Monday, January 11, 2016
Saturday, January 9, 2016
China Heightens the Contradictions - Bloomberg View
China Heightens the Contradictions - Bloomberg View
...underscored the inherent contradiction China faces -- between the leadership’s desire for the certainty of state control and the benefits of free markets.
...underscored the inherent contradiction China faces -- between the leadership’s desire for the certainty of state control and the benefits of free markets.
This contradiction has been part of the Chinese economic system since pro-market reform began in the early 1980s. The government’s model encouraged private enterprise, foreign investment and international trade while keeping the “commanding heights” of the economy -- the financial sector, critical industries -- firmly in state hands. ...
... this tension between state and market becomes more dangerous as an economy advances. We know this is true from the experiences of Japan and South Korea, which both used systems similar to China’s, produced similar results and then suffered similar problems. ... The only way to solve it is for the state to allow the market to hold more and more sway over the economy. ...
...The way China’s policy makers can restore confidence in their markets, their economy and their competence is to eliminate the state-market contradiction they’ve created. This means allowing the stock market to find its own footing, the yuan to discover its real value and state-owned enterprises to compete fairly with the private sector.
Wednesday, January 6, 2016
Private Equity KeyTrends – Record Distributions in 2015 Mask a Complex Reality - btbirkett@gmail.com - Gmail
Private Equity KeyTrends – Record Distributions in 2015 Mask a Complex Reality - btbirkett@gmail.com - Gmail
AN OLD VENTURE CAPITAL ADAGE IS DEBUNKED. “The widely held belief that 90 percent of venture industry performance is generated by just the top ten firms” is no longer true, according to a Cambridge Associates study. The study found that “in the post-1999 (i.e. post-bubble) period, the majority of value creation” has been “generated by deals outside the top 10.” Moreover, since 2005, “new and emerging firms have consistently” accounted “for 40 percent to 70 percent” of “value creation.” Writing in Business Insider, Alan Patricof and and Ian Sigalow, both co-founders of Greycroft Partners, call this “the new normal.” They add that since 2005, “managers with less than $500 million have accounted for a majority” of VC returns, “despite investing less money on average than the larger funds.” Cambridge concludes that if investors don’t take account of the democratization of venture capital, “they may miss attractive opportunities” to significantly boost returns.
AN OLD VENTURE CAPITAL ADAGE IS DEBUNKED. “The widely held belief that 90 percent of venture industry performance is generated by just the top ten firms” is no longer true, according to a Cambridge Associates study. The study found that “in the post-1999 (i.e. post-bubble) period, the majority of value creation” has been “generated by deals outside the top 10.” Moreover, since 2005, “new and emerging firms have consistently” accounted “for 40 percent to 70 percent” of “value creation.” Writing in Business Insider, Alan Patricof and and Ian Sigalow, both co-founders of Greycroft Partners, call this “the new normal.” They add that since 2005, “managers with less than $500 million have accounted for a majority” of VC returns, “despite investing less money on average than the larger funds.” Cambridge concludes that if investors don’t take account of the democratization of venture capital, “they may miss attractive opportunities” to significantly boost returns.
Tuesday, January 5, 2016
The Refragmentation - computing power was a precondition for the rise of startups
The Refragmentation
clips
war, conformity, lack of choice, apparent security
The effects of World War II were both economic and social. Economically, it decreased variation in income. Like all modern armed forces, America's were socialist economically. From each according to his ability, to each according to his need. More or less. Higher ranking members of the military got more (as higher ranking members of socialist societies always do), but what they got was fixed according to their rank. And the flattening effect wasn't limited to those under arms, because the US economy was conscripted too. Between 1942 and 1945 all wages were set by the National War Labor Board. Like the military, they defaulted to flatness. And this national standardization of wages was so pervasive that its effects could still be seen years after the war ended. [1]
Business owners weren't supposed to be making money either. FDR said "not a single war millionaire" would be permitted.
...Along with giant national corporations, we got giant national labor unions. And in the mid 20th century the corporations cut deals with the unions where they paid over market price for labor. Partly because the unions were monopolies. [10] Partly because, as components of oligopolies themselves, the corporations knew they could safely pass the cost on to their customers, because their competitors would have to as well. ...
... Within companies there were powerful forces pushing people toward a single model of how to look and act. IBM was particularly notorious for this,...
...There was no market; the expectation was that you'd work for the same company for decades if not your whole career. [13]...
changes
...But change was coming soon. And when the Duplo economy started to disintegrate, it disintegrated in several different ways at once. Vertically integrated companies literally dis-integrated because it was more efficient to. Incumbents faced new competitors as (a) markets went global and (b) technical innovation started to trump economies of scale, turning size from an asset into a liability. Smaller companies were increasingly able to survive as formerly narrow channels to consumers broadened. Markets themselves started to change faster, as whole new categories of products appeared. And last but not least, the federal government, which had previously smiled upon J. P. Morgan's world as the natural state of things, began to realize it wasn't the last word after all...
computers - supply chain options
Why didn't Henry Ford realize that networks of cooperating companies work better than a single big company? One reason is that supplier networks take a while to evolve. ... And the second reason is that if you want to solve a problem using a network of cooperating companies, you have to be able to coordinate their efforts, and you can do that much better with computers. Computers reduce the transaction costs that Coase argued are the raison d'etre of corporations. That is a fundamental change.
In the early 20th century, big companies were synonymous with efficiency. In the late 20th century they were synonymous with inefficiency.
