Author Archives: einsler

… My Favorite Entrepreneur

MomofukuOver my years (well, year and a half) at business school, I’ve been asked a handful of times, in formal interviews and informal settings, who my favorite entrepreneur is. I didn’t have an answer. However, over the last few months I’ve become increasingly impressed by David Chang. I’m now prepared to formally declare him my favorite entrepreneur.

David is a restauranteur. He opened Momofuku Noodle Bar in the East Village of New York City in 2004. It served Asian buns and noodle bowls. It gained a reputation for serving tasty food, and David opened another restaurant nearby. It did not take on quite as well, and was at risk of closing. David and his team scrapped the kooky Korean dishes for a more inventive late-night menu, and people began to show up in droves. He also fostered a friendship with a New York Times food writer, Peter Meehan, and in 2009 they published a cookbook inspired by Momofuku.

The cookbook was not David’s last foray into media. With Peter, he started a magazine called Lucky Peach (it recently published its last edition), and they have a new show on Netflix called Ugly Delicious. David’s restaurant business has proliferated into an empire, with approximately 13 properties around the world. In addition to the restaurants, he has a fast-casual fried chicken sandwich chain called Fuku and co-owns a chain of soft serve ice cream and cookie joints known as Milk Bar.  David is also prolific on Instagram, with far north of one million followers across his personal and professional accounts. He has made #uglydelicious one of my favorite hashtags. He was just in South Korea (David is a first-generation Korean-American) working with NBC on the Winter Olympics.

David’s work has always had a hint of the digital to it. Momofuku Ko is David’s two Michelin star restaurant. You can dine there by online reservation only, and it only has a tasting menu. Reservations become available 30 days prior to the day of service. David extended this online-only idea into a food delivery concept in New York called Ando. It was a delivery only company that aimed to use technology to revolutionize the food delivery space. It received millions of dollars in funding, but always had rocky business fortunes. In January, Uber Eats acquired Ando and will be integrating Ando and its technologies into the Uber Eats platform.

David did not stop at food service, media, or technology. He has also dived into food research. This has sparked a line of packaged food products that take seemingly off-kilter approaches to traditional Asian staples. David sells a miso made from chickpeas, sunflowers, or pistachios that he calls hozon and a grain-based soy-type sauce called bonji. I think my friend Dave (not Chang) even had a bonji Old Fashioned at Momofuku Má Pêche when we went there back in November. That meal remains my only Momofuku dining experience (although I did get a Compost Cookie at Milk Bar upstairs after the meal).

In addition to the packaged foods, David has partnered with a food lab called Booker and Dax to sell kitchen appliances. They have a special blowtorch for food, a food centrifuge, and a special tumbler for cocktail shakers. Booker and Dax is now also a bar inside one of David’s restaurants.

So why is he my favorite entrepreneur?

Sure, he is successful, but there are plenty of successful entrepreneurs, even more so than David. What I admire about David is that he has used different types of business to ever-expand his empire further outward, but has always kept a connection to his roots. It’s all food related, and shares similar themes of experimentation, and even the melding of the culinary and the technological. I value narrative as a high art form, and David seems to always have a narrative – whether it be literally telling stories on television shows or speaking about Asian gastronomy through his dishes.

Shanghainese eggplant: in the #uglydelicious hall of fame

A post shared by Dave Chang (@davidchang) on

I’m also excited to see how David can use his knowledge, experience, and funding, to make a positive impact on the world. He talks about improving the quality of life for food service employees. Booker and Dax is about finding solutions to food problems. Ando was about innovation in food delivery, and Ugly Delicious tackles issues of culture, politics, and place in the world. I hope that David, his team, and his posse expand the empire a little bit further and strive to make a persistent, positive impact that uses good business sense and a positive narrative to leave the world better off.

Advertisements

… Writing & Technology

In a past life, I had a job as a Credit Analytics consultant with Ernst & Young. I whipped up more than my fair share of spreadsheets and coded up a few SAS analyses here and there for the banks I worked with. However, the most important part of my work was the documents I wrote. Distilled into one sentence, my job as a consultant was to synthesize analytical work into model validation reports and model methodology documentation. At one bank I wrote over 500 pages of text, and over my more than two years with EY I produced more than 1,000 pages of analytical documentation.

However, my true love for writing and a passion for technology both blossomed while I was a Volunteer in the Peace Corps.

Writing seems like something that naturally goes with Peace Corps service. Volunteers have tons of meaningful experiences and tons of time for reflection. That lends itself to writing. I did plenty of writing, mostly on my two blogs, both of which I continue writing on to this day. However, technology is more of a non-sequitur with Peace Corps service. I did not have much access to technology, so how did I become so interested in it?

IMAG0335.jpg

Me being Nicaraguan

Along with time to write, Peace Corps service gave me a lot of time to read. I had to tell my mom to stop sending me links to articles. I had inevitably already read them. I read most of the NY Times on a daily basis, and my parents got me a digital subscription to The Economist. I also devoured much of Wired, and whatever else popped up around the internet and on my Facebook feed.

Digesting all of this information led me to realize that technology could go a long way to solve many of the problems that Nicaragua and other lesser-developed countries around the world face. Even more so than ‘technology,’ which is a word typically associated with something tangible or engineered, there is a thirst for innovation in lesser-developed countries. New ideas, new ways of doing things, and connecting disparate ideas to come up with novel solutions to problems can all be used to solve the problems of international development. Even a staid and old idea in one culture might be embraced as new and promising in another.

When I completed my Peace Corps service I entered business school intent on learning about global business, operations management, entrepreneurship, and technology and innovation.

Midway through business school, during the height of my summer internship with UPS, I felt confident that I had the skills to try to tackle some of the problems I encountered in Nicaragua. I founded a startup in July 2017 called ChickenBus. It is a socially minded tech startup dedicated to improving access to public transportation in lesser developed countries. The MVP is under development, and I hope to ship in Q1 2018.

Read the continuation here on my other blog, Incidents of Travel

… One-to-Many

Think back forty years to how businesses used to operate and grow. Someone would cook up a good idea for a product. A company would be formed around that idea to manufacturer it, warehouse it, and then distribute it. Supporting these functions were a sales, marketing, and finance workforce. If you invented something, you then had to get machinery to manufacture it and hire a sales force to get it into the hands of customers. There were few other options.

Since then, businesses have evolved considerably. If someone has a good idea for a product they design it and market it. That’s it. Manufacturing is outsourced, often offshore. Sales are facilitated through e-commerce marketplaces. Fewer and fewer companies are bothering to have their very own websites, let alone a brick-and-mortar store. Logistics are handled by third-party logistics providers. Going asset-lite is the way to go. That lets you rapidly scale scale scale if you want to.

The other side of the coin is the companies that are providing all of these support functions. Since they have to own the assets – whether they be warehouses, vehicles, servers, machines, or financial capital, they have an incentive to be very large companies. Scale is their friend. In fact, it is imperative for success.

What has emerged is a dumbbell economy: On one side, you have many small weights that all add up to a hefty load of economic activity. There is a bar connecting these weights to the other side, which is comprised of a few heavy weights. Summed together, the few heavy weights equal the weight of the smaller weights on the other side, but there are far fewer heavy weights than there are small ones.

