Author Archives: thedoctor

China is Not to Blame for Our Manufacturing Woes

Laurence Edwards and Robert Z Lawrence of the Peterson Institute for International Economics, and authors of Rising Tide, Is Growth in Emerging Economies Good for the United States, have put a presentation based on their book online that, among other things, clearly demonstrates that China is Not the cause of our manufacturing woes. Given that 86% of North America based companies have a supply chain that relies upon key parts from China (as noted in the Risk Management Monitor) and that a number of prominent economists (including Samuelson, Summers, and Krugman) have stated that growing trade (especially with low-cost countries, with China being #1 for many years) reduces wages, welfare, and jobs, this might be hard to believe. But it’s true. In fact, China outsourcing has had essentially zero impact on North American manufacturing. How can this be?

Consider this chart which shows the manufacturing share in establishment employment from 1961 – 2010. When you look at the forecast based upon the fitted trend line of market share from 1961 to 1979, and the actual share of manufacturing employment, you see that the forecast was dead on! (Moreover, the trend has been repeated around the world – including Sweden, the Netherlands, and Germany.)

Manufacturing Job Trend

This data suggests that the reason for the decline in manufacturing is a common, pervasive, cause. Specifically, productivity growth. Automation is reducing the amount of labor required to produce goods. If the amount of labour required to produce goods decreases, the only way that jobs could retain constant is if demand increased. But this didn’t happen because, let’s face it, most people only want one fridge, one car, and one iPhone. (Yes, some people want two, or three, but not ten, or more, and when you consider the increase in manufacturing productivity over the last fifty years, for many goods, we’d have to buy ten to maintain the same level of manufacturing employment.)

But we could afford to buy more, as the productivity increases have, relatively speaking, brought many prices down (adjusted for inflation). So why haven’t losses slowed? Because we buy services instead. We eat out more, take limos, and pay carriers to give us 4G service. And that’s the real reason manufacturing jobs have declined, because service jobs grew. So, in this case, we can’t blame China, even though they have taken a very large amount of North American dollars over the past 30 years.

O Canada! (Reprise)

O Canada!
Our home and native land!
True patriot love until Harper’s command.

With glowing eyes we still despise,
(A) Conservative in charge!

From far and wide,
O Canada, we want a change for thee.

We want our land glorious and free!
O Canada, we want a change for thee.

O Canada, we want a change for thee.

And before you say we’re being too harsh, remember that Harper and his party, among other things:

  • allow CSEC to illegally spy on Canadian citizens (Globe and Mail)
  • support the Trans Pacific Partnership and its provisions that allow Canadian citizens to be thrown in jail just for clicking on a web link (SI / Huffington Post)
  • recently legalized GM alfalfa and other dangerous GM crops in Canada (NDP)

The definition of a conservative is supposed to be someone who follows a political and social philosophy of retaining traditional social institutions, not someone who promotes the introduction of poisonous food, extreme round-the-clock Orwellian dystopian monitoring of fellow citizens, and the introduction of legislation that will allow the innocent to be punished, fined, and jailed while the guilty roam free. Whatever happened to Blackstone’s formulation, which was a view shared by the Federalists, including Benjamin Franklin and John Adams, who penned the constitution that formed the United States of America that we, Canadians, support with our heads, hearts, and, most importantly our dollar (as the USA is our largest trading partner that accounts for over 50% of our imports and almost 75% of our exports)?

I used to think that all big political parties were slow lumbering oxen that were more or less indistinguishable, each with grandiose election promises that wouldn’t be fulfilled, but not that harmful as they moved to slowly and were collectively too mired in their own deadweight to do anything truly evil. But now I know otherwise. In Canada’s case, one party has proven themselves to be truly harmful to our country and has to go.

Will the Patent Pirates finally be Plundered?

