Rudegeair

Writing in Bloomberg Businessweek, Charles Kenny pokes multiple holes in the canards the small businesses are engines of economic growth and that entrepreneurialism for its own sake is always and everywhere a virtuous and just pursuit:

A cross-country analysis of business surveys by economists Rafael La Porta of Dartmouth College and Harvard University’s Andrei Schleifer reveals that a society’s wealth is inversely proportional to the number of people who earn their livings from small businesses. Among the poorest quarter of the world’s economies, the proportion of people who are self-employed is 46 percent, compared with 13 percent in the richest quarter. The higher you go up the national-wealth ladder, the lower the number of small enterprises.

Why is that? La Porta and Schleifer’s data show that in developing countries, large companies are far more productive—with value added per worker an average of 59 percent higher. The productivity gap between small enterprises with an average of around eight employees and microenterprises with as few as one employee was even greater—more than 100 percent. That’s in part because the managers in larger companies are significantly better educated. Around a third of small enterprises were run by someone with a college education, compared with 85 percent of large companies. La Porta and Schleifer conclude that the “hope of economic development lies in the creation of large registered firms, run by educated managers and utilizing modern practices.”

Although often celebrated by development specialists, microenterprises run by poor people in the developing world are usually the result of an absence of other opportunities rather than an abundance of entrepreneurial zeal. Massachusetts Institute of Technology economists Abhijit Banerjee and Esther Duflo note that the majority of enterprises run by the world’s poor are shops making a few sales a day. They estimate that profit at the average shop in India amounts to the princely sum of $133 a year. What poor people consistently say is that they’d rather work for a stable employer. Finding such employment, argue Banerjee and Duflo, is the way rural people in India have been making their way out of poverty over the past couple of decades. What Case Western’s Shane concludes for the West is true worldwide: “Because the average existing firm is more productive than the average new firm, we would be better off economically if we got rid of policies that encouraged a lot of people to start businesses instead of taking jobs working for others.”

From a 2003 New York Times Magazine piece on the iPod, “The Guts of a New Machine:”

Looking back at my notes, I found it remarkable how many of [Steve Jobs’] answers begin with some variation of ”No,” as if my questions were out of sync with what he wanted to say. (Before I could finish a question about the significance of Apple’s pitching a product to Windows users, for instance, he corrected me: ”We’re not pitching the Windows user. We’re pitching the music lover.”) After half an hour of this, my inquiries really did start to fall apart, so I didn’t expect much when I resorted to asking, in so many words, whether he thinks consciously about innovation.

”No,” he said, peevishly. ”We consciously think about making great products. We don’t think, ‘Let’s be innovative!”’ He waved his hands for effect. ”’Let’s take a class! Here are the five rules of innovation, let’s put them up all over the company!”’

Well, I said defensively, there are people who do just that.

”Of course they do.” I felt his annoyance shift elsewhere. ”And it’s like … somebody who’s not cool trying to be cool. It’s painful to watch. You know what I mean?” He looked at me for a while, and I started to think he was trying to tell me something. Then he said, ”It’s like … watching Michael Dell try to dance.” The P.R. minder guffawed. ”Painful,” Jobs summarized.

What I had been hoping to do was catch a glimpse of what’s there when you pull back all those layers — when you penetrate the aura, strip off the surface, clear away the guts. What’s under there is innovation, but where does it come from? I had given up on getting an answer to this question when I made a jokey observation that before long somebody would probably start making white headphones so that people carrying knockoffs and tape players could fool the world into thinking they had trendy iPods.

Jobs shook his head. ”But then you meet the girl, and she says, ‘Let me see what’s on your iPod.’ You pull out a tape player, and she walks away.” This was an unanticipated, and surprisingly persuasive, response. That’s thinking long-term, I said. ”No,” said Steve Jobs. ”That’s being an optimist.”

Stay hungry. Stay foolish.  

As a follow-up to that Economist chart on the world’s largest employers, check out this interview with Dan Breznitz, author of a new book on China’s push towards innovation called Run of the Red Queen. I easily forgot how large scale everything is in China, but consider how much more efficiently a Chinese company like Foxconn can mobilize 200,000 of its workers than can an American institution like the military:

China’s companies are extremely efficient at creating new versions, often simpler, cheaper and more efficient, of technologies and products shortly after they are invented and marketed elsewhere in the world. For instance, I can’t think of any company in the world that can have over 200,000 people in one location producing a wide array of electronic gadgets for multiple companies other than Foxconn in China.