The dumbbell economy can be best illustrated through these two graphs. While companies with 1,000 or more employees make up just 0.21% of all companies in the United States, nearly 40% of all privately employed workers in the United States work for one of these companies.

Source: https://www.bls.gov/bdm/bdmfirmsize.htm

I’m not the only person to have made this observation about the shape of the economy. The Economist reported on it in 2016. Deutsche Bank also wrote a report on the matter.

In this dumbbell economy, the few heavy weights represent large service corporations that provide services and other knowledge-economy goods to other companies. These include Microsoft, Dell, IBM, Amazon, the Big 4 accounting firms, UPS and FedEx, Google, Maersk, Delta, Caterpillar, John Deere, and Salesforce.com. The many smaller weights represent small and medium businesses. These include mom and pops and specialty stores, but they are not only brick and mortar. Growing online brands, artists, and many other private companies are on the lightweight side of the economic dumbbell. To complete the metaphor, the bar connecting the two sides of weights represents infrastructure. Roads, airports, cables, and public utilities, which are essential for commerce to be able to function. Government is the arm that curls the dumbbell and makes it move. If the government is not exercising then iron won’t get pumped – the economy will not function properly and grow.

The heavyweight companies invest in assets and then sell them as a service to the lightweights. Without the heavyweights, the lightweights would not be able to grow as fast and expand their reach as wide. The most successful heavyweights are those that are most valuable to the lightweights. Those that can help the smaller, growing companies the most while pinching the lightweights’ bank accounts the least will find themselves with the most demand, as well as investors willing to provide cash to allow them to invest and grow.

While the dumbbell is a useful analogy to understand this phenomenon, I think that it is most appropriate to call this one-to-many. One company can support activity for many others.

It may be best to provide a hypothetical example. For the sake of illustrating my point, I will bold all of the heavyweight companies that I mention in my narrative:

Imagine that I am an engineer, and with the assistance of Autodesk design software I invent a great new device that I want to start selling. I’ve drummed up a lot of support for my nascent product by creating an Instagram account for the device, but I do not have any capital to start production, so I start a crowdfunding campaign on Indiegogo. I raise enough money to begin production, and I hire a contract manufacturer in Asia to begin batch producing the device. I pay FedEx as my freight forwarder to get the batches from Asia to the United States, where I will offer the device for sale. My primary sales channel is Amazon.com, although I store the units in my home and ship them upon receiving an order using UPS and the US Postal Service.

I do have a website which is hosted by GoDaddy.com. It’s basically just a landing page for people who find the device through Indiegogo. It forwards them to the Amazon product page so they can make purchases. However, as sales continue to grow, I continue to design, and support grows for my ideas, I raise some additional money from a venture capital firm. With this money, I hire some employees, and we move into an old industrial area in my city that has been repurposed as a business campus. It’s perfect for my small business that needs a lot of space for industrial design work.

As we launch new products and have a steadier flow of inventory crossing the ocean from Asia, we make a concerted effort to strengthen our brand and diversify our sales channels away from Amazon.com. We build out our website and hire a third-party logistics provider to warehouse our inventory. We want to be able to take orders online and receive payments so we pay for some third-party software plugins and also work with Paypal. We also use some third-party digital marketing software services and pay for adds on websites like Google and Facebook.

The beauty of the one-to-many economy is that it allows new ideas for products and services to be born, grow, and be distributed to consumers who find them appealing and valuable. The problem, some may say, is that we continue to feed the “heavyweights” and cede more and more economic power to them as a result.

One-to-many supports a vast number of growing small and medium businesses, but it also necessitates the existence of a few large third-party providers – the heavyweights. Many people dislike the control of these large companies. In the wake of Amazon’s acquisition of Whole Foods some people said that there were anti-trust concerns. Goldman Sachs has been described as rather tentacular. The EU just slammed Google with a multi-billion Euro fine.

“[Goldman Sachs is a] great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”Matt Taibbi, “The Great American Bubble Machine,” Rolling Stone, July 9-23, 2009

To ease some of the discomfort that we have with the heavyweights having more and more control over the economy, we have to think about ways that we can leverage the one-to-many economy to nurture the economic activity that we most value. Use the heavyweights to make the lightweights as attractive as possible.

What exactly are the elements of capitalism that we value, particularly in the United States?

  • Creativity and art
  • Entrepreneurship (and equality of opportunity)
  • Diversity and inclusion
  • Equality
  • Innovation
  • Distribution of income and wealth
  • Family business
  • Sustainability
  • Poverty alleviation

The heavyweights need to proactively ensure that they are not hindering the attainment of any of these values. They may also go a long way in earning widespread public support if they are proactively supporting these values. Aligning themselves with these values may also strengthen their businesses. However, just creating a foundation and donating to community causes is not enough when it comes to the heavyweights. Their core business functions need to keep these values in mind.

My hypothesis here is far from original. Michael Porter, Harvard professor of Porter’s five forces fame, called this concept, “creating shared value,” in his 2011 HBR article with Mark Kramer. I’ve simply contextualized it here using some new data and appended my proposals to the “shared value” idea.

Here are some examples of companies that I think are going a good job:

3dp_fusion360_autodesk_logo

Autodesk, which creates and sells software for design (AutoCAD is one of their hallmark products, but they have countless other programs which are used in 3D design and printing, animation, architecture, and more fields), has heavily invested in education (primary through university), entrepreneurship, sustainability, and medical innovation. Students, entrepreneurs, and teachers actually receive free access to Autodesk software. They figure that by advancing these fields they will build goodwill, train practitioners that will in the future become loyal customers, and the company may even position itself to capture a lot of business in emerging fields, such as Internet of Things and augmented reality/virtual reality.

UPS has gone one step further and has come up with a way to help the customers of their customers. Rio Grande (whose parent company is Berkshire Hathaway) is a manufacturer of speciality jewelry equipment. They ship with UPS. This year, Rio Grande created a membership program for their customers called Rio Pro. UPS became a partner with Rio Pro and offers discounted shipping services to Rio Pro members. In this relationship structure, everyone wins. Rio Grande’s customers are pleased because they get access to discounted shipping. Rio Grande wins because their customers are more satisfied and more successful. UPS wins by bolstering its relationship with Rio Grande as well as building a trusted relationship with a number of growing small businesses.

RioPro

DHL, one of UPS’s main competitors, particularly outside of the United States, is creating an online marketplace for brick and mortar retailers in its headquarters city of Bonn, Germany. The marketplace is called Allyouneedcity, and I highly doubt that DHL is doing this just altruistically. They certainly hope that it will help support the retailers, but it also opens up opportunities for them. For example, they could use this marketplace to launch a pilot of same-day delivery, or they could expand the marketplace to compete with increasingly powerful e-retailers and expand DHL’s own revenue channels.

