Category Archives: Business and Economy

Second-class shareholders

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Commenting on James Surowiecki’s recent New Yorker piece, Felix Salmon decries the structure of Facebook’s IPO, which left Mark Zuckerberg with 57% of the voting shares while actually owning only 18% of the company:

The reason to be concerned about the rise of companies with dual-class share structures, then, is not all that dissimilar to the reason to be concerned about the rise of big private companies more generally. The stock market is no longer the common ownership of the means of production: it’s a place where early-stage investors can exit to a group of muppets and high-frequency traders.

Initial public offering (IPO) investors are increasingly being offered “ownership” of companies that comes with little or no actual control.  As Surowiecki puts it, companies are effectively telling investors, “Thanks for your money. Now shut up.”  It’s a very peculiar system that gives majority stockholders a non-majority say in corporate governance.

RIAA: all of everything are belong to us

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Correction:  Techdirt is now reporting that this story is bogus and that the RIAA never threw out a number in the trillions.

The Recording Industry Association of America sued peer-to-peer filesharing service Limewire for copyright infringement years ago, and it successfully shut down that service back in 2010.  Now, the RIAA says it’s owed a few dollars in damages for those years of Limewire’s infringement.  $72 trillion, to be exact:

According to documents recently filed in the U.S. District Court for the Southern District of New York, the RIAA was asking for damages of about $72 trillion dollars, a figure that the judge in the case said is “absurd.” Judge Kimba Wood wrote in a recent decision that, “An award based on the RIAA calculations would amount to ‘more money than the entire music industry has made since Edison’s invention of the phonograph in 1877.'”

The estimated wealth of the entire world is about $60 trillion, meaning that the RIAA should have known how outlandish its claims were to begin with.

A modest quibble with the AV Club’s figures:  the CIA puts Gross World Product (the combined GDP for all countries on Earth) a bit higher, at $70.16 trillion for 2011.  But any way you slice it, the RIAA thinks that copyright infringement due to one (now defunct) company entitles it to the value of everything in the world.

Literally.

What is the future of Facebook if half of Americans think it is a fad?

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A new survey reveals some controversy in how long Americans think Facebook will last:

Half of Americans think Facebook is a passing fad, according to the results of a new Associated Press-CNBC poll. And, in the run-up to the social network’s initial public offering of stock, half of Americans also say the social network’s expected asking price is too high…

The public overall is similarly divided on the company’s future. Just under half of adults (46 percent) predict a short timeline for Facebook, while 43 percent say it has staying power.

I’m not sure why we should think that average Americans should be experts on the value of Facebook’s IPO but the questions about the staying power of Facebook are pretty fascinating. I wonder what exactly it means that people call Facebook a fad: does that mean it is too popular (this could go along with the idea that Facebook is overvalued) or that it will someday disappear (maybe replaced, maybe simply fades away)? These are two very different options: Facebook’s membership numbers will probably level off at some point but that is very different than suggesting Facebook may not be around in ten years.

To me, these figures suggest several things:

1. The IPO could be a very important turning point for Facebook, perhaps akin of a transition from young adulthood to becoming a mature company. Will the company continue to grow or is this the beginning of the end (particularly in public perceptions)?

2. There is still room for Facebook to become more integrated into the daily life of people, particularly older Americans. Perhaps the number of users can’t increase all that much but the time one spends on Facebook can.

3. Facebook still needs to show a certain segment of the population that it is “worthwhile” and not just a “fad. “I’m not sure exactly what this would look like. It could include giving Facebook more functions so that more online activity, like shopping (though respondents to this survey are not very favorable about the idea of giving Facebook this data), takes place through Facebook. Or perhaps it includes convincing people that the social interaction on Facebook is now how normal social interaction takes place.

On the whole, this means that there is a lot for Facebook still to do.

Sociologist argues that there aren’t as many high-paying high-tech jobs as people think

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While commentators suggest that college students should pursue high-tech careers, a sociologist argues that there aren’t as many jobs in this sector as people think:

Finally, it is a big mistake to think that the tech sector is a panacea for the jobs crisis. University of Michigan professor of business and sociology Gerald Davis has examined the data and found that the job-producing high-tech’s potential is consistently overplayed.

