October 9, 2015

Are We Better Off if We Buy Local? (Everyday Economics 6/7)

Filed under: Business, Economics — Tags: , — Nicholas @ 03:00

Published on 24 Jun 2015

In this Everyday Economics video, Don Boudreaux addresses one of your viewer-submitted questions: “Is everyone better off if we buy local?”

In a modern economy, it’s hard to say that anything is truly “local.” Even an apple grown at a nearby farm isn’t a “local” good — everything from the fertilizer used to feed the trees to the wooden crates that carry the apples to market are likely made elsewhere. And, the profits the farmer makes from selling his apples are likely not spent locally — for instance, he may buy a tractor or supplies manufactured far away.

This video also takes a look at what would happen if you could direct your money locally. Would it benefit the local economy? How many businesses could survive solely on local business? What happens to specialization and productivity when we shrink markets? What about prices and variety of goods? Let’s take a look.

October 8, 2015

“[P]harmaceutical companies … make out like bandits from the existence of the patent system”

Filed under: Bureaucracy, Business, Health, Law, USA — Tags: , , , — Nicholas @ 05:00

The current US patent system is set up to create and maintain — for a limited time — monopolies that can be exploited by pharmaceutical companies:

The Wall Street Journal has a puzzling piece complaining about how the pharmaceutical companies seem to make out like bandits from the existence of the patent system. What puzzles is that the entire point and purpose of the patent system, in an economic sense, is so that inventors of things can make out like bandits. The background problem is that of public goods, something I’ll explain in a moment. That problem leads us to thinking that a pure free market in things which are public goods isn’t going to work as well as something a little different. So, we design something a little different. And the point and purpose of our design is so that people who innovate can make vast mountains of cash out of having done so.

It’s then more than a bit odd to point out that our system enables people who innovate to make vast mountains of cash.


Which brings us to the subtlety of those pricing decisions. With drugs, pharmaceuticals, close enough the cost of manufacturing a dose is zero. All of the costs go in the original research, the clinical testing (the lion’s share) and getting it through the FDA. Profit is therefore determined, since marginal production costs are zero (they’re not, accurately, but close enough for this comparison), by gross revenue. And we want to maximise the incentive for people to innovate, that’s the very reason we’ve got this patent system in the first place, and thus we would rather like the pharma companies to be maximising revenue.

And thus, from this economic point of view, we should be quite happy with people raising their prices. Demand does fall as they do so, yes, but as long as gross revenue increases, the price rises more than compensating for the fall in unit demand, then we should be happy with the way the system is working. Gross revenue is being maximised, profits are being maximised, incentives to innovate are being maximised. That’s what we want our system to do after all.

Far from being worried about this price gouging we should be welcoming it. Because, obviously, someone making bajillions out of having innovated a drug to cure a disease increases the incentives for many other people to go and invest bajillions of their own to cure other diseases. Far from complaining about it we should be celebrating the system working.

September 26, 2015

The LCBO backs away from auctioning rare wines in Ontario

Filed under: Business, Cancon, Wine — Tags: , , — Nicholas @ 04:00

Rick Van Sickle on the LCBO’s recent decision to hand over the rare wine auction market to a private auctioneer:

Quietly last week, Ontario’s booze monopoly finally threw in the towel over its glitzy rare and fine wine auctions and awarded the contract to an independent auction house — another case of letting private industry do a job that the LCBO couldn’t handle.

Canadian auction house Waddington’s will now conduct the auctions under a special licence through the LCBO.

The company added a new addition to their portfolio of fine art and luxury goods – Waddington’s Fine Wine and Spirits Auctions. “Ontario wine enthusiasts will now be able to better manage their cellars of fine wines and spirits with this connection to the enormous world wine market,” said Waddington’s President Duncan McLean.

The Toronto-based, Canadian-owned auction company was awarded the exclusive contract to provide fine wine and spirit auction services in Ontario under the authority of the LCBO, a first for an Ontario auction company. Waddington’s conducted the LCBO’s Vintages Fine Wine and Spirits auctions from 2009 until 2013.