Amazon launched an interesting program this year, in which families on government assistance (SNAP and TANF) can receive a discounted membership to Amazon Prime. Prime is a large sales channel for retailers selling on Amazon’s marketplace (third-party e-commerce sales are actually growing faster than traditional e-commerce), so this will give those retailers more access to lower-income earners. On the face of things it might just seem like Amazon is shooting across the bow of Walmart, or even that they are trying to exploit lower-income individuals. With Amazon forging more and more into e-groceries, different kinds of merchandise, and value-added services, this discounted Prime service may actually improve access of lower-income individuals to products that they need for their health, nutrition, well-being, and income generating activities. Access, particularly in areas known as “food deserts” where there are no nearby grocery stores, is a serious problem for lower-income individuals. Amazon’s new service may be beneficial to its bottom line and help its customers as well.

In my opinion, Facebook may be the heavyweight that is most struggling with its vaunted position. It grew to prominence by facilitating a kind of social interaction that had never been conducted before. However, these sharings are increasingly being pushed to other platforms in the Facebook ecosystem, such as Messenger, Instagram, and WhatsApp. That’s left Facebook with a free speech billboard. At its most benign, people would say that Facebook is just a dumping ground for useless videos, blurry photos, and pitiful updates on people’s lives. At its worst, it’s a hate-littered echo chamber that is being used to manipulate people into believing things that are patently false.

Facebook is far from doomed. It remains a very successful company, and I believe that it offers a lot of value to society, despites the criticisms. However, to remain relevant, it needs to start focusing more on economic values. For instance, I could imagine Facebook launching an AI assistant (a la Siri or Alexa – it’s so in vogue these days) that focuses on social connections (I’m partial to the name Joffrey, but that’s up to Mark).

“Joffrey … when was the last time I talked to George?’

“It’s been six years since you last heard from George. Would you like to contact him now?”

“No, that’s alright, he’s probably busy.”

Meanwhile, in George’s house:

“George, I see it’s been awhile since you spoke with your friend. Would you like to contact her?”

“Yes, I would.”

“How would you like to contact her?”

“By e-mail.”

“Would you like a summary of your friend’s activity since the last time you spoke to her before we write an e-mail?”

“Yes I would Joffrey.”

There are various permutations of how Joffrey could facilitate meaningful interpersonal interactions around the world, and help with networking, friendships, tourism, mental health, and education. Facebook would benefit as well, because the more activity that takes place within their network, the more opportunities it has to monetize the activity.

There are countless more examples of how heavyweights can focus on economic values. Imagine if AT&T offered a comprehensive telecommunication plan for refugees arriving to the United States. Even more so, they could offer a special plan to refugees starting new businesses. AT&T would make great strides in facilitating communal integration for some of the neediest people in the world and helping them become successful members of society. If AT&T could expand this plan to include additional social support services, educational and NGO partners, as well as language assistance (Rosetta Stone or DuoLingo) then even more value could be created, and at little additional cost to AT&T (I only choose AT&T because it is one of the largest telecommunication companies in the country).

In coming years, one-to-one many businesses will continue to not only shape, but shake markets. Much has been said about the impending doom of brick-and-mortar retail. However, emergent one-to-many type companies are already nipping at the heels of e-retail juggernauts like Amazon. Instagram, owned by Facebook, has a retail team. Their goal is to let users make purchases without ever leaving the app. Amazon has already taken steps to respond to this emerging threat by introducing Spark, its own social media platform for product discovery.
Even being an established one-to-many titan for many years no longer guarantees the continuation of a business model.

For instance, banks

, credit card companies, and other financial one-to-many companies need to make plans to integrate with these the new heavyweights of commerce or they may find themselves cut off from what were once reliable and steady revenue streams. Other one-to-many companies can partner up behind your back and uproot your market position. UPS and FedEx should heed this warning and consider new one-to-many retail patterns. Transportation and logistics upstarts, such as Uber RUSH and Deliv (which, granted, UPS has invested in) are already directly integrating with large retailers as well as payment processing companies such as Clover.

As one-to-many companies begin to support more and more smaller businesses, and the connections among firms become more and more complex, I begin to see the economy less traditionally, with individual companies making one-off transactions of goods or services. Instead, I see an economic mesh. Every transaction is distributed among many different firms in the economy, and these transaction could not be successfully completed without all of the firms working together. The heavyweights may continue to grow, and some people may get very rich as a result, but so long as they are supporting opportunity for millions of other people and in-line with our economic values then it is a win-win outcome.

Joffrey: “Catelyn, I noticed that your sister Lisa just posted a photo on Instagram from near you. Would you like to send her a message?”

Catelyn: “No Joffrey, that’s ok, thank you.”

… Shipping Packages

… Artificial Intelligence

Over the last year artificial intelligence (AI) has become nearly ubiquitous in the news. Just recently, Elon Musk called it a threat to human civilization. His warnings have been the direst, but many other people think that AI has the potential to replace billions of human jobs, and we need to adapt now to prevent mass-unemployment.

This represents a naïve view of capitalism, but one that is increasingly popular with politicians, pundits, and people who listen to them. Jobs may certainly be cut, but it is more likely that new jobs, in the traditional sense, simply will not be created. Companies will reduce labor costs across the board, leaving more profits for business owners and their remaining knowledge workers. Prices for goods and services that involve automated labor will also come down, relative to all other prices. The result will be more discretionary income, and where we choose to spend it will determine in what sectors new jobs will be created. Certainly, there will be people left behind, at least temporarily. Society may need to step in and assist those people. However, in the long-term, so long as workers have the necessary knowledge skills to manage AI, automation, and other technologies, the economy will benefit, and not be harmed, by the AI-age.

As more and more work becomes automated, there will certainly be less work to be done, in the aggregate, by humans. There is always the opportunity for new work to emerge – work that does not exist today and work that we have not conceived of yet as being possible, necessary, or important. However, this work may also be able to be automated. Some may say that there will always be work for humans to manage the automation – repairs on robots and writing code for the automation software, to begin with. I see no reason to think that this cannot be automated either.

As a result of this ubiquitous automation, there may be no jobs left for humans at all, sometime in the future. People fear that we would be left with artificial/robotic economic overlords. I also think that this is a naïve understanding of the economy. In fact, I think that the AI-age could also be a post-capitalism age. People would work less and the work left to us would be judgement based. How do we apportion the food that the robots are cultivating? Who should have the rights to exploit minerals that we can mine from the Earth (and asteroids!), since nearly everyone would have limitless abilities to produce with those metals and minerals? I doubt that we would want to automate the answers to these types of important questions. Even if we did want to, it would not be wise, because the ability to think critically would then be diminished worldwide and not be passed down to future generations. In some respects, everyone in the post-capitalism age would be one of Plato’s philosopher kings. We could also dedicate more work-time to art and creation, as well as its consumption.

AI isn’t just ubiquitous in the news anymore. It is become increasingly common in our homes and in our pockets. Chat bots and digital personal assistants and home devices like Amazon Echo’s Alexa, Siri, and Google Now are all examples of artificial intelligence. My phone is always trying to guess where I am and when I should leave for events. That’s AI in my pocket (I’ve actually been meaning to turn that off, since I don’t have a car).

As AI proliferates, so too does how we are talking about it. Along with AI, people mention machine learning, deep learning, and cognitive computing. In general, it seems to me that AI is an umbrella term that encompasses all of these techniques. In popular terms, AI refers to consumer applications where a computer is emulating activities that we would typically conduct with another person. Think of talking with Alexa as a prime example. Getting down-to-the-minute weather predictions from an app, rather than a meteorologist, is another good example. In more technical terms, AI refers to all applications in which a computer is doing what used to be restricted to the domain of a biological brain: sensing and cataloguing information, processing and analyzing it, and using that synthesized information to recognize patterns, to make predictions, and to take decisions.