“Although the handful of teen billionaires who manage to cash in on the latest app may suggest otherwise, surprisingly few people actually work in the high-visibility success stories of the tech economy,” Davis writes in an article to be presented at the American Sociological Association meeting. “The combined global workforces of Google (32,467), Apple (63,300), Facebook (3000), Microsoft (90,000), Cisco (71,825), and Amazon.com (56,200) — 316,792 as of the end of 2011 — are smaller than the U.S. workforce of [grocery chain] Kroger (339,000). Notably, a recent survey of college graduates under 40 found than one in five listed Google as their most preferred employer, followed by Apple and Facebook. They might as well have chosen the NBA as Facebook, given the firm’s minuscule employment, and Apple’s recent surge in net jobs is almost entirely attributable to the roll-out of its retail stores, where most of its current employees work. The Computer and Electronic Products industry has seen a loss of 750,000 jobs since 2000 as production has been almost universally offshored. But even the Information Services sector, which includes telecommunications, broadcasting, publishing and data processing, shed over one million jobs during the same period.”

It sounds like aspirations and the number of available jobs don’t line up. Some could argue that there are plenty of smaller high-tech firms and start-ups along with plenty of opportunities for entrepreneurship but I’m guessing plenty of young adults would want to work for established (and cool!) companies.

Others have argued that people in or going to college should look at what jobs are going to popular in the future, presumably to avoid industries that are losing jobs. But what commentator would discourage young people from going into the high-tech sector even though they would quickly recommend steering clear of liberal arts degrees?

Financial planning with a hint of sociology?

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Economists and sociologists may have very different views of the world but what about combining some of both in financial planning? Here is a financial planner who argues he has an extra edge because he incorporates insights from sociology and a few other fields:

William Pitney, Financial Coach and President of Focus YouNiversity, LLC (FocusYOU), continues to enhance his expertise as a Sudden Money Advisor. Pitney attended the one-day workshop held in Portland, Oregon on April 19th as a requirement of the 12-month coaching program. The program is designed to provide a deeper understanding of the Financial Planning Process developed by Susan Bradley, CFP® and founder of the Sudden Money® Institute (SMI).

During the workshop, Pitney acquired new skills for navigating clients through financial and life transition events, allowing them to feel more confident as they move forward. SMI provides Pitney with access to the latest research, tools and processes to guide clients through Sudden Money and life events.

Traditional financial training and advice address the facts and figures of money only. SMI provides advanced training that also addresses the emotional and human side of money. “The skills and protocols I’ve acquired through Sudden Money enable me to advise clients in transition more effectively and makes it more comfortable for them as they go through these turbulent and often life altering transitions,” said Pitney.

As a Sudden Money Advisor, Pitney is among a select few professionals with expertise combining the fields of financial planning with cutting-edge research in neurology, sociology and psychology. These techniques integrate the technical, rational aspects with the human experiences of the person in transition.

Is there any evidence that incorporating sociological factors into financial planning leads to increased returns? If so, this could be lucrative for some sociologists down the road…

 

Argument: the rise of the American rental economy

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Even though ownership seems engrained in the American psyche, Daniel Gross argues that recent economic troubles are pushing the United States to a rental economy which may just thrive in the years to come:

In the American mind, renting has long symbolized striving—striving, that is, well short of achieving. But as we climb our way out of the Great Recession, it seems something has changed. Americans are getting over the idea of owning the American dream; increasingly, they’re OK with renting it. Homeownership is on the decline, and home rentership is on the rise. But the trend isn’t limited to the housing market. Across the board—for goods ranging from cars to books to clothes—Americans are increasingly acclimating to the idea of giving up the stability of being an owner for the flexibility of being a renter. This may sound like a decline in living standards. But the new realities of our increasingly mobile economy make it more likely that this transition from an Ownership Society to what might be called a Rentership Society, far from being a drag, will unleash a wave of economic efficiency that could fuel the next boom.