The American military, the best fighting machine in the world, can hardly move 200,000 people into the exact locations it wants them in months, but this company moves engineers and production workers from line to line and product to product with amazing efficiency. This is production innovation. China does innovate.

In novel-product innovation, China is very weak. There’s no way around it. The central government is the main antagonist in the process. The political economic institutions and system in China make it so entrepreneurs can’t make profit by developing novel innovation. But this same system makes process and second-generation innovation very profitable and successful.

Back in May, IMAX CEO Rich Gelfond had this to say to Bloomberg Businessweek about Hollywood’s summer slate:

It really is an embarrassment of riches…  You’d like to have a little more time.

Now, keep in mind this is a summer slate that included, in the words of Mark Harris writing in GQ, 

four adaptations of comic books. One prequel to an adaptation of a comic book. One sequel to a sequel to a movie based on a toy. One sequel to a sequel to a sequel to a movie based on an amusement-park ride. One prequel to a remake. Two sequels to cartoons. One sequel to a comedy. An adaptation of a children’s book. An adaptation of a Saturday-morning cartoon. One sequel with a 4 in the title. Two sequels with a 5 in the title. One sequel that, if it were inclined to use numbers, would have to have a 7 1/2 in the title.

Well, now that Labor Day has passed, we can evaluate Gelfond’s cheerfulness against the season’s total ticket tally.  The results: this summer’s “embarrassment of riches” is really just an embarrassment: 

From the first weekend in May to Labor Day, a period that typically accounts for 40 percent of the film industry’s annual ticket sales, domestic box-office revenue is projected to total $4.38 billion, an increase from last year of less than 1 percent, according to Hollywood.com, which compiles box-office data.

The bad news: higher ticket prices, especially for the 18 films released in 3-D (up from seven last summer), drove the increase. Attendance for the period is projected to total about 543 million, the lowest tally since the summer of 1997, when 540 million people turned up.

Hollywood has now experienced four consecutive summers of eroding attendance, a cause for alarm for both studios and the publicly traded theater chains. One or two soft years can be dismissed as an aberration; four signal real trouble.

That’s Brook Barnes writing in Monday’s New York Times. She tries to salvage a silver lining from these woeful numbers and settles on the good omens for old-fashioned, adult-oriented fare:

Amid all of the special effects and computer animation, two old-fashioned films aimed at adults turned in impressive results. “The Help,” a DreamWorks Studios adaptation of a best-selling novel, has ridden strong reviews to $122 million in ticket sales and counting. Earlier in the summer, “Midnight in Paris,” distributed by Sony Pictures Classics, became an outsize hit for Woody Allen, selling $53 million in tickets.

“It’s always kind of funny to see Hollywood surprised that movies aimed at adults succeed in the summer,” said Mr. Contrino of BoxOffice.com. “If you don’t feed them garbage — surprise — they buy tickets.”

It’d be great if this were true, but something tells me that less than $200 million in domestic ticket sales against a total summer take of nearly $4.5 billion is not about to cause a paradigm shift in Tinseltown, especially when you hear nonsense like this from a studio head:  

Efforts by 20th Century Fox, owned by the News Corporation, to restart its “X-Men” and “Planet of the Apes” franchises were particularly impressive. Fox took creative risks with “X-Men: First Class” and “Rise of the Planet of the Apes,” and it was rewarded with hits that will spawn sequels.

“The lesson for us is that different and original is always hard and always a risk but has great upside,” said Tom Rothman, co-chairman of Fox Filmed Entertainment. “While both of those films had genetic material in common with their original franchises, both were very, very original pieces.” Notably, “First Class” and “Rise” received some of the summer’s best reviews.

No, Tim, prequels are inherently derivative. Your creative strategy is adrift when you find yourself following the advice of that auteur Homer Simpson:

Homer: How did the country lose its way, Mel? When did we stop rooting for the man with a flame-thrower or an acid-spraying gun of some kind?

Gibson: I blame the internet. And the return of swing music.

Homer: Well, whatever it is, we gotta get rolling on our next picture. Hey, what about a prequel of something? Everybody loves prequels.