Ex Machina

Machine Learning

Consider a smart watch or wrist band that records the time its user wakes up every morning for an entire month. After collecting that data for a month, it calculates an average weekday wake up time and sets an alarm automatically. For three out of five proceeding weekday mornings the user snoozed the alarm ten minutes, and on two of the mornings the user got up as soon as the alarm went off. Using this new information, the wearable revises the wakeup time to be slightly later, and thereafter continues to monitor and revise the wakeup time according to the user’s actual behavior.

This is an example of machine learning. Without any user input the machine makes inferences, assesses their veracity, and iterates accordingly. However, it’s quite rudimentary. The techniques used are fairly basic, and the result was not something that the human mind could not have arrived to on its own.

A more complex application would involve inferring where the user works based on normal daily travel patterns (unless you have turned it off, your smartphone is probably already transmitting this information), and then analyzing traffic on the roadways and the activities of other users to automatically set the user’s alarm so that they arrive at work (or school, or the gym, etc.) at their preferred time. By relying on more information for decision making the analysis techniques become more complex and begin to resemble artificial intelligence.

More important to understand than the capabilities of machine learning, is that its approach to information analysis vastly different from traditional analytical decision making. For instance, a financial institution can feed a computer vast quantities of information on borrowers and their loan performance history. A machine learning program could then process all of this information and determine what variables are best correlated with loan performance. Traditionally, a bank would apply financial and economic theory to create credit models and then test the model, altering it to find the best fit. The machine learning approach relies on a completely different paradigm. Rather than approaching the problem with a basis of assumptions, using machine learning implies ignorance, or at the very least an openness to unanticipated patterns and relationships. Machine learning tests all possible relationships and patterns and makes the best predictions, even if they go against our intuitions. Industries and practitioners that are not accustomed to this approach or unwilling to appreciate its merits may soon find themselves outpaced and outperformed by more machine-savvy competitors.

Deep Learning

Deep learning is an even more sophisticated form of machine learning. Deep learning employs a non-parametric data analysis technique called neural networks (or neural nets) to identify relationships between data. The technique is referred to as a neural net because it resembles the structure of neurons in the brain.

Here is a YouTube video that does a fairly good job of explaining the technique in a short amount of time:

https://www.youtube.com/watch?v=i6ECFrV_BVA

Simple!

Deep learning is powerful enough to accomplish advanced pattern recognition – pattern recognition which can be deployed in situations as diverse as understanding what is happening on city streets and high-speed highways (self-driving vehicles) to learning what different types of animals look like and then making drawings of them. I can imagine a deep learning application that is fed many thousands of oncological images and trains itself to identify cancer. As doctors confirm or reject the conclusion of the program it would store this information and refine its own predictions. Eventually, the program would become more accurate than doctors and radiologists.

This extreme accuracy is what has people such as Elon Musk concerned about artificial intelligence. Will we need doctors if algorithms are better at their work than the doctors themselves?

Cognitive Computing

Cognitive computing is a term I have been hearing less and less. Artificial intelligence seems to have become the preferred buzzword. However, I think that cognitive computing retains a unique definition and is useful to understand many technologies. Generally, cognitive computing are computing processes that are designed to emulate how humans process information and think. Watson is the most famous cognitive computer, and its name and its promoted abilities all seem to allude to a human mind.

One of Watson’s abilities is natural language processing. Rather than having to be fed data in a neat spreadsheet or form, Watson can consume unstructured data, make heads or tails with them, and then process the data. In business school a common assignment is creating a pro forma financial statement from a professor’s explanation of the financial conditions of a company. It’s fairly rote and mechanical. Students have to translate the explanation of the finances into a familiar form which then does the mathematical processing. Cognitive computing skips that translation step. It can understand the natural language explanation of the company’s finances and directly make the necessary computations for the pro forma.

In fact, it seems that Goldman Sachs and other investment banks are doing just that. They’ve been announcing more and more investments in AI along with reductions in the sizes of their M&A teams over the last few years. Goldman Sachs may have gone the furthest. Their CEO has declared that Goldman is really just a “tech” company, and the former Chief Information Officer is now the CFO of the company.

Machine-powered gaming is also a direct application of cognitive computing, because it pits computer cognition directly against human cognition. AI watchers were stunned early this year when a Google designed machine was able to defeat a Go master. Go is an ancient Chinese game that is strategically very complex. For those of us of the Indo-European persuasion, Go is more difficult and complex than chess.

Quantum Computing

One of the challenges with artificial intelligence is that conventional super-computers do not possess enough processing power to crunch through all the nodes in deep neural networks fast enough. Physicists and computer engineers are working on a solution known as quantum computing. Traditional computers store information in bits, which can either represent a 1 or a 0. However, using the quantum physics concept of superposition, a quantum bit, or qubit, can exist in both states at once. If engineers can create stable computers that harness qubits, computing power will exponentially increase.

Here is a good explanation of the concept and recent developments in the field.

Quantum computing would rapidly improve our abilities to create deep neural networks and accelerate the development of artificial intelligence. However, quantum computers will be so powerful, they may be able to easily crack the codes of even the most powerful computer encryption and security systems. Parallel to the development of quantum computing, society needs to invest in new cyber-security techniques that are complementary to quantum computing, not made obsolete by it.

 

I encourage everyone, no matter what job they have, what they enjoy doing, or how they interact with other people in the world, to consider, ‘how can some of the tasks that I do be automated?’ Try to imagine what it would take to automate the task and what the analytical system would be structured like. Then think about what value you can add as an individual, so that you remain necessary, despite the elimination of a human performing the task. Also consider how society needs to prepare and train its members so that the most people benefit from the advantages of AI, and the fewest people are left behind. That is likely the true message the Elon Musk is urging our policy makers to hear, and I hope that they hear it.

… Complaining About Airlines

… Economic Development, a Reflection

The preceding article was posted at 1:14 AM EST, the time that my flight was scheduled to take off from Nicaragua. This article was posted at 5:43 AM EST, the estimated landing time in Ft. Lauderdale.

Originally I had envisioned a grand follow-up to the preceding article. I wanted to reflect on a year’s more experience in Nicaragua, present some economic research, and pontificate about Capital in the 21st Century. Unfortunately, time got away from me and I have not had sufficient time to formulate, research, or write the article. I still very much intend to (I have a brand new Lenovo X1 Carbon awaiting me at home in NY and I know exactly what the first assignment I complete on it will be), but for now I can present a few brief points and observations:

  • First, I think it is clear from the article that I disliked much about the Sandinistas. This is still the case. However, I no longer think that removing them from power is the ideal solution. The opposition in Nicaragua is very disorganized and arguably more corrupt than the Sandinistas. Nicaraguans themselves need to band together, from the left to the right, and denounce corruption in all of its forms, in both parties. I was extremely pleased that Guatemala was able to peacefully do just that last year, and I see no reason why a popular movement cannot improve the state of politics in Nicaragua as well.
  • I still believe that the Trees of Life are an exaggeration. Furthermore, it is wrong to use public funds for propaganda in the absence of a thoroughly democratic budgeting process. Even more so, I found out that the trees are built by Ortega’s son’s metallurgy firm. I haven’t bothered to check, but any guesses as to whether the fabrication went to a competitive bid? All of that being said, the trees are not ugly and making Managua (or León for that matter – Chayo gave us our first one as a Christmas present in December) a worse place to live. They have been an integral part of the revitalization of Old Managua which is certainly a boom for the city’s economy and quality of life standards. What the Trees of Life need is a balance – democratic budgeting that balances urban beautification and aesthetics with other needs of the city and the country.