The inaugural live fine wine auction will be conducted Dec. 12 at Waddington’s Toronto gallery, and an online fine wine auction will be offered Nov. 23-26. These auctions launch what will be a regular schedule of wine and spirits auctions and events for which Waddington’s is currently accepting consignments. All wines consigned are stored in a secure, temperature, light, and humidity-controlled wine vault.

September 25, 2015

Reducing income inequality

Filed under: Bureaucracy, Business, Economics, USA — Tags: , , , , — Nicholas @ 02:00

Tim Worstall in Forbes:

There’s a fascinating and very long essay over in National Affairs about how we might cut income inequality. And, contrary to what any number of Democratic candidates for office will tell you, the answer isn’t to impose ever more regulation upon the economy. Rather, it’s to strip away some of the regulation that allows certain favoured income groups to make excessive incomes. Excessive here defined as greater than the economic value they add to the lives of the rest of us, something they achieve by carving out economic rents for themselves. I would, myself, go rather further than the writer, Steven Teves, and start using Mancur Olson’s analysis, that this is what democratic (note, democratic, not Democratic) politics always devolves down into, a carving up of the public sphere to favour certain interest groups. But even this milder version gives us more than just hints about what we should be doing:

    At the same time, however, we have seen an explosion in regulations that shower benefits on the very top of the income distribution. Economists call these “rents,” which we can define for simplicity’s sake as legal barriers to entry or other market distortions created by the state that create excess profits for market incumbents.

Let us take one very simple example of such rents. The earnings of those who possess taxi medallions in cities where there’s an insufficient number issued. Until very recently one such medallion, allowing one single cab to operate on the streets of NYC 24/7, had a capital value of $1 million. That led to a rent, a pure economic rent, of $40,000 a year to allow one cab river to use that medallion for 12 hours of the day. and, obviously, another $40,000 to allow another to use it for another 12 hours a day.

That is purely a rent: and one created by New York City not issuing enough medallions to cover the demand for cab services. Uber has of course exploded into this market and the success of that company, along with its many competitors, shows how pervasive the creation of such rents by limiting taxi numbers has been in cities around the world. That is an obvious and very clear creation of a rent purely through bureaucratic action.


Deregulating the economy will remove many of those rents. This will reduce income inequality. So, why aren’t those who rail against income inequality shouting for deregulation? Good question and the only proper answers become increasingly cynical. Unions exist for the purpose of creating rents for their members. So, given the union participation in the Democratic Party we’re not going to see calls for deregulation from that side. And different groups, those car dealers perhaps, the doctors, have their hooks into the Republican Party too.

My own answer is that it needs to be done in the same manner that Reagan treated the tax code. Not that I’m particularly stating that Reagan’s tax changes were quite as wondrous as some now think they were, only that it all had to be approached on a Big Bang basis. Everything had to be on the table at the same time so that while there were indeed those who would defend their little corner the over riding interest of all was that all such little corners got eradicated. With this rent creation, given that so much of it is at State level, that won’t really work. Except for one idea that I’ve floated before.

September 24, 2015

Ontario takes baby steps toward liberalizing the beer market

Filed under: Bureaucracy, Business, Cancon, Politics — Tags: , , , , — Nicholas @ 05:00

At the Toronto Beer Blog, a less-than-enthused look at the latest changes to minimally change the just-barely-beyond-prohibition-era rules for selling beer in Ontario:

This has been a noisy day in the wonderful world of beer sales in Ontario. The Liberal government released the details of the new 195 page master agreement between The Beer Store, the Province (LCBO), and the new kids on the block, grocery stores.

Much of the information is what we heard when they announced it with the budget. Some more details have come out. If you read my thoughts in April, you will remember I was not happy. I’m still not.

The good from today’s news is there are some clear definitions of what constitutes a grocery store (10 000 sq/feet dedicated to groceries, not primarily identified as a pharmacy); that the 20% craft shelf space is for both grocery stores and The Beer Store, and that there cannot be a fee to get listed (though we all know how effectively the province enforces pay-to-play in bars around the province); and that they have some novel system to divide sales licenses between both huge chains and independent grocers.

The old news about shared shipping for smaller breweries and no volume limit for a second on-site retail location are accurate, and very good news.

But here’s the thing: This is just more Ontario political craziness.