While downgrading the place of ownership in the American psyche may sound like a traumatic task, the cold, unsentimental fact about the American dream is that Americans never really owned it in the first place. For the past three decades, especially, consumers haven’t so much bought their quality of life as they’ve borrowed it from banks and credit card companies. And since the Great Recession, Americans have been busy rebuilding their balance sheets and avoiding new financial encumbrances. When American consumers can’t—or won’t—borrow to purchase the goods and services they’ve come to consider part of their standard of living, how does the economy get back on its feet?…

It’s tempting to view the rise of rentership as an economic step backward. Renters can’t build up equity, and they have less control over their living standards than owners. Renting is generally seen as something you do when you’ve failed as a homeowner or are not yet ready to be one. But I’d argue the rise of rentership is a sign of a system adapting—albeit too slowly—to new realities.

The U.S. economy needs the dynamism that renting enables as much as—if not more than—it needs the stability that ownership engenders. In the current economy, there are vast gulfs between the employment pictures in different regions and states, from 12% unemployment in Nevada to 3% unemployment in North Dakota. But a steelworker in Buffalo, or an underemployed construction worker in Las Vegas, can’t easily take his skills to where they are needed in North Dakota or Wyoming if he’s underwater on his mortgage. Economists, in fact, have found that there is frequently a correlation between persistently high local unemployment rates and high levels of homeownership.

An interesting argument.

I wish Gross would explore the implications of this further. Perhaps for the “average” American, renting will make sense  in the future. It has several clear advantages: it doesn’t require one to take on a lot of upfront debt. This is most clear with mortgages: how many people will want to take on that amount of money when conditions can change quickly? (Does this idea about renting have any application for the other popular debt topic these days: college loans?) Second, it allows consumers to pick and choose more. If you are renting with a yearly lease, you have some freedom to adapt to changing circumstances. (There also could be some negative pressures due to rising rents, actions of landlords, etc.) If there is something that Americans like even more than ownership, it is choices. You can also see this trend in media options: we are moving away from a system of ownership to buffet or a la carte models where you can access thousands upon thousands of songs and movies on demand. Third, this seems like a classic American argument: the times are changing and there is money to be made by more quickly seizing on the new realities!

But there could also be some downsides to this. First, someone must still own things like housing units and rights to digital media. Will ownership be consolidated in the hands of a few? What happens if the few want to restrict access to their products? Does a society based more on the renting of housing units inevitably require things like rent control? Second, there is a long cultural history in the United States that ties renting to transience and lack of concern for the local community. For example, many suburban communities have resisted the construction of apartments because the perception is that people who live in apartments don’t contribute long-term to a community in the same way that homeowners do. (Of course, there are other reasons suburbanites resist apartments, including issues of race, class, and property values.) At its most blatant, homeownership was seen as a bulwark against Communism. These cultural biases can be overturned but it won’t necessarily come quickly or easily. Third, are there other aspects of life that would have to change to accommodate a shift to renting? Can widespread renting of homes work in suburbia? Can Zipcar exist in less dense areas? In other words, is this just about renting or about large-scale adjustments to American society based on new realities?

This bears watching. Is this the end of the dream of some of an ownership society?

Of food trucks and lawbreaking

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It’s no secret that the U.S. economy continues to struggle, particularly on the jobs front.  It’s not surprising, therefore, that lots of people are getting in touch with their inner entrepreneur and are seeking employment via their own small businesses.  Food trucks, although looked down on by some, clearly are a part of this self-starter trend, particularly in certain urban areas like Portland and New York.

Which is why I found a recent NPR Planet Money podcast on food trucks in NYC so interesting. From the transcript:

[T]he city sets lots of rules about where food trucks are not allowed — then lets the truck owners duke it out over the scraps.

You have to be 20 feet away from subway stations and building entrances. Two hundred feet from schools (call it the ice-cream truck provision). And the NYPD just started giving out tickets for selling food from metered parking spots.

“Following all the regulatory constraints that are currently enforced at this moment, there really is not any place for a food truck to park,” says David Weber [author of the Food Truck Handbook].

In other words, NYC on one hand licenses an activity (vending from food trucks) and on the other hand makes this activity illegal (through parking regulations that provide literally no legal spots from which to vend).  Of course, what this really means is (1) that food trucks continue to operate but (2) that they do so in technical violation of the law and subject to the whims of law enforcement’s discretion.