DSCN0463

  • One of the main points of my article was the idea of “Group Based Development.” I now realize that that is nothing new. It has been around for decade, especially in the form of gender based development. Development organizations and governments have been working with women since the 1970’s. I suppose I did not recognize this at first because of how disillusioned I am with the current state of gender based development. My main complaint is that it can be extremely gender normative. Organizations and governments tend to develop the skills of women only in fields that we traditionally associate with women, such as textiles, jewelry, and food preparation. What they should be doing is helping women access the most productive industries in society. Furthermore, development organizations and governments should be working with men to give women access to these more productive fields. Lastly, organizations and governments should be working with men to have them more highly value traditional women’s work so that wages go up and men begin to work in these fields as well.

However, I still think that group based development can be further emphasized in development. Poverty may be entrenched in society because of the structures and institutions of society. Without directly addressing the structures of society development organizations are not going to make much progress. However, if we work with underprivileged groups within this system we may make more progress. Women are not the only marginalized group in society. If government and society are effectuating the marginalization then external support is important to accelerate change (I certainly don’t want to say that a marginalized group can’t help itself – it has certainly happened before, but external support can be helpful as well).

  • Lastly, my opinions on the charter cities has turned very negative, especially after having traveled to Honduras and read more about the state of politics in that country. The extractive institutions in a country may very well be the corporate class, so ceding them power over municipalities is not likely to change anything. I am currently writing an article on my trip to Honduras and will write more about this in the next few weeks.

… Economic Development

… the Tea Party

Jeb HensarlingHow is it that I often hold the same opinions on legislation as Jeb Hensarling?

Jeb Hensarling is not a person I am particularly fond of. He consistently votes against hate crime legislation, LGBTQ rights, pro-choice and women’s rights, and other morally correct things to do. He is socially conservative, and promulgates all of the negative social rhetoric that characterizes social conservativism. The world would be a better place if he were not a Member of Congress. Nevertheless, I actually agree with many of his positions on economics. How could I be so diametrically opposed to conservatism and yet agree with some of his policy?

I think the answer to this question lies in the distinction between social and economic policy, or more so, social conservatism and economic conservativism. I would characterize my political position as economically conservative, and much farther to the left socially. As a society we have coopted all of conservatism into Republicanism, and all of liberalism into being a Democratic, but truly that is not the case. The political spectrum is at least two-dimensional, and I certainly do not identity myself on the one-dimensional left-right spectrum.

Jeb Hensarling is the Chairman of the House Financial Services, which makes his opinions on financial matters of outsized importance. And recently, he has come out against a number of policies that I too do not hold favorably:

  • Export-Import Bank
  • Flood Insurance
  • Terrorism Insurance

Before diving into the policies and the foundations for our opposition, it is helpful to expound a bit on my personal economic philosophy. Market intervention is warranted by the government when there is the presence of a market failure. Furthermore, regulation is justified when government policy creates perverse incentives that ought to be contained. For instance, heavy industry generates pollution, which is a cost that people who do not necessarily consume the products of industry have to incur. This is known as a negative externality and is an example of a market failure. Therefore I believe that the government has a role in helping to resolve this failure.

Similarly, many countries in the world have deposit insurance for banks. Because of this assurance banks may take more risky gambles. This is known as moral hazard. Therefore I believe that the government is justified in regulating banking, insofar as the regulations are crafted to control the moral hazard that its policies create. However, beyond these types of corrective interventions in the market, I believe that the government should not intervene and let market forces prevail, which is to the benefit of all actors in the economy. I believe that those statements express a philosophy of economic conservativism. And certainly, in terms of economics, I may not be as far right as certain conservative politicians – the Rands come to mind – but I am certainly to the right of most self-identified liberals.

Export-Import Bank

Recently, since this section of the article was drafted, Congress outgunned our man Jeb and pushed the reauthorization of the bank through

The Ex-Im Bank is a government sponsored enterprise, first established during the FDR Administration. It borrows money at the government borrowing rate (Treasury rate), and then uses that money to support American industrial exports abroad. It has four main financial programs:

  • Direct loans to foreign purchasers
  • Guaranteeing loans made by banks to foreign purchasers
  • Insuring loans made by US exporters and banks to foreign purchasers
  • Loan guarantees for working capital lines of credit made by banks to American industrial firms

The purpose of these financial activities is to promote exports; in particular, to finance exports that the private sector deems too risky. Loan guarantees make up the bulk of Ex-Im financing. Direct loans are second up. Smaller firms typically take advantage of the working capital guarantees, particularly since their banks get nervous when receivables are in a foreign currency.

Due to the Ex-Im Bank’s ability to borrow at the Treasury rate it is a very profitably institution. So profitable in fact, it kicks money back to the Treasury – about $1 billion a year. The bank is not appropriated any budget funds, and has a very low default rate. However, the mission of the bank is not to generate income for the federal government. The purpose is to promote exports, support the American industrial and manufacturing economic base, and create jobs. Jobs jobs jobs!

airplaneHensarling & Co. dislike the Ex-Im Bank because they consider it “corporate welfare,” a clever piece of rhetoric meant to mean, ‘giving money to rich companies that don’t need taxpayer help making any more of it.’ They claim that for all the money it dishes out it is fundamentally excluding other businesses. Other worthy businesses. And this is not right, so they oppose the bank, which primarily support America’s largest companies, such as Boeing, GE, and Caterpillar.

This simply is not the case. To construct the Ex-Im Bank as a deliberate attempt by the US government to support fat cats at the expense of other businesses is a distortion of reality. The government does not spend any money on the bank. Given the government’s ability to borrow at low rates, the government could set up any number of financial institutions with a similar financing model and support any industry it sees fit. It just happens to be that for 80 years the government has chosen to specifically support industrial exports (and many other industries, which the Tea Party is choosing not to mention). The opponents of Ex-Im are simply using the bank for political theatre. Like most of their arguments, their rhetoric is misleading.

Why don’t I particularly care for the Ex-Im Bank? It is because there is no evidence to point to a market failure in the export financing sector. Furthermore, the bank creates export subsidies, which distort international markets away from their natural equilibrium. It’s the same reason that I am in favor of free trade agreements. However, over 60 countries have export credit agencies like the Ex-Im Bank, so there is more or less an even playing field. But there would be just as much of an even playing field if every country scrapped their subsidies and let the market take care of international trade on its own.