This is to “level the field”, apparently for small brewers, who nobody would suggest get a fair shake in the current system.

But what could have been an actual leveling of the playing field, turned out to be more insanity and government control and meddling. And remember, I’m saying that as a sworn lefty nutjob, who generally thinks having controls and regulations is a good thing.

Remember, these are not the ravings of a far-right-wing free-enterprise-maniac … these are the regrets of a self-described “sworn lefty nutjob”:

A level playing field would be one where anybody could apply for a license to sell beer, and do it. A brewery can pick and choose who they sell to, as a retailer can choose who they do business with. Nobody would need to guarantee a percentage of shelf space, because the market would control what products were successful and got shelf space.

This isn’t a level playing field, it’s just a bunch of new rules to try to counter how horrible we’ve allowed our playing field to get. Yes, it will be more convenient for people who shop at one of the 450 stores that have a license. But the agreement still favours The Beer Store heavily (for instance, grocers are limited in the volume they can sell. They can exceed the limit, but then have to pay a fine to the LCBO who distribute it to, you guessed it, the breweries who own The Beer Store to offset their lost sales. Seriously).

September 23, 2015

In debt to the bank? Underwater on your mortgage? You might want to check the document carefully…

Filed under: Bureaucracy, Business, Law, USA — Tags: , , , , — Nicholas @ 04:00

At The Intercept, David Dayen says that there are a lot of sketchy documents that banks are hoping will stand up in court, but they might well be wrong:

A Seattle housing activist on Wednesday uploaded an explosive land-record audit that the local City Council had been sitting on, revealing its far-reaching conclusion: that all assignments of mortgages the auditors studied are void.

That makes any foreclosures in the city based on these documents illegal and unenforceable, and makes the King County recording offices where the documents are located a massive crime scene.

The problems stem from the Mortgage Electronic Registration Systems (MERS), an entity banks created so they could transfer mortgages privately, saving them billions of dollars in transfer fees to public recording offices. In Washington state, MERS’ practices were found illegal by the State Supreme Court in 2012. But MERS continued those practices with only cosmetic changes, the audit found.

That finding has national implications. Every state has its own mortgage laws, and some of the audit’s conclusions may not necessarily apply elsewhere. But it shows how MERS reacted to being caught defrauding the public by trying to sneak through foreclosures anyway. Combined with evidence in other parts of the country, like the failure to register out-of-state business trusts in Montana, it suggests that the mortgage industry has been inattentive to and dismissive of state foreclosure laws.

September 22, 2015

Volkswagen’s software DRM enabled the scam to fake emission data

Filed under: Business, Technology, USA — Tags: , , , , , — Nicholas @ 04:00

At Boing Boing, Cory Doctorow points the finger of blame at VW’s DRM in their automobile software suite:

The EPA has accused Volkswagen of rigging its software to cheat the agency’s diesel emissions standards so that its cars could be on the road while spewing 40 times the legal limit for diesel emissions.

Volkswagen, like most auto manufacturers, uses digital rights management in its informatic systems. Under section 1201 of the Digital Millennium Copyright Act, it is a felony to tamper with that DRM, punishable by five years in prison and a $500,000 fine for a first offense. The company uses this legal regime to limit which mechanics can service its cars, ensuring that only “official” mechanics, who are bound by nondisclosure agreements — and covenants to only buy their parts from VW and not an aftermarket competitor — can effectively service their cars.

This year, the US Copyright Office held its triennial hearings into possible exceptions to this rule, and one petition asked it to grant an exemption for jailbreaking cars. The car manufacturers intervened to oppose this, but so did the EPA, fearing that drivers would modify their firmware in ways that increased emissions.

But by banning independent scrutiny of cars, the EPA and the Copyright Office have made possible for terrible, criminal frauds like this one to go undetected for long periods, turning cars into long-lived reservoirs of dirty secrets that can’t be reported without risking criminal sanction.

Jazz Shaw has more:

This isn’t a case of any sort of trick carburetor or jury rigged catalytic converter. The vehicle’s onboard computer could sense when it was hooked up to a diagnostics machine for an emissions test and would conveniently turn on all of its emission control features. (It’s being referred to as a “defeat device.”) Then, when the test was completed and it was unhooked from the computer it would simply shut them off again, boosting performance but also increasing emissions. You almost have to admire the sheer audacity assuming this is true. And given the initial responses from the company they don’t seem to be claiming that they didn’t do it.


