Select Tweets 5/14/12-5/20/12

Select tweet and re-tweets from the past week:

Deep knowledge and manufacturing

Earlier this week I was at an Aspen Institute event on “Manufacturing, Innovation & Workforce Training – What Works in Germany and the US”. In addition to all of the interesting comparisons, there was one statement that stood out. Dietmar Harhoff, Chairman of the Commission of Experts for Research and Innovation of the German Federal Government noted that what German manufacturing were selling was their “deep knowledge.” Patent policy doesn’t apply to this level of knowledge — thus a policy model for manufacturing may be different from what is needed in patent intensive sectors. Yesterday, at a US Chamber/NAM meeting on manufacturing, a similar point was made by Jamie Regg from GE Aviation. He noted that one of the factors they look at very carefully in picking a supplier is the skill and expertise (knowledge-base) of that company. [In an earlier posting I discussed how GE is an example of a company that is seeking to develop deep knowledge.]
Prof. Harhoff’s remark reinforces what I have said previously about German manufacturing: They use their knowledge and intangible capital for competitive success. And it is not just the knowledge of their workforce. It is relational capital as well. As the Economist noted in an article last year:

Mittelstand companies have long relied on the enviable network they already have at home. German universities work hand in glove with researchers at local firms. Suppliers cluster round big manufacturers. Owner-managers rub shoulders with workers.

Thus, I was pleased to hear an emphasis on supply chain relation and other forms of intangible capital at both of this week’s manufacturing conferences [although they didn’t phrase it that way]. Now we need to translate that attention into policy.

The cost of losing human capital

In his column this morning, David Wessel takes on a key economic question: “Job Market’s Vanishing Act: Seeking the Missing Five Million Workers”. The issue is the factg taht population has grown but the labor force (those employed or seeking employment) has not. There are a number of reasons why: more retirees, young people delaying entering the workforce, and people waiting for better times before looking. All of these play a factor, but Wessel gets quickly to the heart of the matter:

But the falling participation rate could signal a more worrisome dynamic: More jobless and disheartened workers turning to disability benefits or reluctant retirement, or otherwise leaving the workforce for good.
Not only is this a waste of human potential, but it diminishes the rate at which the U.S. economy can safely grow. It also creates a growing cadre of Americans who will need the support of the working population and makes the government budget deficit worse because there will be fewer workers to pay taxes. There’s no precise way to measure the size of this contingent. Official estimates of “discouraged workers” understate the problem; they count only those who say they want to work and have looked for a job in the past 12 months.
One thing is clear: The longer people remain out of work, the more risk they will fall out of the workforce altogether. Getting them back to work–or keeping them tied to the job market through training or volunteering or collecting unemployment compensation–would have long-lasting benefits.

Amen! Which is why I support a work-sharing arrangement – especially one ties to a skills improvement/training component. As I explained in an earlier posting, rather than reduce their hours, we should use those hours for training. It can be on-the-job training or classroom training.
This would have the dual effect: It would increase our human capital — a major input to the innovation ecosystem. And it would immediately increase consumer demand as companies would use the funds to pay workers to take classes (thereby creating more employments slots for others to fill the working hours of those in the classes).
As I have said over and over again, rather than pay workers to stand in unemployment lines or stay at home, let’s pay them to sit in a classroom.

Thoughts on the JOBS Act and policy experimentation

The recently passed JOBS Act continues to draw commentary. Below is a sampling of some of the various views (some old, some new). Frankly, I remain skeptical of both the praise and dispraise. As I noted before, JOBS Act should be viewed as a regulatory experiment. The SEC is in process of writing the guidelines to implement that Act. I am sure that all sides of the debate will be weighing in on these regulations. As that process moves forward, there is an opportunity for the entrepreneurial community to step up and change the way Washington (and government in general) works. Think of the Act as a start-up. Let’s create some new mechanisms for measuring success and for learning from (and correcting the problems created by) any failures. That, in and of itself, would be a major accomplishment.
HBR Blog: two sides:
The Road to Crowdfunding Hell
Don’t Abandon Crowdfunding — Manage It
NY Times Deal Professor: From Congress, a Law Befitting a Sausage Factory.
Fast Company: The JOBS Act: Misconceptions And Motives Behind Crowdfunding For Startups
ComputerWorld: Tech chief says JOBS Act ‘renews faith’ in Washington
Wall Street Journal: Investors’ Prying Eyes Blinded by New Law
TIME: The JOBS Act Signing: A Giant Step for Entrepreneurship in America

Select Tweets 5/7/12-5/13/12

Insights on intangibles in small manufacturing

Yesterday and today, the NY Times blog “You’re the Boss” blog had pieces by a small furniture manufacturer (Paul Downs of Paul Downs Cabinetmakers) about his look at German manufacturing (“I Have Seen the Future of Manufacturing” Part 1 and Part 2). What I found especially interesting were the comments that reveled the importance of intangible assets in manufacturing (a point we made in an Athena Alliance Policy Brief–Intellectual Capital and Revitalizing Manufacturing).
In Part 1 of the piece, there was this setup comment on the linkage between design and production:

I have done wholesaling in the past. It worked best when we were allowed to design the work, which ensured that we could produce it efficiently.