Furthermore, the Ex-Im Bank is a government sponsored enterprise (GSE). It borrows at government rates and uses that money to guarantee loans aligned with the government’s long-term goals. This is exactly like Fannie Mae and Freddie Mac, the two most notorious GSE’s (which, not to my surprise, Hensarling also opposes and has sought to wind down). Now I am not saying that the Ex-Im Bank is headed towards a default a-bomb (nor am I saying that it is not), but in general, I am opposed to GSE’s. When the government supports a particular market and not others it picks winners and losers. Not particular companies as winners and losers (like Hen-chmen claims), but particular industries, as the recipients of capital or not. People see winners and shift their capital to those fields. Capital pools in one industry, whereas a more even distribution among industries may be more optimal. In addition, it actually creates moral hazard, wherein financers take on more risk than they normally would have because of the government guarantee.

With Fannie Mae and Freddie Mac, this all contributed to a huge housing bubble. The country did not need so many new single family homes. We needed affordable housing, infrastructure, investments in education, and a host of other capital intensive construction, but because of the government supporting home ownership, everyone went full speed ahead into housing until it was too late.

I don’t believe that we are in a manufacturing and industrial export bubble; however, the market may be distorted by the cheap capital flowing to the sector from the government. The market may naturally be demanding renewable energy, infrastructure, affordable housing, technology, and software, but instead a disproportionate flow of capital is going to heavy industry. In my opinion, it would just be better to not directly financially support particular industries with capital, and instead just create policies that allow industries to flourish naturally (tax policy, employment policy, intellectual capital and patents, etc.).

During an industry’s infancy direct capital support may even be the correct policy, but as an industry matures, which heavy industry in the United States certainly has, so too does the policy need to, and the capital support needs to taper and eventually disappear. This has not happened, and we continue to see massive American firms such as GE, Boeing, and Caterpillar, getting the largest sums of our export credit support.

Flood Insurance

I nearly wrote an article about government flood insurance a few years ago after Hurricane Sandy, but everything that needed to be said at the time was published by other people, so I abstained from writing my own opinion. But I think that now is an appropriate time to return to the topic.

hurricane-sandy-nyc

Private homeowner’s insurance does not cover flooding. It used to, until the 1950’s and 60’s, when losses were mounting to insurance companies, premiums were rising, poorer people in flood zones were left – ahem­ – without a paddle, and insurance companies began dropping flood coverage altogether. Federal flood insurance covers this gap. Homeowners pay premiums and the government covers losses. Originally, the program was implemented to reduce the government’s exposure to flood losses. FEMA was paying out large sums after natural disasters to uninsured homeowners, so the insurance program was extended to communities in flood zones that were willing to adopt flood mitigation and management plans. In addition, the federal government hoped that by pooling funds into a national program, localized events could be covered and absorbed by premiums paid into the system nationwide.

However, in practice, the supposedly self-sustaining program has become costly and far from self-sustaining. Rates remain below market levels and risk has been poorly quantified and distributed. The system (which is administered by FEMA – they’re doin’ a heckofa job!) has borrowed from Treasury on multiple occasions, and is currently $24 billion – ahem – underwater.

One of the problems is the flood maps. Anyone living in a flood zone as indicated on these maps is legally required to have flood insurance. But the maps are outdated and not accurate. They underestimate the risk of floods. As a result, people who are in fact in flood zones, even though they do not have insurance because the maps do not require them to, are getting flooded out and requesting emergency relief funds. Plus, people who do have coverage are under-insured because the maps are not adequately estimating the risk that they are under.

The problem with risk identification does not point to a philosophical objection to the policy, but instead a problem with how it is carried out. These problems could be resolved by simply updating the flood maps and having premiums reflect actual risk. However, I have a more fundamental objection to the national flood insurance program: people who do not live in flood zones are subsidizing people who do live in flood zones.

I am from the Hudson Valley, which is historically a relatively safe place to live and not flood-prone. It is one of the reasons why I love my home region. And as a taxpayer, I do not want my tax money to be subsidizing people who have multiple homes or choose to live in riskier areas, such as beachside. Government policy should be incentivizing development in less-risk regions, and people who elect to live in riskier zones should foot the entire bill themselves (in this case through a private flood insurance market).

Of course, there are always questions of poverty and mobility. There are many impoverished communities around the United States in flood prone areas. I am amenable to a program that assists these communities, but this would be a vastly scaled down national flood insurance program, not the $24 billion indebted behemoth that we see today. Over time the country would be better off if flood-prone regions became less populated. Scaling back flood insurance would achieve that. Some of the saved money could even be used for relocation assistance, or any number of other assistance programs.

Terrorism Insurance

The Terrorism Risk Insurance Act (TRIA) was enacted after September 11, 2001 so that large development projects could continue as insurance companies, banks, and developers, readjusted their models for terrorism risk. It has been continually renewed since them. It is supported by Congresspersons and Senators from major metropolitan areas, developers, and of course insurance companies who can transfer their risk to the federal government. Organizations such as the NFL and NASCAR also support TRIA, since it helps to insure large events such as the Super Bowl.

Treading into appropriate risk and terrorism is an ideological minefield. Dare I ‘let the terrorists win’? Pushing aside those considerations (which, yes, I believe are asinine), if there is risk in development, then I believe that the federal government and by extension, the taxpaying public, should not have to bear the risk. This is a running theme in this article and a general belief of mine. Investors should bear risk, not anyone else. If large-scale development is too risky because of the potential for terrorist attacks, then do not engage in large-scale development, or at least modify plans to disperse risk and make them less desirable or less likely targets.

A market failure common in insurance is adverse selection. Adverse selection is when the people most likely to have to make a claim buy the most insurance. This overwhelms the mutual risk sharing pool of premiums (since not many people who are not making claims are paying in) and the insurance scheme fails. It is very common in health insurance. Sicker people bought more insurance, and as a result policies were always going up and up and up, forcing out healthier people (and putting them at risk for sudden and expensive health emergencies). The individual mandate in the affordable Care Act was meant to address this very issue of adverse selection. But I do not see any adverse selection taking place in the terrorism insurance market. The case can certainly be made that New York and a handful of other states bear more risk, but insurance is administered at the state level anyway, so this risk concentration is not contributing to any adverse selection at a national level.

Another theme in this article is that I do not categorically oppose all of these programs and want their subsidies rescinded, immediately. However, moderation and more specific selection of beneficiaries are imperative. With the example of terrorism insurance, perhaps developers in Washington DC do bear outsized risk due to the presence of the federal government. The government could then rightfully offer terrorism insurance for developments in the District of Columbia. And as I mentioned in the case of the Export-Import Bank, direct government support of infant industries may be warranted and appropriate. However, I do not agree with these largescale subsidy programs.

TRIA is likely a program that had its merits in 2001 and 2002 when America was one big patriotic brothel and everyone wanted to do anything that they could to fight the terrorists and help the country get out of a recession quickly. However, since then, there have not been any terrorist attacks and there has never been a terrorist insurance claim filed (the Secretary of the Treasury has to declare an act of terrorism for the government to backstop the insurers, and he declined to do so after the Boston Marathon Bombing). Since 2001 terrorism insurance has just become a profit getting boondoggle for the insurance companies. New developments are required to have terrorism protection by the banks, so the insurance companies are guaranteed revenue, while the federal government backstops the majority of the risk. The risk is also extremely difficult to quantify and model, because terrorism attacks have been extremely rare, are subjectively defined, and the loss distribution of the attacks has been extremely wide. This directly calls into question the insurance industry’s pleas for government support.