The patent pirates have been plundering for way too long. And we should all be fed up. Since SI alerted you to the problem way back in 2006, in a post on how The Software Patent Pirates will Plunder Away, inspired by a post by Dave Stephens on the now defunct Procurement Central, which evolved into “Stephen’s Business and Technology Nexus” (which, is now also defunct), not much has changed. Even though Mr. Obama declared war on the patent trolls on September 16, 2011 when he signed the Leahy-Smith America Invents Act into law, the pirates are still trolling the high seas of business in search of easy prey to pillage and loot.

To date, as covered in 2011 in SI’s post on how Patent Pirates are Still Plundering, patent trolls have cost investors over half a trillion dollars over the last 22 years (as reported in CNN Money on Sept 21, 2011). Half a Trillion Dollars. Think about that. This puts the Somali Pirates, who have figured out how to steal approximately 10 Billion a year from the shipping industry (according to the LA Times), to shame! (The patent trolls are pillaging almost 3 times as much as the Somali pirates from the safety of their penthouse suites!)

The trolls have to be stopped. They now account for approximately half of the roughly 4,000 patent cases a year in America. That’s 2,000 patent cases that are, for the most part, frivolous and unfairly extortive (as small companies cannot afford a lengthy legal battle and are forced to settle to survive). Fortunately, the Obama administration realizes that and has announced new actions and proposals for patent reform. These proposals, designed to reduce anonymity in patent litigation, improve review at the USPTO, give more protection to downstream users, and improve standards at the International Trade Commission, are definitely a step in the right direction. (SI agrees with the TLF that more is needed, but we’ll get to that later.)

Specifically, the administration is recommending the following legislation:

  • Require patentees and applicants to disclose the “Real Party-in-Interest”
  • Permit judges more discretion in awarding fees to prevailing parties in patent cases, providing district courts with more discretion to award attorney’s fees as a sanction for abusive court filings.
  • Expand the PTO’s transitional program for covered business method patents to include a broader category of computer-enabled patents and permit a wider range of challengers to petition for review of issued patents before the Patent Trial and Appeals Board (PTAB).
  • Protect off-the-shelf use by consumers and businesses by providing them with better legal protection against liability for a product being used off-the-shelf and solely for its intended use.
  • Change the ITC standard for obtaining an injunction to better align it with the traditional four-factor test in eBay Inc. v. MercExchange, to enhance consistency in the standards applied at the ITC and district courts.
  • Use demand letter transparency to help curb abusive suits, incentivizing public filing of demand letters in a way that makes them accessible and searchable to the public.
  • Ensure the ITC has adequate flexibility in hiring qualified Administrative Law Judges.

In other words, the proposals are to:

  • Make it public as to who is filing a patent suit,
  • why the suit is being filed,
  • and allow judges to penalize abusive, frivolous, filers with big legal bills.

This is a good start, but it’s not enough. First of all, as per SI’s post on why we need a “loser pays” bill for patent lawsuits, the filer of the frivolous patent should be required to pay a penalty that is at least double the cost of the suit, including the defence’s legal fees, damages, and court costs. (If the penalty won’t hurt, they won’t stop.) Secondly, despite the objection of cash-flush giants like Apple and Microsoft, we have to follow the lead of the EU and New Zealand and abolish software patents. The vast majority are complete and utter bullshit. The one’s that aren’t contain specialized business methods that could be patented separately (just like you can patent unique physical inventions and processes for extracting medicinal compounds from natural plants). (And SI is happy to see that the Technology Liberation Front agrees with this proposal.) Software is just code that encodes algorithms in a machine language that is compiled into a binary instruction set that runs the program. This is essentially a complex mathematical formula, and mathematics, like laws of nature, is NOT supposed to be patentable. And since many of the trolls have armed their arsenal with software patents, this would be the best way to strike back.

For more information on the challenges of taming the trolls, you can start by reviewing the recent report on “Patent Assertion and U.S. Innovation” from the National Economic Council and the Council of Economic Advisors.

Today We Can Carry 40,000 Songs in Our Pocket

But 125 years ago you couldn’t hear a song unless you went to see a band. This is the 125th anniversary of George Edward Gouraud‘s recording of Handel‘s Israel in Egypt, which for many years was thought to be the oldest known recording of music. It is most likely the oldest recording of classical music.