Then, there was this about the importance of localized knowledge:

We were asked to design variations on some of their existing products that would work better in the American market. In particular, they were finding that their existing table-base designs didn’t work well with American wiring. The semirandom placement of floor boxes that is so typical of American construction often missed the small openings in the bottom of their bases. Apparently, German electricians are better at putting the plugs where the plans specify. That’s a problem we deal with daily, and it didn’t take long for me to design a new base style to go with one of the company’s existing top designs.

So in Part 2 he goes off to visit the German factory as part of this new project. There he comments on the vacuum lifters on the shop floor, “These are special machines that allow a single person to take a heavy panel off a cart and load it into a machine.” (A video is included in the article).

The lifters made it possible for a single person to load and unload machines, and they probably cut down on injuries as well. The profusion of these lifters was emblematic of the way the plant was laid out in general. Wherever possible, tasks were arranged in such a way that machines do as much work as possible. Not that this was an assembly line — the things that couldn’t be done by machine required hand skills or human judgment. The workers weren’t drones or button-pushers. They handled complex tasks that take years to master.

Three intangibles here: “In each area, skilled workers were surrounded by fantastic machinery in a spotless, logically arranged factory.”
But he adds a very important caveat on the new machinery, specifically the lifters — that they might be useful only in limited circumstances. Even more interesting was this insight:

It’s also worth noting that machines don’t ever think of new ways to do the work. They provide no opportunity for fruitful interaction between the shop floor and the engineers — information flows only one way in an automated process. And they change the atmosphere within the company. They don’t help each other and create a fellowship of workers mastering difficult tasks. They don’t say hello, or ask about the wife and kids, or bring in cookies, or tell a joke, or go back to their town and coach a Little League team. One of the things I like best about owning a factory is the atmosphere created by a group of skilled, congenial people doing great work together. The machines we do have definitely help us make this happen, but there may be a tipping point where they start to suck the life out of the shop floor.

Here is a key insight that get often overlooked — especially in manufacturing that has been driven by the Taylorist/Fordist model for a century. The knowledge of the front line workforce and the flow of information among the workers and engineers is critical.
So to recap, the articles highlight a number of intangible assets:
  • Link between design and production
  • Localized knowledge of customer needs
  • Skilled workers
  • Advanced machinery (and the knowledge embedded therein)
  • Logically arranged factory
  • Information flows among all levels of the workforce
Many kudos to Mr. Downs for both understanding the role of intangibles (although he probably doesn’t use that term) and for illustrating them for the rest of us to better understand.

March trade in intangibles

This morning’s release of the March trade data from BEA was not good news. The deficit rose sharply by $6.4 billion to $51.8 billion. Exports increased by $5.3 billion in March but imports surged by $11.7 billion. The deficits in both petroleum and non-petroleum goods increased. But while some of the increase in the deficit is due to higher oil prices (and imports), the deficit grew much more in the non-petroleum goods. Both capital goods and consumer goods saw significant jumps in imports and auto related imports reached a record high.
In some good news, the trade surplus in intangibles continued to grow in March, increasing by $173 million to $14.119 billion. Imports and exports increased for both royalty payments and business services, with exports rising faster than import in both categories. As I noted last month, the trade surplus in business services had declined in the Nov-Jan time period. So, the continued increase in the business services surplus is especially good news. However, we must continue to remember that the intangibles surplus is a fraction of the goods deficit. The size of the goods deficit is 4.8X the size of the intangibles surplus. The increase in the goods deficit was almost 60X the increase in the intangibles surplus. If we are to bring trade back to a more balanced position, we cannot rely solely on trade in intangibles. We must use our advantage in intangibles to the strengthen the competitive position of our goods manufacturers and thereby both increase exports and reduce imports.
Symptomatic of the challenge we face in knowledge (intangibles) intensive goods is that fact that the deficit in Advanced Technology Products also shot up in March to $7.2 billion. The decline was due almost exclusively to a $3.8 billion surge in information and communications technology (ICT) imports — which swamped increases in aerospace and ICT exports. The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.
Intangibles trade-Mar12.gif
Intangibles and goods-Mar12.gif
Oil good intangibles-Mar12.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.