As a lawyer, this infuriates me.  It undermines the rule of law in a number of ways:

  • It tells citizens that one has to break the law simply in order to run a business.
  • It implies that there are two classes of law (laws one must obey and laws one need not) without providing a clear principle on which is which.
  • It institutionalizes an incentive for corruption and discrimination since every food truck operator is now a technical lawbreaker subject to law enforcement’s “discretion” (and thus harassment, solicitation for bribes, etc.).

To be clear:  I do not know whether any corruption or discrimination is taking place, and I am not accusing anyone of anything.  (Indeed, I have no direct knowledge of the situation on the ground and do not live in NYC.)  Taking David’s assertion at face value, however, it is clear that such facts would incentivize corruption and discrimination at the institutional level.

Dome sweet dome?

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Wired points to a recent Toronto Star article about the financial and environmental benefits of dome-style housing:

It’s earthquake-proof, tornado-proof, fireproof, can be buried into a hillside, and it’s impervious to insect and animal attacks.

Cost efficient, easily maintained, earth-friendly and extremely endurable….While typical new homes exceed an EnerGuide rating of 65 to 70 [link], high energy-efficient homes can push over 75, and R2000 houses can exceed 80, an Ottawa dome house hit 88 when constructed in 2006.

According to the article, the main problems with constructing a dome home are the local regulators and lenders suspicious of its current novelty:

[Collin] Cushnie and [Sunny] MacLeod [of the Great Lakes Dome Co.] realize that widespread appeal will only come through acceptance as an alternative to “stick and bricks” construction. In fact, they usually have to coach the local building inspector and mortgage holder for approval.

One common complaint leveled against McMansions is how “tacky” and “ugly” they are.  Given all the benefits of dome housing (environmental and otherwise), it will be interesting to see if domes can overcome similar perceptions and achieve widespread acceptance in the marketplace.

Hochschild highlights new individualized service jobs like “wantologist”

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Sociologist Arlie Hochschild has written a new book, The Outsourced Self: Intimate Life in Market Times, that explores the rise of jobs to meet our individualized needs:

Don’t know what you want out of life? No problem. Hire a wantologist!

This new profession actually exists in 2012. Just fork over a little cash (a couple hundred an hour or so) and this individual will help you figure out your most important goals in life – and help you get closer to achieving them.

Sound like a bunch of hooey? Consider Esther James, a wantologist in San Jose, California. She has a PhD in psychology from NYU, practiced for twenty years as a Jungian psychologist, trained as an executive coach – earning $250 an hour – and has now transitioned into full-time life coaching in the wake of the economic downturn, as she explained to sociologist Arlie Russell Hochschild.

Hochschild, based at the University of California, Berkeley, profiles James and many other personal service providers in an enlightening new book, The Outsourced Self, which describes how the market has risen to meet the needs of increasingly harried and needy Americans…

Hochschild puts these out-of-the-blue service professions in the broader context of a society right now that “undermines community, disparages government, marginalizes nonprofits, and believes in the superiority of what’s for sale.” As she told The Fiscal Times in an interview, “The wantologist’s profession is fledgling at the moment, but it’s very real – it’s its own speciality. I’ve seen the ‘wantology workbooks.’ I’ve talked to the clients. Services like this are only going to proliferate. A lot of things that seemed weird yesterday aren’t weird today.”

The themes of this book sound similar to Hochschild’s previous books, The Managed Heart and The Second Shift, that also address the intersection of individuals and a changing social context. In this new book, it sounds like Hochschild is arguing that we lose something as a society when important individual tasks are outsourced to free up the time for us to do “better” things.

The interview with Hochschild is worth reading in full but there would seem to be another aspect to this shift that is not addressed. Wouldn’t these sorts of services primarily cater to those with the economic resources to pay for it? Hochschild mentions how dating websites could also fall into this category (and these are relatively accessible) but in order to hire a life coach or personal organizer or “wantologist,” you would have to have some extra money. Or, perhaps these services could be quickly becoming “necessary,” meaning that people have to cut back elsewhere in order to achieve certain priorities. For example, this might include a family that feels it is a necessity to hire a college application consultant for their high school student since college is such an important decision and predictor of chances later in life. If these services are becoming more normal, than it could be another marker between social classes: can you afford to outsource some of the mundane or necessary tasks of lives off to others? And who is expected to work in these service jobs? Perhaps this is simply a more palatable, market-based solution to the issue of the wealthy hiring servants in the past.