...The companies in the S&P 500 in 1958 had been there an average of 61 years. By 2012 that number was 18 years. [18]
The breakup of the Duplo economy happened simultaneously with the spread of computing power. To what extent were computers a precondition? It would take a book to answer that. Obviously the spread of computing power was a precondition for the rise of startups....driven by computers in the way the industrial revolution was driven by steam engine...
Which in turn means the variation in the amount of wealth people can create has not only been increasing, but accelerating....
clips
war, conformity, lack of choice, apparent security
The effects of World War II were both economic and social. Economically, it decreased variation in income. Like all modern armed forces, America's were socialist economically. From each according to his ability, to each according to his need. More or less. Higher ranking members of the military got more (as higher ranking members of socialist societies always do), but what they got was fixed according to their rank. And the flattening effect wasn't limited to those under arms, because the US economy was conscripted too. Between 1942 and 1945 all wages were set by the National War Labor Board. Like the military, they defaulted to flatness. And this national standardization of wages was so pervasive that its effects could still be seen years after the war ended. [1]
Business owners weren't supposed to be making money either. FDR said "not a single war millionaire" would be permitted.
...Along with giant national corporations, we got giant national labor unions. And in the mid 20th century the corporations cut deals with the unions where they paid over market price for labor. Partly because the unions were monopolies. [10] Partly because, as components of oligopolies themselves, the corporations knew they could safely pass the cost on to their customers, because their competitors would have to as well. ...
... Within companies there were powerful forces pushing people toward a single model of how to look and act. IBM was particularly notorious for this,...
...There was no market; the expectation was that you'd work for the same company for decades if not your whole career. [13]...
changes
...But change was coming soon. And when the Duplo economy started to disintegrate, it disintegrated in several different ways at once. Vertically integrated companies literally dis-integrated because it was more efficient to. Incumbents faced new competitors as (a) markets went global and (b) technical innovation started to trump economies of scale, turning size from an asset into a liability. Smaller companies were increasingly able to survive as formerly narrow channels to consumers broadened. Markets themselves started to change faster, as whole new categories of products appeared. And last but not least, the federal government, which had previously smiled upon J. P. Morgan's world as the natural state of things, began to realize it wasn't the last word after all...
computers - supply chain options
Why didn't Henry Ford realize that networks of cooperating companies work better than a single big company? One reason is that supplier networks take a while to evolve. ... And the second reason is that if you want to solve a problem using a network of cooperating companies, you have to be able to coordinate their efforts, and you can do that much better with computers. Computers reduce the transaction costs that Coase argued are the raison d'etre of corporations. That is a fundamental change.
In the early 20th century, big companies were synonymous with efficiency. In the late 20th century they were synonymous with inefficiency.
...The companies in the S&P 500 in 1958 had been there an average of 61 years. By 2012 that number was 18 years. [18]
The breakup of the Duplo economy happened simultaneously with the spread of computing power. To what extent were computers a precondition? It would take a book to answer that. Obviously the spread of computing power was a precondition for the rise of startups....driven by computers in the way the industrial revolution was driven by steam engine...
pay - Yuppies started it
CEOs of big companies make more now than they used to, and I think much of the reason is prestige. In 1960, corporate CEOs had immense prestige. They were the winners of the only economic game in town. But if they made as little now as they did then, in real dollar terms, they'd seem like small fry compared to professional athletes and whiz kids making millions from startups and hedge funds...
...a similar fragmentation was happening at the other end of the economic scale. As big companies' oligopolies became less secure, they were less able to pass costs on to customers and thus less willing to overpay for labor...harder for unions to enforce their monopolies. As a result workers' wages also tended toward market price...
cohesion vs. fragmentation
...And just as the mid-century model induced social as well as economic cohesion, its breakup brought social as well as economic fragmentation. People started to dress and act differently....
income inequality, fragmentation + technology - increasing
...The form of fragmentation people worry most about lately is economic inequality, and if you want to eliminate that you're up against a truly formidable headwind—one that has been in operation since the stone age: technology. Technology is a lever. It magnifies work. And the lever not only grows increasingly long, but the rate at which it grows is itself increasing.
Which in turn means the variation in the amount of wealth people can create has not only been increasing, but accelerating....
...as long as it's possible to get rich by creating wealth, the default tendency will be for economic inequality to increase... but unless taxes are high enough to discourage people from creating wealth, you're always going to be fighting a losing battle against increasing variation in productivity. [24]
conclusions
...the tendency toward fragmentation should be more forever than most things, precisely because it's not due to any particular cause. It's simply a reversion to the mean. ...we'd be better off thinking about how to mitigate its consequences
The Morning Ledger: Lured Out of Retirement, a CFO Returns to the Trenches - btbirkett@gmail.com - Gmail
The Morning Ledger: Lured Out of Retirement, a CFO Returns to the Trenches - btbirkett@gmail.com - Gmail
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Freeport-McMoRan's Cerro Verde copper mi! ne in Peru is spread over 150,000 acres and will eventually produce a billion pounds of copper a year, 3% of the world’s production. John W. Miller/The Wall Street Journal |
| Supermines feed vicious metals circle. Giant mines, begun when prices were high, are adding to the oversupply of copper, iron ore and other metals, compounding the woes of the depressed mining sector. The big mines cost so much to build and extract minerals so efficiently that mothballing them is unthinkable—running them generates cash to pay down debts, and huge mines are expensive to simply maintain while idle. But as a result, their scale means they are helping miners dig thems! elves even deeper into the price trough by adding to a glut. |
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