So far Volkswagen seems to be taking the line of assuring everyone that they will work to recall the cars and “fix” them to eliminate this problem. It likely won’t bankrupt a company that size, but it’s one heck of an expensive piece of humble pie to eat. If they contest the fines and go to court, however, I’m wondering if they will actually lose. This was some mischief designed to short sheet the system no doubt, but would they have an out if the case goes before a judge? I was looking over some of the state level requirements for the testing of vehicles and the boundaries to be followed are rather bare bones at best. Each vehicle in the qualifying categories which was manufactured after 1996 has to be equipped with an On-Board Diagnostics Generation II (OBDII) system. The emissions portion of this is heavily tied into your annoying “check engine” light.

The way most of the regulations are written seems to indicate that the vehicle must have a functional system of this type which is accurately monitoring system performance and meets the maximum emissions requirements at the time of testing. Obviously the VW vehicles in question were doing just that. But cars today have all sorts of bells and whistles which drivers can use to customize their driving experience. They can switch from “performance” mode to “economy” mode with the push of a button. Things like that obviously affect the vehicle’s emissions. Other such options are available. And when you think about it, the “disable device” was really just putting the car into a different mode of operation which includes heavy emissions control. When it was disconnected and ready to head back out on the road it was switching back to a different mode with a bit more performance. None of that changes the fact that the emissions were within the required limits at the time of testing.

September 21, 2015

Greek businesses discover the receipt

Filed under: Business, Economics, Europe, Government — Tags: , , , — Nicholas @ 04:00

Megan McArdle is in Athens, where she’s finding that Greek businesses have started handing out receipts for transactions that once would have been undocumented (the better to hide revenue from the taxman):

I was last in Greece in 2006, during the twilight years of the boom that peaked during the Athens Olympics. Back then, Greece was notable to Americans for its lack of receipts. This is convenient for the shoppers, who don’t have to hunt around for somewhere to toss yet another piece of unwanted paper. But it was also convenient for vendors who wanted to underpay the tax authorities.

The inability of the Greek government to collect the taxes it is owed is one of the recurring themes of coverage of the financial crisis. This problem is sometimes exaggerated, but everyone agrees that it’s very real. And since the burden of structural adjustment is falling on fiscal reforms — rather than, say, firing unproductive members of the vast government workforce — that’s a big problem.

Widespread evasion narrows the tax base, forcing the government to set higher rates. If the evasion were spread evenly across all sectors of the economy, then these two things would roughly cancel out. Unfortunately, it’s not. Some sorts of taxes are easier to evade than others. Employment taxes are hard to evade, while self-employed professionals like doctors and lawyers have found it relatively easy to shelter most of their incomes. As a result, the cost of employing a new staff worker is quite high (especially since those workers are incredibly difficult to fire). The value-added tax here is now 23 percent, close to the EU maximum rate. (Thank God for that maximum, joked one journalist I met; otherwise, who knows how high they’d have raised it.) That’s making up for taxes that aren’t collected elsewhere.

The good news is that Greece has at least made progress on collecting sales tax. They’re hardly at the level that our Internal Revenue Service would accept, but most of the places I’ve gone have automatically given me a receipt, printed out by a cash register. The taxi drivers mostly offer printed receipts. One did ask me how much he should make it out for. (Note to boss: I told him to make it out for the amount of the fare.) I’m told that on the islands, collection is less sure. But here in Athens, they are slowly but surely improving their collection apparatus.

Greece is attempting to do in the space of a few years what other economies did over the course of decades. Most people think of a cash register primarily as a way to add up the value of the sale, but in fact, that is the least of its functions. Its most attractive feature to the merchants who adopted them back in the late 19th century was that they made it harder for clerks to steal. (That’s why old registers made a noise every time the cash drawer opened; that prevented employees from stealthily recording sales and then pocketing the money, or alternatively, giving goods to their friends without being paid.) Over time, of course, revenue authorities realized that cash register tickers were also a good way to ensure that employers gave the state its due.

Xerox printer fail with extra-special DRM sauce

Filed under: Business, Technology — Tags: , — Nicholas @ 03:00

At Techdirt, Tim Cushing explains how Xerox is going the extra distance to extort even more money from their customers over toner ink:

Everyone likes buying stuff with a bunch of built-in restrictions, right? The things we “own” often remain the property of the manufacturers, at least in part. That’s the trade-off we never asked for — one pushed on us by everyone from movie studios to makers of high-end cat litter boxes and coffee brewers. DRM prevents backup copies. Proprietary packets brick functions until manufacturer-approved refills are in place.

Here’s another bit of ridiculousness, via Techdirt reader techflaws. German news outlet c’t Magazin is reporting that Xerox printers are going further than the normal restrictions we’ve become accustomed to. For years, printer companies have made sure users’ printers won’t run without every single slot being filled with approved cartridges. This includes such stupidity as disabling every function (including non-ink-related functions like scanning) in all-in-one printers until the printer is fed.

Xerox is going further. Not only do you need to refill the ink, but you have to fill it with local ink. techflaws paraphrases the paywalled, German-language article.

    Xerox uses region coding on their toner catridges AND locks the printer to the first type used. So if you use an NA (North America) cartridge you can’t use the cheaper DMO (Eastern Europe) anymore. The printer’s display does NOT show this, nor does the hotline know about it. When c’t reached out to Xerox, the marketing drone claimed, this was done to serve the customer better, I kid you not.

Ah, the old “serve the customer better by limiting his/her options,” as seen everywhere DRM/DRM-esque restrictions are applied.


Nearly every major printer manufacturer is in on the scam. HP saw an opportunity to increase incremental sales and staked out this territory in 2004. This brave new world of customer-screwing was followed by Lexmark, Canon, Epson and Xerox — none of which saw anything wrong with illogically restricting ink cartridges to certain regions.

Region coding for DVDs and videogames makes a certain amount of sense, provided you’re willing to make a small logic buy-in on windowed releases. But ink? It’s not like Australians need to wait six weeks for HP to cut loose ink cartridges so as not to sabotage the US release. The only reason to do this is to tie paying customers into the most expensive ink and toner. This lock-in is cemented by many printers’ refusal to recognize third-party replacement cartridges and/or allow refills of existing manufacturer cartridges.

The excuses made for this mercenary behavior would be hilarious if they weren’t so transparently dismissive of customers. Every flowery ode to customers’ best interests by PR flacks boils down to nothing more than, “Fuck ’em. It’s not like they have a choice.”

September 18, 2015

What is killing small US businesses? Compliance costs and regulatory overstretch

Filed under: Bureaucracy, Business, Government, USA — Tags: , , , , — Nicholas @ 04:00

Okay, perhaps the headline is a bit strong, but Warren Meyer explains why even “small” businesses need to be bigger than ever in order to be able to file all the appropriate government forms, rather than concentrating on serving their customers and growing their client base:

Over the last four years or so we have spent all of this capacity on complying with government rules. No capacity has been left over to do other new things. Here are just a few of the things we have been spending time on:

  • Because no insurance company has been willing to write coverage for our employees (older people working seasonally) we were forced to try to shift scores of employees from full-time to part-time work to avoid Obamacare penalties that would have been larger than our annual profits. This took a lot of new processes and retraining and new hiring to make work. And we are still not done, because we have to get down another 30 or so full-time workers for next year.
  • The local minimum wage movement has forced us to rethink our whole labor system to deal with rising minimum wages. Also, since we must go through a time-consuming process to get the government agencies we work with to approve pricing and fee changes, we have had to spend an inordinate amount of time justifying price increases to cover these mandated increases in our labor costs. This will just accelerate in the future, as the President’s contractor minimum wage order is, in some places, forcing us to raise camping prices by an astounding 20%.
  • Several states have mandated we use e-Verify on all new employees, which is an incredibly time-consuming addition to our hiring process.
  • In fact, the proliferation of employee hiring documentation requirements has forced us through two separate iterations of a hiring document tracking and management system.
  • The California legislature can be thought of as an incredibly efficient machine for creating huge masses of compliance work. We have to have a whole system to make sure our employees don’t work over their meal breaks. We have to have detailed processes in place for hot days. We have to have exactly the right kinds of chairs for our employees. We have to put together complicated shifts to meet California’s much tougher overtime rules. Just this past year, we had to put in a system for keeping track of paid sick days earned by employees. We have two employee manuals: one for most of the country and one just for California and all its requirements (it has something like 27 flavors of mandatory leave employers must grant). The list goes on and on. So much so that in addition to all the compliance work, we also spent a lot of work shutting down every operation of ours in California, narrowing down to just 3 contracts today. There has been one time savings though — we never look at any new business opportunities in CA because we have no desire to add exposure to that state.