This also reminds me of two other things:

1. Could this be viewed as an example of extended cognition, the idea that we as humans are effective at utilizing other resources to tackle certain issues for us (even as basic as writing ideas down on paper so we don’t have to devote extra brain space to remembering these things) and freeing ourselves for other things?

2. A.J. Jacobs wrote about an experiment in personal outsourcing (with more detail in his book The Guinea Pig Diaries: My life as an Experiment).

When looking at the minimum wage, should we consider whether a poorly paying job is better than no job?

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I ran into an argument about whether the minimum wage should be raised in the United States and it got me thinking about the reasons behind the argument for raising it. To start, here is some of the debate:

One of the harshest realities of America’s slow economic recovery — and there are many — is the fact in spite of modest job growth, pay for workers is falling. Year over year, average inflation adjusted wages have dropped by 0.6 percent for all private sector employees. They’re down a full 1 percent for non-supervisors — your retail salespeople, your shop floor factory workers, your cashiers. In other words, even as the overall employment picture has improved in fits and starts, the working poor are getting poorer.

Some believe this is a sign of the recovery’s weakness, and today the National Employment Law Project used it as a rallying point to call for a higher minimum wage. According to their analysis, which is current through the beginning of 2011, while the bulk of job losses during the recession affected medium wage earners, such as paralegals and nurses, most of the hiring post-recession has been for low-paid service work. Middle class jobs, they argue, have been replaced with poverty wage jobs…

But here’s the alarming part. All of this might simply mean that the same forces that caused wages to stagnate before the recession will make them stagnate after the recession. It’s just another sign that income inequality is here to stay, unless something radical changes that will give working class families a larger slice of the pie. Will raising the minimum wage do that? It might help on the margins, certainly for the 3.8 million workers who earn it.  (I’m not one of those who believes that a higher minimum wage actually kills jobs. This great, short Slate piece from 2004 explains why.) But the vast majority of American workers won’t see much benefit from it. Rather, fixing the wage problem means we need to think about the fundamental problems skewing income growth towards the top, from spiraling CEO pay to an inadequate education system.

Falling wages are taking us back to where we were before the recession. For many workers, that’s not a good place. And there aren’t any easy ways out of it.

Of course, arguments for raising the minimum wage often focus on the idea that it is not enough money to live on. Hence, calls for a living wage that is more closely tied to a more steady standard of living.

But I wonder if there isn’t a bigger issue at work here: the idea that low-paying jobs may not be worth having. In other words, people might be better off without a minimum wage job. The low-paying job may be helpful in securing a new job (you don’t want an unemployment gap in your resume) or moving up but too many of these low-paying jobs pay so little that employees may not be able to do the things they need to do to move up (move to a new area where jobs are more plentiful, own a reliable car to expand job prospects, enroll in classes, etc.). Additionally, a number of these jobs don’t really offer chances for advancement; if they do, it is limited to a small group of workers. So these workers can get trapped in a cycle of low-paying positions that meet some basic needs to survive but never provide the hope to do something better. This is reflected in books like Nickel and Dimed: it is hard enough to do the daily grind, let alone find some light at the end of the tunnel in terms of a better-paying job.

In this sense, making a small adjustment to the minimum wage wouldn’t seem to do much. It might offer a little more money but this is likely eroded quickly by inflation (past and future). What we then need is more jobs that provide a higher standard of living and give more employees the opportunity to move on and up to something better.

(I realize there is a lot more going on here. But I wanted to get at the idea that simply having a job isn’t a guarantee of having the chance to reach the American Dream. Being willing to work doesn’t necessarily guarantee a good outcome. This also reminds me of Katherine Newman’s book No Shame In My Game about the working poor who want to work but can’t access the jobs that would lead to success.)