The oldest known voice and music recording was 135 years and 7 days ago on June 22, 1878, made on a Thomas Edison phonograph in St. Louis, and consisting of a 23-second cornet solo of an unidentified song and a man’s voice reciting “Mary Had a Little Lamb” and “Old Mother Hubbard”. Described in this CBS News article (“oldest known voice music recording restored”), you can hear the unrestored recording, courtesy of The Creators Project.

And it was only 34 years ago on July 1, 1979 that Sony introduced the Sony Walkman TPS-L2, a 14 ounce, blue-and-silver, portable cassette player with chunky buttons, headphones and a leather case. In other words, we’ve only had recorded music for 125 years and recorded music on the go for a little over a quarter of that time, where you were limited to a cassette tape that couldn’t hold more than 20 songs. And now you can carry around a smaller iPod Classic that can hold 2000 times that. The pace of innovation over the last 75 years is absolutely astounding.

An Interesting Take on the Top Ten Trends Influencing Procurement

At the World Procurement Congress in London in May, Tom Linton, CPO Flextronics, gave a talk on his top ten trends influencing Procurement, which are summarized in this online Slideshare presentation.

Tom Linton’s Top Ten Trends Influencing Procurement

While SI may not necessarily agree with the order of the trends, SI has to admit that the top nine were great insights, and are certainly influencing Procurement to various degrees. As a result, SI will list and discuss these trends for you.

9. Business Process Convergence
It’s more than just document convergence and the virtual vertical integration of multi-tier supply chain management capabilities, but NPD, Manufacturing, Sourcing, Procurement, and Payment are all merging as one continuous function through common application back-bones and plug-in best of breed applications.

8. Global Labour Costs Equalize
Mexico matches China in Direct Labour Costs, and costs in other markets continue to rise. And when you consider the cost of logistics, remote staff management, etc., the savings from labour arbitrage become less and less by the day.

7. Raw Material Scarcity
The demand for oil, metals, timber, food, etc. is increasing around the globe. Demand is meeting or exceeding supply in many commodity categories.

6. Skill Specialization
With the increasing need for sourcing / supply network optimization, analysis, risk management, and emerging market management capabilities, a new class of specialized skills are required by strategic supply managers.

5. Control Tower Models replace Traditional Procurement Functions
Technology enabled centres of excellence are becoming the dominant Procurement model in leading Procurement organizations.

4. The Growth of Regional Local Sourcing
It’s taken a while, but home-sourcing is finally starting to happen. “Made in the USA”, the EU focus on Eastern Europe (and Poland, Romania, and the Ukraine in particular), and the shift to India and Indonesia from China.

3. Unpredictability Becomes More Predictable
With the chance of a major supply chain disruption for your organization exceeding 98% over the next 24 months, risk, resiliency, and preparedness is the new modus operandi for supply chains that can always predict that sooner, not later, something is going to go wrong. Leading organizations are adopting multi-tier visibility applications and optimizing costs and risk across the supply chain.

2. Corporate, Social, and Environmental
It only takes one scandal to send your stock in a downward spiral. As a result, CSR is taking a front page, especially since laws designed to protect workers and the environment are catching up in emerging economies.

1. Non Zero
Supply Management organizations are moving away from commodity sourcing events to strategic category management, using risk management to lower insurance rates and drive (hedging) investments, applying new multi-tier visibility and collaboration tools to drive trust, transparency, and reliability throughout the supply chain, and looking for ways to generate non-zero sum value for all parties.

The only trend SI did not like was number ten, Cloud Computing. It may be low-cost, but its reliability is in question. For example, 38% of Amazon Web Services instances have poor security! You have no clue where your data is, if it’s backed up, or who has access to it. And, most importantly, The Cloud is Not a Crystal Ball Either. And just like a real cloud, it can evaporate after a good rain!