Does any of this add value? Well, I suppose if you are one who considers it more important that companies make absolutely sure they offer time off to stalking victims in California than focus on productivity, you are going to be very happy with what we have been working on. Otherwise….

Beer? In Ontario grocery stores? It’s more likely than you think

Filed under: Business, Cancon, Government — Tags: , , — Nicholas @ 02:00

Ben’s Beer Blog scores an exclusive interview with Tom Barlow, President and CEO of the Canadian Federation of Independent Grocers on the topic of liberalizing Ontario’s Prohibition-era market access rules for beer:

Some details about beer in grocery stores

  • We will likely see beer on grocery store shelves in the next 18 months
  • The province still hasn’t decided how to auction off licenses to sell beer in a way that is fair to small grocers
  • At least one grocery store chain has stated they’d like to sell “100% craft beer.”
  • If you have fears that bigger brewers are going to be able to buy shelf space, continue to be scared of that very real possibility
  • Brewers will be allowed to do direct-to-store delivery

A transcript of my chat with Tom Barlow, President and CEO of CFIG, edited slightly for length

Ben Johnson: Thanks for chatting with me Tom. It’s been pretty quiet in terms of the announcement about exactly how we’re going to get beer in grocery stores. So can you tell me a little about the process for becoming eligible to sell beer in your stores? Speculation has been pretty rampant that we’d only see bigger chains getting the privilege, so it’s interesting to hear that independent grocers are at the table.

Tom Barlow: Yeah, I’ll share what I can. The regs will be coming out soon, and the people that have been in discussions are under a non-disclosure but what I can tell you is that the original conversation was that it would be just large chains, then the government through consultations with [CFIG] and regions decided that it should be open to “grocery” under the North American definition of what grocery is, namely that they carry fresh produce, fresh meat, and that kind of thing. I don’t know if they’ve settled on a size — there was some discussion that there would be a minimum size — but for all intents and purposes it would be “grocery” and it would be wide open. The discussion we’ve had so far is that there would be so many licenses to start and they’d step it out, then get comfortable, then release some more, and then release some more. The number that was floated was around 450 licenses. That is, 450 retailers are going to have the opportunity to sell beer.

BJ: I’m assuming it’s a bidding process for getting the license and that’s the part you can’t talk about?

TB: They’re still working through the mechanism, but are looking at a biding process. I think we made our point that privately held — vs. publicly held — the access to cash is different, so there needs to be a plan made so all the licenses don’t all get swallowed up by —

BJ: Galen Weston?

TB: — Yeah, exactly. We were a little frustrated at first but after numerous conversations they’ve heard our position, and I think it’s the same with the corporate chains, is that they should have just opened it up to “grocery” from the start. If you’re going to go grocery, go grocery. This contest for picking winners and losers is a slippery slope to be going down.

September 17, 2015

Regulatory tangle may shut down major US railroads in December

Filed under: Bureaucracy, Business, Railways, USA — Tags: — Nicholas @ 02:00

A safety regulation for US common-carrier railroads is due to come into effect at the end of December, but the railroad companies are already warning that they may not be able to comply and that the only legal course of action under the current rules would be to shut down:

In a candid letter to a U.S. senator, BNSF Railway’s chief executive, Carl Ice, said September 9 that BNSF would in effect shut down most of its network rather than violate a federal law mandating that positive train control be operational by December 31. CSX Transportation has said it, too, questions whether it should violate federal laws, and other Class I carriers are likely to follow suit. This set up the real possibility of a national transportation crisis at the beginning of 2016. The public may be unaware of how closely the U.S. economy is tied to railroads, but the reality is that without railroads, this country will quickly cease to function normally. Imagine, for instance, no electricity to heat homes.


The Surface Transportation Board, which regulates railroads, in effect came to the aid of BNSF and other railroads this past week. Its chairman, Daniel Elliott, wrote to Thune to say that railroads can “lawfully suspend service for various reasons, including safety.” In other words, Elliott is saying that the common carrier obligation of railroads is not absolute. Elliott added that CSX has expressed sentiments similar to those of BNSF.

So what does this all mean? I take railroads at their word that they have diligently tried to install PTC by the deadline. Six years ago Congress thought it was giving railroads enough time to do this, and railroads did not object then to that deadline. But implementation has been a disaster. The technology being put in place is largely new. FRA was slow to issue necessary rules. Signal engineers able to put all the pieces together have been in short supply. And then for more than a year everything ground to a halt because the Federal Communications Commission would not issue permits for construction of radio towers and antennae.

Further, as Ice points out to Thune, PTC is full of bugs as railroads roll it out on their networks. Says Ice: “We are seeing the PTC system trigger unnecessary braking events in which trains are stopped with a full-service brake application. This means that significant work has to occur before the train can re-start. These kinds of delays are numerous and cumulatively consume railroad capacity.”

What railroads have sought is an extension of the deadline, something that Congress has thus far refused to act upon because the votes to permit an extension aren’t there. Now the industry is beginning to say fine, we will not disobey the law and as a result we will be able to offer only a fraction of the service our customers depend upon.

QotD: Corporate culture and management overstretch

Filed under: Bureaucracy, Business, Quotations — Tags: , , — Nicholas @ 01:00

Corporate culture is another limiting factor: The larger your company gets, the harder a great corporate culture is to maintain. From all accounts, WinCo has a great community of workers, and it has 15,000 of them, which sounds like a lot. But Wal-Mart has more than 1 million employees in the U.S. It might be hard to maintain that level of excitement as you get into the hundreds of thousands of employees. If you try to expand quickly to get scale, your core of loyal employees who have been with you forever shrinks relative to the newcomers who don’t yet have the same commitment to the company. This is particularly a problem in employee-owned companies; as you get more employees, you can dilute the sense of ownership, because each employee’s contribution makes such a tiny impact on the bottom line — or you may get wars between groups of employees, as we saw with United Airlines.

This is related to another key challenge: management. As organizations grow, they have to change. Anyone who has been through a startup can attest to this — when you start out, you don’t need to have many meetings; you just hash stuff out impromptu when the need arises. As the company grows, you start to need management reporting lines, and defined roles, and scheduled meetings, and other bureaucratic unpleasantness that everyone hates. But if you try to do without it, everything quickly degenerates into a chaotic mess.

Not every company is good at this transition. If one of the things that made you great as a little baby company was your informality and flexibility, you may find that growing makes your key producers unhappy and ultimately saps the creative flux that made you great at what you do.

This is also a big challenge as the company moves beyond “small” and into “large”; in fact, every time you dramatically increase the size of your business, you will find that it needs to gut-rehab its management structure. Your three great managers who made all the trains run on time can no longer oversee things at the level of detail they once did; they need to spend more of their time making sure that other people do so. Some of them aren’t good at that role, but they will be unhappy if someone else is promoted or hired over their head. You start to rely more and more on well-standardized processes rather than individual initiative, which may require some compromises on quality to maintain the price point that your customers expect. It is the difference between an exquisitely pulled shot at your local coffee shop and the massive amount Starbucks has invested in machines that make exactly the same coffee every time.

Megan McArdle, “In-N-Out Doesn’t Want to Be McDonald’s”, Bloomberg View, 2014-10-02.

September 16, 2015

QotD: A booming economy gives more power to individual workers

Filed under: Business, Economics, Quotations — Tags: , , — Nicholas @ 01:00

A few days ago there was a big debate about a New York Times expose on working conditions at Amazon.com. (BTW, it would have been useful for the NYT to compare labor practices at the Seattle company to working conditions at firms operating in the Amazon region of Brazil.)

Many liberals were appalled, while conservatives often wondered why, if working conditions were so bad at Amazon, people didn’t simply “get another job.” I have sympathy for both sides, but probably a bit more for the conservative side.

One liberal objection might be that it’s not easy to get another job. And perhaps that’s because monetary policy since 2008 has been too contractionary. And perhaps that’s because conservatives have complained about the Fed’s QE/low interest rate policies, which has made the Fed reluctant to do more.

Regardless of how you feel about monetary policy, it’s clear that if employers feel they have a “captive audience” of workers, who are terrified of losing their jobs, it would be easier for the employer to crack the whip and drive the employees to work extremely hard. One advantage of a healthy job market is that workers have more power to negotiate pleasant working conditions.

Scott Sumner, “How bad government policies make us meaner”, Library of Economics and Liberty, 2015-08-25.

September 15, 2015

Ontario wineries and the demands of the Chinese market

Filed under: Business, Cancon, China, Wine — Tags: , — Nicholas @ 02:00

In the most recent edition of his wine review newsletter, Michael Pinkus just barely avoids sounding like an editorialist from the anti-Chinese era of American yellow journalism (er, sorry) over Chinese money being used to buy up Ontario wineries to concentrate on icewine production for the Chinese market:

Hinterbrook, Joseph’s, Marynissen, Alvento, Lailey – all wineries in Niagara that have seen a major shake-up of ownership over the past few years; in fact it is reported that about 8 or so wineries have seen new ownership, which potentially can be seen as a good thing: a revitalized interest in wineries in Ontario’s largest growing area.

Now before I go any further, I’m sure this topic is going to spark some controversy and some of the comments I’ll make might come off a tad inflammatory, but hear me out over the next few paragraphs.

The majority of these wineries have been purchased by those of Oriental decent, namely Chinese interests, who see exporting Ontario Icewine back to the homeland as a path paved with gold … On the positive side this provides wineries and workers with jobs, another bonus is that Icewine is still being made here at home, instead of being falsified, forged, misappropriated, and wrongly-labelled elsewhere; and some longtime growers and owners are finally cashing-in after a lifetime of tilling the soil, and growing the grapes to make the wines we all know and love … but at what cost to the industry and reputation of Ontario wine?

We have been battling a snake-belly-low reputation for years – one that never lets us forget we put Baby Duck and inferior Baco Noirs (with apologies to Henry of Pelham) into bottle. Now we have some of our most beloved names (namely Lailey and Marynissen) seemingly on the brink of becoming Icewine houses. The fear here is that Ontario will be bought up by foreign interests and our wines moved off-shore, and most, if not all our grapes used for the purpose of making Icewine – for all intents and purposes killing off our quality domestic dry wine production.

These fears were realized once again in July after reports were confirmed that Lailey had been sold. They then closed their doors for “renovations”, subsequently re-opened to sell their remaining inventory, and netted their entire 2015 crop to be used in the production of Icewine … As the French say, “quel domage!” (what a pity) – those beautiful old vines of Chardonnay and Pinot Noir, that fantastic Syrah, the Sauvignon Blanc … all the grapes that were lovingly nurtured so that they produced the fruit to make wines full of terroir / character will go into lifeless sweet Icewine. Frustration and dismay were echoed time and time again on Twitter and FaceBook with the hashtag “RIPLailey”.

No matter how we may try to romanticize them, wineries are just businesses. Not only businesses, but farm-related businesses. Farming is a hell of a way to earn a living — ask any farmer — so if someone comes up to your farm gate and offers you enough money to sell up … at least some farmers/grape growers/winery owners are going to take the cash and split. From the list of wineries that Michael lists, I’d had poor experiences at three of them … bad enough that I’ve never been back. If my experiences were typical of other customers, then selling up was a great thing for the former owners. Treat your customers like shit, don’t expect them to come back (but do expect them to mention you to all their friends).

If someone thinks that it’s worth the money to buy up these places and convert them to all-icewine production and concentrate on exporting to China, great. More wineries are opening every month, so the loss of a few under-performing (and customer-abusing) “old names” has more chance to improve the overall wine scene in Ontario.

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