Twin Towers

Luckily, there have not been any terrorist attacks in the United States since September 11. As a result, terrorism insurance has only cost tax payers $1 million a year in administrative fees. However, were there to be an attack, in addition to the loss of life, injuries, and property damage, a huge hole may get blown in the national budget. Taxpayers, whether or not they are shareholders of development companies, would have to fill this hole.

Essential Air Services

I am not aware of Representative Hensarling’s position on Essential Air Services (EAS), but it is a government program in the vein of the others that I have discussed here in this article. I am not a fan of the program.

Prior to 1978 the government heavily regulated air travel. Fares and routes were mandated by the government. This system provided flights to smaller and more remote cities around the country. After deregulation, communities feared that airlines would eliminate flights to smaller cities, since these flights are less profitable. In response, the government enacted EAS, subsidizing flights to 160 rural communities around the country (43 of these communities are in Alaska). Excluding Alaska, which has separate operating parameters, the program cost $241 million in 2014. Apply the Eric Test: Is there evidence of a market failure in the rural aviation industry? I don’t believe so.

Small Airport

By subsidizing flights to smaller rural cities the government is making the cities marginally more attractive places to live. However, the economy works most efficiently when labor moves to where it is in demand. During the early and mid-20th century smaller rural cities were certainly labor centers. Agriculture was more labor intensive and employed more Americans, mining was more prominent, and industry and manufacturing was more dispersed. However, in the current economy demand is concentrated in larger cities that have hi-tech firms, universities, established industries, cargo infrastructure, and large health care systems. Smaller rural cities ought to shrink in size until they reach equilibrium – residents who desire to remain in the city and receive satisfaction from doing so can live there, and they can pay workers in the service industry sufficient wages so that everyone in the city can maintain happy and healthy lifestyles. EAS disturbs this equilibrium, and we are all paying for it! I don’t like it.

I do not propose that these communities be immediately cut off. People and communities need time to adjust. However, over time, service needs to be transferred away from these communities, and I suspect that population will decrease as well. Many of these communities were once thriving, due to the presence of industry, such as mining, which is no longer present. These people would now be better off, and so would the rest of the country, if they moved to other population centers where their labor is in demand and they have easier access to public and private services, such as quality health care, education, shopping, entertainment, banking, government services, and social networks. Kill EAS, Jeb!

Government subsidies and related economic support programs are often pet projects of politicians from around the country. That is why so often politicians from across the aisle get in bed together on these issues. If the policy benefits their district or state they will support it, political and economic philosophies aside. To see through this political theatre and their rhetoric apply the Eric Test: Is there evidence to indicate the presence of a market failure? If not, oppose the policy or regulation.

https://www.washingtonpost.com/opinions/robert-samuelson-the-misleading-debate-on-the-export-import-bank/2014/07/01/91bb7208-0138-11e4-8572-4b1b969b6322_story.html

http://www.nytimes.com/2015/06/26/business/jeb-hensarlings-fight-against-ex-im-bank-succeeds-for-the-moment.html?_r=0

http://www.insurancejournal.com/news/national/2014/05/22/329812.htm

http://www.politico.com/story/2014/03/jeb-hensarling-financial-services-compromise-104502

https://www.transportation.gov/sites/dot.gov/files/docs/Subsidized%20EAS%20report%20for%20non-Alaska%20communities-Jun%202014.pdf

http://www.theguardian.com/business/2014/jun/19/congress-renews-tria-terrorism-insurance-bill

… Gender Equality in Nicaragua

This article is being cross posted on my other blog, Incidents of Travel. Incidents of Travel chronicles my life as a Peace Corps Volunteer in Nicaragua and my thoughts on culture and life in general. Please check it out if you are interested. The article was also submitted to the Peace Corps Nicaragua Gender & Development Committee for publishing on their blog, but they declined to respond.

A book that I read recently that influenced me greatly was Why Nations Fail. The thesis of the book is that the main differentiator between the development path of nations is neither geography nor culture, but instead the institutions of the country, and how inclusive they are of the population. The more politically and economically inclusive, the more development potential, past and present.

I am very compelled to the thesis, and I tend to agree with the theory that culture does not have a strong effect. For the very most part I believe, scientifically, that all humans have equal capacities for intelligence and that characterizing a culture as “lazy” or “hard working” can be an inaccurate generalizing claim based in racist tendencies. The authors instead demonstrate that what may superficially look like a lack of economic motivation on the part of citizens may instead be a response to the lack of economic stimulus and opportunity that exists in the country due to poor societal institutions. For instance, a farmer may not exploit her land to its fullest potential because agricultural price policies lead to over-supply in the market. Or rather, laborers may not seek full employment because of strict government wage schedules across all industries that keep wages artificially low and working is literally not worth the bother.

Nevertheless, the idea that culture may inform economic divergence between nations nags at me. Rugged individualism, the importance of hard work, and the Protestant work ethic are well engrained in my American psyche. In addition, I routinely hear from Nicaraguans that they are an haragán (lazy) people, don’t like to work, and that their labor doesn’t size up to other countries’.

So how do I reconcile the theory with my conditioning and what I hear here in Nicaragua? First of all, folk-theories about rugged individualism, the importance of hard work, and the Protestant work ethic are probably just artifacts of a colonial world riveted by racism. I’m sure there are thousands of essays, papers, and books on Max Weber and his virtues and follies. I won’t delve further into that. As for the self-characterizations of the Nicaraguans as lazy and not hard working, I think that they may have internalized their own oppression and poverty. The imperialism, tyranny, and their derivative poverty that they have lived under for hundreds of years have become to such an extent part of the Nicaraguan psyche that they legitimately start to believe it and express it in their actions. I have seen multiple times teachers, who are poor people themselves subject to the same oppressive institutions as their students, lecture their students telling them that they are poor, come from a lazy culture, and are inferior to other countries. The result of this conditioning is that the students will begin to act accordingly. And these attitudes and behaviors will last for the rest of their lives. In effect, even though culture does not have a direct impact on development, cultural norms and beliefs can become entrenched in the institutions of a country itself, and institutions do affect development.

“The oppressed, having internalized the image of the oppressor and adopted his guidelines, are fearful of freedom.”
― Paulo FreirePedagogy of the Oppressed

Another profound aspect of the Nicaraguan culture that has become more deeply entrenched and truly institutionalized is machismo. Machismo is a cultural system that values qualities traditionally considered to be masculine over qualities traditionally considered to be feminine. It manifests itself in many aspects of life. At its most innocuous machismo dictates the games and activities that parents play with their children, and at its most destructive it leads to domestic and psychological violence against women and even femicide. Economically, machismo manifests itself through gender roles: jobs that are assumed to be for women and others that are presumed to be more suitable for men. For instance, in Nicaragua employers typically search for women only for positions such as clothing store attendant, house maid, secretaries, childcare, nursing, and chefs/waitresses (often the same person) at small eateries. Men are deemed more suitable for management, transportation, medicine (especially surgery), physical labor, finance, and engineering. From what I’ve seen, secondary education is more equitable, but primary education is more of the feminine realm (and yes, primary school teachers make a little bit less money than their secondary counterparts, which I find asinine given the importance of primary education and how challenging the work is).

