a completely different venue, IDEO visited a NASCAR pit crew to come up with a more effective design for operating theaters.
After inspiration comes “building to think:” often a hundred prototypes created quickly, both to test the design and to create stakeholders in the process. Says Brown, “So many good ideas fail to make it out to market because they couldn’t navigate through the system.” IDEO counts on storytelling to develop and express its ideas, and to buy key players into the concept. Finally, IDEO relies on constantly refreshing its sources of inspiration by bringing in bold thinkers to campus, and increasingly, focusing on socially oriented design problems.

As the The Business Innovation Insider describes it:

Tim Brown of IDEO explains the relationship between design thinking and innovation. According to Brown, design is everywhere around us – on the covers of business magazines, as part of consumer experiences at companies like Nike and Apple, and increasingly mentioned by Fortune 500 executives as an important way to grow a business. For many companies, design thinking is a way to create the future.

Exactly – and if design thinking is the way that companies are going to create the future, shouldn’t our economic policy take that into account?
By the way, that is why Athena Alliance and the Congressional Economic Leadership Institute are hosting a Congressional luncheon on Design and Innovation today. A summary of the event will be posted later on the Athena website.

All about design

Want to know more about how design can make business better? Check out the UK Design Council’s website. It is full of great stories, including a design case study on how a French company, Calor, teamed up with London-based product designers to create a new steam iron – the Tefal Aquaspeed – that is running away from the competition. This case illustrated how design and innovation isn’t just about high-tech products like the iPod, but also for what we normally think of as rather mundane products.
These are perfect example of how design is not just about being “cool” but about being competitive. If we are to stay economically competitive, we need to learn from these examples of how to exploit our intangibles assets of innovation and design to help all sectors of the economy – not just so-called “high-tech”. Only by infusing these assets into our entire manufacturing base will we reverse the trade deficit and ensure a sustainable economy.

Champions of Innovation

Business Week has just released its 25 Champions Of Innovation:

Let’s welcome the Champions of Innovation. In an era when Six Sigma controls no longer guarantee competitive advantage, when outsourcing to China and India is universal, when creeping commoditization of products, services, and information hammers prices, innovation is the new currency of competition. It is the key to organic growth, the lever to widen profit margins, the Holy Grail of 21st century business.

Amen to that!. Now if we could only get our public policy in line with this new reality. For example, as BW points out:

They are different from others before them, polymath in skill (think an entire multidisciplinary team in one person), “bipolar” in thinking (using both the left and right brain in framing problems), and eclectic in education (dual math and art majors, English lit and MBA degrees).

So, where are the education programs in the current competitiveness bills to foster the next generation of these Masters of Innovation?

April trade in intangibles

This morning’s BEA trade data was not good. The overall trade deficit increased by $1.6 billion to $63.4 billion – due to a decline in export and an increase in imports. As the Wall Street Journal put it:

The U.S. trade deficit resumed rising in April after two months of rare declines, pushed higher by surging oil prices, auto imports and a flood of furniture, televisions and toys from China.

However, the data shows our intangibles trade surplus holding steady at $7.9 billion. Increased receipts (exports) of royalties were offset by a decline in exports of business services, increased imports of business services and increased payments (imports) of royalties.
This month’s trade data also includes revisions of services trade data going back to 1997. The revisions show more volatility in the monthly intangibles trade data, especially in 2003 and 2004. It also shows a slightly higher level of the balance than previously reported – with the peak being a surplus of $8.2 billion in November of 2005 rather than $7.5 billion in December 2004. But we see generally the same trend as before with a slow, relatively steady increase in both intangible imports and exports resulting in a relatively stable surplus.
Obviously, this stable surplus is good news – but not good enough to offset our huge deficit in tangible goods. Unless we address that deficit, we will not even begin to bring our international balance of payment in to a reasonable alignment.
There was also some good news in that the deficit in Advanced Technology Products declined in April after surging in March. The decline was due mainly to lower imports of information & communications, life sciences and opto-electronics, but partly offset reduced exports in aerospace.

Intangibles trade-Mar06.gif

Note: we define trade in intangibles as the sum of “royalties and license fees” and “other private services”. The BEA/Census Bureau definitions of those categories are as follows:


Royalties and License Fees – Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term “royalties” generally refers to payments for the utilization of copyrights or trademarks, and the term “license fees” generally refers to payments for the use of patents or industrial processes.


Other Private Services – Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term “affiliated” refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise’s voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.

How much leisure in the I-Cubed Economy

Just because work is moving from the tangible/physical to the intangible/information doesn’t necessarily mean that our leisure time is increasing. In fact, while average work hours have declined by traditional measures, leisure has not increased — as the blog
New Economist: Long-run trends in working time and leisure points out:

Over the past century there has been a large decline in average hours worked in what are today’s advanced industrialised countries. Two recent papers have looked at the issue. The first, and best known, is the new NBER working paper by Valerie A. Ramey and Neville Francis: A Century of Work and Leisure. The paper found that much of the decline in US working hours has been offset by more in education:

Has leisure increased over the last century? Standard measures of hours worked suggest that it has. In this paper, we develop a comprehensive measure of non-leisure hours that includes market work, home production, commuting and schooling for the last 105 years. We also present empirical and theoretical arguments for a definition of “per capita” that encompasses the entire population.
The new measures reveal a number of interesting 20th Century trends. First, 70 percent of the decline in hours worked has been offset by an increase in hours spent in school. Second, contrary to conventional wisdom, average hours spent in home production are actually slightly higher now than they were in the early part of the 20th Century. Finally, leisure per capita is approximately the same now as it was in 1900.

So, leisure remains the same. On-the-job work declines but education – which is key input to those on-the-job – makes up for much of that decline. And we do more household work — which tracks with the occupational changes over the past 100 years, where household servants were one of largest occupation categories in 1900.
That sounds about right. Although, I wonder about the trend some see toward mixing categories, especially where leisure and work activities blend. Creative and information jobs, I would think, are especially prone to that blending. So, maybe we need a new definitions and measures of leisure and work in the I-Cubed Economy — just as we need new definitions and measures of a lot of things.

National Design Award 2006

Design isn’t just about looking pretty or cool. For some, it is also about social responsibility. On Monday, the Smithsonian’s Cooper-Hewitt National Design Museum announced that Nike will be given a corporate achievement National Design Award for more than just cool underscores that point. But it may not be sending the right message regarding the role of design in corporate competitive strategy.
According to the Cooper-Hewitt:

The National Design Awards were conceived in 1997 by the Smithsonian’s Cooper-Hewitt, National Design Museum to honor the best in American design. First launched at the White House in 2000 as an official project of the White House Millennium Council, the annual Awards program celebrates design in various disciplines as a vital humanistic tool in shaping the world, and seeks to increase national awareness of design by educating the public and promoting excellence, innovation, and lasting achievement.

This year’s award, as the Washington Post puts it, Cooper-Hewitt Honors Nike For Just Doing It Right:

Jury spokesman Roger Mandle, president of the Rhode Island School of Design, says the panel was impressed with how Nike has moved beyond the taint of overseas sweatshop scandals.
“Corporate philosophy was a major issue for us,” Mandle said by phone this week. “Beyond the extraordinary design quality and thinking on product development, it was their responsibility in manufacturing and attention to human resource issues.”
. . .
“The jury is reflecting the state of design concerns today,” Mandle said. “They are looking at the broader perspective. It’s not just about cool design — it’s the overall responsibility of the designer or company.”

This is not the first time that the corporate achievement National Design Award was given for broader goals. Last Oct, it was Patagonia, who was cited for its social consciousness as well
Cooper Hewitt: National Design Awards 2005

The 2005 Corporate Achievement Award is presented to Patagonia, a sports apparel company based in Ventura, CA, whose commitment to innovation, design, and performance is matched by its devotion to environmental and social causes. Founded in 1973, the company creates high-quality outdoor sportswear for mountaineering, skiing, and extreme sports, with a focus on functionality. Patagonia works with manufacturers to develop new fabrics such as Capilene and H2No Strom which meet athletes’ strict performance demands, and also implements numerous environmental initiatives, including producing clothes out of soda bottles, recycling scraps even before they hit the cutting room floor, and harnessing wind for fuel.

Not everyone is happy with how the awards are going. Last October, when the 2005 awards were announced, Business Week’s design guru Bruce Nussbaum posted the following on his blog: The National Design Awards are a failure.

Cooper-Hewitt just announced the winners of its Sixth Annual National Design Awards and it’s really time to say out loud what so many design and innovation professionals have been saying for so long–the contest doesn’t work. The winners are all wonderful designers who have done excellent work. But they are obvious choices. Most appear to be recipients of life-time achievement awards, which is really what the National Design Awards has mostly become.
What is wrong. I think design has quickly evolved far from the original conceit of the awards program. Just giving attention to great designers is really beside the point today. The great struggle for respect in society and in the corporate world is over. Design has won. It doesn’t have to sell itself. It does have to prove itself, however. Design has to create better methodologies, better processes and better results for the people who use it. And design contests have to reward this ongoing effort, not simply recognize those in the past who have achieved greatness.

[One disturbing indicator of all this is the announcement garnered almost zero press coverage. The Post– which actually published its story days before the announcement – was only newspaper to pick up on the announcement (at least according to my Google news search).]
I would go one step further. I’m not sure that giving a design achievement to companies for their social responsibility sends the right message. Companies should be rewarded for social responsibility – both with awards and where it really matters: in the marketplace. But I worry that equating design with social responsibility takes away from both activities. Either it says design is all about social responsibility — which is a very limiting message and cheapens the role of design in company strategy and operations. Or is it is about the design community patting itself on the back for being such good people — which cheapens the importance of environmental and social responsibility.
In all fairness, the award to Nike is not just about being a responsible company. It would never have even been considered if it was not for its ongoing commitment to design and innovation as a core strategic principle. But the design award should be to companies for those criteria – not some other criteria however laudable.
I would rather have my friends over at the Calvert Group’s Socially Responsible Investing section tell me how a company is doing on that criteria. After all, they are the experts. The design jury at the Cooper-Hewitt is not.
[Interestingly, all of the companies that are designated as Calvert Leaders are also innovative and design-intensive: Applied Materials, Colgate-Palmolive, Dell, Intel, Microsoft, Procter & Gamble, and Texas Instruments.]
As Roger Martin, of the Rotman School of Business at Toronto, keeps reminding us, we need to embed design in to corporate activity, not just added it on to the traditional firm. Nike may very well be an example of a company that does that. Its history of innovation and design excellence are proof that it is doing something right – and therefore deserves recognition such as with the National Design Award.
But the Award should be given for embedding the design process into the company – not of other factors. After all, isn’t one element of good design its clean focus, without all the extras?