IMG_4607

The results of this culture are numerous and deleterious. First, women on average earn less money than men, so they often find themselves financially dependent on men even when they would be better off single. This leads to health and emotional consequences, such as being coerced into having unwanted children. Furthermore, seeing less potential for financial attainment after school, women will seek less education. This leaves women with fewer opportunities, especially well-paying opportunities, so they turn to the informal sector, which constitutes 80% of Nicaraguan employment, and is overwhelmingly feminine (men are more likely to immigrate out of Nicaragua, especially to Costa Rica or Panama).

I work with a cooperative that has 12 male members and one female member. The cooperative is acquiring a small restaurant to feed their guests, and they let me know that the female member would be placed in charge of the restaurant since that is naturally a feminine task. The woman immediately interjected, stating her reluctance and her lack of knowledge about cooking and restaurant management. Nevertheless, she remains in this capacity. This decision winds up hurting the whole cooperative. Maybe she is better at guest relations or accounting, and maybe a male member of the cooperative has skills suited for cooking and restaurant management. If their roles were re-arranged the cooperative would be operating more optimally and probably obtain more profits for its associates, but a machismo culture prevents this from panning out.

The informal sector in Nicaragua is hard work for a pittance. It usually involves waking up early to buy basic food ingredients, then making snacks to sell on the streets or in the bus terminals. Competition ensures that margins are thin to non-existent. In addition, being self-employed, these women have no benefits. They literally cannot afford to get sick and miss a day or work, and they are not paying into the Nicaraguan social security system to hopefully one day retire with even a modest pension that the system provides.

This is the institutionalization of machismo, and it pervades the public sector as well. In Nicaragua, the law states that for high ranking officials, there needs to be equality. For instance, if a mayor is a woman, then the vice-mayor must be a man, and vice versa (curiously, the President and Vice-President are both men). But this mandatory equality is only at the highest levels of government. The bureaucratic ranks are male-dominated.

Apparently only women are suitable for retail

Apparently only women are suitable for retail

Basically, I am describing the institutionalization of culture. Insofar as an exclusive culture (such as machismo) becomes institutionalized, culture very much can have an effect on the development of a country, and I believe it is having that profound effect on Nicaragua.

Despite what I have observed about the pervasiveness of institutionalized machismo, I have seen some conflicting reports in the news. The Economist reported last year that the World Economic Forum’s Gender-Gap Index ranked Nicaragua sixth-place globally for gender equality. Based on what I have observed and described here, I find this very hard to believe. And a deeper dive into the WEF’s data seems to corroborate my doubt.

The score each country receives in the index is an average score of four sub-categories:

  • Economic Participation and Opportunity (0.635)
  • Educational Attainment (1.000)
  • Health and Survival (0.980)
  • Political Empowerment (0.544)

Nicaragua’s 0.789 was sufficient to rank sixth place worldwide.

Nicaragua receives low marks for female participation in the work force, wage equality, and participation in civic life. On the other hand, it gets high marks for education and health. And it is true, as I mentioned, Nicaragua has a high number of female government leaders – statutorily. Nicaragua even had a female President, elected in 1990. Doña Violeta was the first in the line of three non-Sandinista interregnum presidents. Overall though, Nicaragua’s marks for economic participation and political empowerment were mediocre. Nicaragua’s relative strength in the ranking comes from educational attainment (theoretically perfect, according to the WEF’s methods) and health outcomes.

WEF’s data for educational attainment come from UNESCO. However, UNESCO compiles its reports from figures sent in from the Nicaraguan government, which recent investigative reports have exposed as being highly suspect. UNESCO’s last submission from Nicaragua was for the 2010 school year. Publically released information in Nicaragua has been self-contradictory with regards to enrollment levels, and over a ten year period prior to the numbers released for 2014, publically released data actually registered a decrease in the number of students (despite population growth and a large youth population), and then an enormous increase in 2014. In addition, there is evidence that the numbers are being smoothed by selectively including tertiary education, technical education, and adult literacy courses. In addition, there is no comparison in public data between students in conventional daily classes vs. secondary school students in weekend classes. Taken all together, the WEF’s educational attainment score is not reliable, even though it is the largest contributor to Nicaragua’s impressive ranking.

Nicaragua’s score for “Health and Survival” is almost startling. It ranks first place worldwide, which is an amazing accomplishment, especially for the second poorest country in the hemisphere. But again, on closer inspection, I doubt the conclusion. Health and Survival only takes into account two statistics: sex ratio at birth, and healthy life expectancy. Worldwide, women have a longer life expectancy than men. The index attempts to correct for that. However, I think the effect may be particularly strong in Nicaragua, which may account for some of Nicaragua’s strength in the area. Men, on average, have riskier lifestyles. Many more men than women are alcoholics, and men, due to their prevalence in heavy labor jobs, face many more occupational hazards. Fishing and logging are the two most dangerous jobs in the United States; imagine the risk in a country where OSHA does not exist and most fishing, logging, agriculture, and small industry is nearly completely unregulated. In one town alone, Chichigalpa, there is a neighborhood known as the Island of Widows because so many men (an estimated 20,000) have died from kidney failure related to sugar cane harvesting.

In addition, “Health and Survival” does not take into account other indicators of feminine health, such as domestic violence and abuse and teenage pregnancy. This is a methodological choice on the part of the index creators. They want to capture gaps between the sexes, and these factors are not subject to gaps – men simply cannot get pregnant, and there are no data collected on domestic violence and abuse against men in Nicaragua (or most countries). Nevertheless, Nicaragua has the highest rates of teenage pregnancy in Central America. One in four new mothers are under 18 years old. This leads to health complications for the young women, plus lower educational attainment and lifelong economic dependency on providers, who very well may be the abusive men who got them pregnant in the first place. Domestic violence and abuse is also prevalent in Nicaragua due to the machismo culture. The psychological element of this abuse leads directly to political disenfranchisement.

Overall, I would take the index results with a grain of salt. Methodologically, the index omits a number of important variables to capture the type of data it is selectively looking for. In addition, by averaging the four categories evenly, the index implicitly assumes that economics, health, educations, and political participation are all ends in and of themselves, but many would consider economic participation and health as the ends, with educations and political participation being the means. And lastly, the unreliable nature of data collection and dissemination in Nicaragua makes me suspect of the statistics and results compiled for the index in the first place.

So culture can in fact affect the development path of a nation, if an exclusive culture (such as machismo) becomes institutionalized.

Sources:

http://reports.weforum.org/global-gender-gap-report-2014/economies/#economy=NIC

http://www.economist.com/news/economic-and-financial-indicators/21629478-gender-equality

http://www.laprensa.com.ni/2015/04/22/nacionales/1819357-increibles-datos-en-matricula-increibles-datos-en-matricula

http://www.nytimes.com/2014/05/09/world/americas/deadly-illness-in-nicaragua-baffles-experts.html

%d bloggers like this: