Archive for February, 2008

Addendum: Tighten it up, folks!

February 26, 2008

Good short books that would have been made bloated and unreadable by a less confident author:

1) Just Six Numbers: The Deep Forces that Shape our Universe by Martin Rees

2) Fortune at the Bottom of the Pyramid by CK Prahalad

3) City of Djinns: A Year in Delhi By William Dalrymple

4) Neither Here nor There: Travels in Europe by Bill Bryson

5) That’s about it…. tell me more


Tighten it up, folks!

February 26, 2008

There are regretably few subjects that I want to endure for 400 written pages.

There are a few, but not many, that can keep my excited attention for that long. There are, however, countless subjects that will keep my excited attention for 75 pages. Either I’m retarded unique or there’s an unmet need out there.

If every 400 page non-fiction book had a concise, punchy 75 page alternative right next to it on the shelf, which one would you buy? Which one would you pay more for?

Same goes for speeches by a single human being on a single subject (60 minutes needs to be 20 minutes).

Why is the minimum threshold for intelligence discourse 400 pages (and 700 for a biography)? Is the publishing industry to blame? Perhaps thicker book jackets mean more bookstore sales.

Or maybe someone along the value chain is getting paid by the page.

Defining social entrepreneurship

February 24, 2008

I would contend that Google has done more for social good than the Gates Foundation, Oxfam, and Salvation Army combined. The dissemination of the world’s knowledge to anyone with a computer, ability to organize people and causes, and development of billions (trillions?) of previously non-existent markets has yielded incalculable social benefit.

Are Larry Page and Sergey Brin social entrepreneurs? Not sure.

Are they considered social entrepreneurs by most? Probably not.

I was around a table with some folks trying to define social entrepreneurship last week. It’s a slippery concept. Someone offered the classic cop-out “like pornography, I know it when I see it.” Someone pointed to performance in metrics of social impact (lives saved, people fed, low-income jobs created). None of those definitions felt quite right.

Then someone offered this one (paraphrased): “A social entrepreneur is someone who is runs a sustainable, scalable business without requiring chartable funding and is willing to sacrifice their bottom line in favor of social good.”

Everyone nodded their head and seemed content. Let me rephrase:

A social entrepreneur is someone who values profits at a Utility X and social good at a Utility Y.

For a regular entrepreneur:

1) X > 0

2) X > Y

For a social entrepreneur

1) X > 0

2) Y > 0

3) Y > X

Whether or not the definition is a good one, I do not like the inherent trade-off of “profit” and “social good” implied in this or similar definitions. These two dimensions are at worst independent and more likely highly correlated. We have only scratched the surface of ideas and business models which do not need to consider the trade-off. Profit begets social good begets profit — rinse, wash, repeat. The social entrepreneur is one who uncovers these opportunities, NOT the one willing to make the most sacrifices. He/she just doesn’t need to at this point. Until we’ve exhausted all options where social good automatically falls out of profitable operation, speaking of trade-offs is premature. My definition: The social entrepreneur of today is someone with an idea that creates social good in the pursuit of profits.

Poverty makes its mark before the age of three

February 18, 2008

Check out this FT article reporting on new studies in poverty. Unhealthy levels of stress hormones in young children living in poverty impair neural development, causing damage more severe and irreversible than inadequate nutrition or environmental toxins.

THIS HAPPENS IN AMERICA. Whether you’re Christian, Muslim, Agnostic, Atheist, Jewish, Conservative, Liberal, Anarchist, Libertarian, or other, if you believe in the sanctity of life and that all people deserve a chance, this should be the important policy issue; young children barely born and poverty mars them for life. The science is there. 

Yet the people remain quiet. Why is abortion a passionate issue for conservative Christians while this isn’t? Why do Obama and Clinton focus more on the middle class? 

More on Azteca/Elektra

February 17, 2008

This post is a follow-on from an earlier one about Banco Azteca. I met a former Banco Azteca employee. He was the manager of an Azteca branch within an Elektra store front. He told me some interesting things.

First, unsurprisingly, he told me that Azteca branches have aggressive quotas and loan targets, and that variable pay (a significant portion of remuneration) depends on meeting those goals. In other words you get paid high bonuses if you loan more money. Why is that not surprising?

  1. Because it’s a trend in banking to pay bonus based on sales performance (selling more savings and credit products)
  2. Because selling impulse credit to lower-middle class Mexicans with little financial savvy is much more effective with salesmanship/pressure

It would be hard to justify almost any Elektra purchase financed with an Azteca loan as being a rational, informed consumer decision. With Azteca interest rates of 80% – 110% and most purchases being non-income generating, customers would be better off saving their money and buying goods later with cash upfront. Sales, then, depend on aggressive salesmanship to attract the impulse buy, and salesmanship is motivated by performance-based pay.

Perhaps more interesting, the former Banco Azteca manager also told me that he left Azteca because they treated employees poorly. He told me that employees in Elektra stores are actually personally responsible for store robberies: if someone robs the place, the manager replaces inventory out of his own pocket.

My source also had one jarring story about an employee who tried to stop a robbery and took a bullet to the stomach and another to the leg. Instead of shelling out for the private hospital, Azteca put him in the public hospital (which is much lower quality), where he had multiple operations. When he came out of the hospital, instead of giving the guy pension and sending him home, Azteca put him back in a branch so he could work for his pay check. The other employees in the branch called him the mechanical man because of the awkward way he walked after all the operations. This is a little bit funny. It is also sad. The man must have felt betrayed by Azteca after doing his best to stop a robbery.

The purpose of this post is not to blast Azteca for inhumane employment practices. In fact, I’m sure Banco Azteca works out quite well for many successful employees. It’s more to think about what is going on. Azteca has created an atmosphere where employees are held to strict personal financial accountability for both positive and negative performance:

  • Positive performance because employees get paid high bonuses for lending more money
  • Negative performance because employees are on the hook for misfortunes (such as robberies and even getting shot)

I’m sure this is good business. It attracts the most hungry people to manage the branches and push credit on customers. I’m sure the most successful employees have made substantial money in this business. It may not, however, lead to great outcomes for the consumers, convinced by talented and hungry employees to borrow under extremely expensive terms. All for a new TV or washer-dryer combo.

Azteca’s good business practices, directed at the base of the pyramid, are not the solution to poverty in Mexico and ought to face tougher consumer protection regulation from the Mexican government.

Death by a thousand cuts: Verizon and AT&T

February 17, 2008

“To page this person press 5 now. At the tone please record your message. When you have finished recording hang up or press 1 for more options”

– 10 seconds. AT&T voicemail greeting message

“You have one message whose retention time is about to expire. [pause] You have two new voice messages. [pause] You have nine saved voice messages. [pause] First voice message.”

– 18 seconds. Verizon voicemail account

Perhaps once a week the F-Train screeches to a halt in the middle of the 6th Avenue line. “Folks, apologies for the delay. We will be moving shortly.” These delays usually last about 30 seconds, but you wouldn’t know from the groans on the trains. People do not deal well with those delays and really hold the MTA to the fire for them. “I can’t believe the amount of my time the MTA wastes” stammered one person on my train.

Forget the MTA — they are doing their best. Why do we let Verizon and AT&T needle their customers by wasting much more of their time? Clearly these overly-narrated voicemail menus are an attempt to run up airtime (checking voicemail isn’t free). The question isn’t why they do it. The question is how they get away with it.

Quick calculation: If you listen to 5 messages a day

18 seconds x 5 = 1 minute 30 seconds

And leave 5 more

10 seconds x 5 = 50 seconds

More than two minutes of your day are given over to telcos in a futile “time” surcharge. Let’s call it 12 hours a year. That’s a lazy vacation day folks! Verizon– stop wasting my time, bill me a little more and we’ll both be better off.

It’s death by a thousand cuts. It’s truly a friction on our country’s productivity. It is really shameful. If you need a clearer example of consumers losing out to unnatural overly-regulated oligopolies, I don’t have it.

11:45 PM golden realization

February 17, 2008

Ellen Page is the world’s youngest MILF.

Microfinance for the poor or the rich

February 11, 2008

Anyone interested in large scale business approaches to development should read Business Week’s recent article on The Ugly Side of Microlending, which profiles Banco Azteca. With an average loan size of $257, Azteca would certainly be considered a Microlending Institution. However, its for-profit structure (controlled by Mexican tycoon and billionaire Ricardo Salinas Pliego), aggressive lending practices, and market positioning in consumer goods do not conform to the stereotypical Microlending profile.

Azteca lending occurs exclusively within the glowing storefronts of sister company Elektra, which sells electronics and other home goods. Typical purchases include stereo systems, bicycles, televisions, furniture, etc. Although some items in Elektra could certainly be used for production, the focus is definitely on consumerism. Banco Azteca, owned by the same parent, conveniently offers Elektra customers financing options for purchases. I’ll list a couple of the aggressive lending practices without going into extensive detail (again, I highly recommend the article).

  • Aggressive marketing: anecdotal evidence suggests that customers are rushed into borrowing decisions and don’t always understand the implications of all loan terms
  • Misleading quoted interest rates: quoted interest rates are applied for the entire term of the loan to the original principal; this means that if you borrow $100 and pay off $50, you continue to pay interest on $100 until the loan is fully paid; Total interest rates (APR) are consequently between 80% and 110%, although Azteca quotes 55%; U.S. law requires banks to disclose APR to customers, although Azteca provides no fair measure of the real cost of financing
  • Aggressive securitization: borrowers post all personal possessions as collateral against loans; if you stop paying, Azteca comes and carts away stereos, refrigerators, furniture, and anything else you own of value; goods are resold in Elektra’s used section

Consumer advocacy in Mexico is not as strong as in the United States, and clearly, many of these practices would be deemed exploitative/illegal within a stronger regulatory system. Last year, instead of complying with a new law requiring greater disclosure of financing costs to borrowers, Azteca went to court and won individual protection from the law. This development brings up a different but related theme regarding the growing power of extremely wealthy individuals in developing countries (e.g. Salinas) and their ability to control public institutions. The richest man in the world, Carlos Slim, is Mexican.

The Azteca phenomenon reminds us to be careful when thinking about microfinance and base of the Pyramid business in general. Clearly the econ 101 model that says that any competitive business is inevitably good for the consumer is flawed. In this case, borrowers have extremely limited financial savvy and face extremely sophisticated marketing. Is credit always good for the poor? No. I know I’m running a fine line because I also believe strongly that the poor need to make their own decisions and learn to improve their own lives. As a general rule, the rich will not take care of the poor. The poor must take care of themselves. Part of that means making good credit decisions.

Nonetheless, some basic common sense should be applied. Common sense suggests that not all credit is pro-poor credit.

Longevity escape velocity

February 10, 2008

Thinking about the future of medical technology makes my head spin. The idea of human engineering is so alien to our sensibilities that it is usually brushed aside and relegated to science fiction. Maybe this is why it is so jarring when a scientist pokes his/her head out and suggests some of these ideas may actually intersect with our future reality.

Aubrey de Grey (who looks a bit like Methusaleh himself) claims you and I may live past 1000 years. Ridiculous eh? Maybe not. Let me swerve around and come back to the core argument.

We’ve all heard of Moore’s Law. Processor speeds double about once every 18 months. The same exponential growth marks other technological yardsticks that rely on incremental rather than fundamental improvements. For example, the Human Genome Project (draft) was 25% complete in year 9 and 100% complete in year 10. This was no surprise to the project leads, who recognized the exponentially-improving nature the underlying technology.

What about our ability to repair damage done by aging? Could those improvements be exponential as well? de Grey sees aging retardation as a problem in cellular engineering — repairing mitochondrial damage (are any of my medically-inclined friends better informed here?). The key question is this: “Is there a Moore’s Law for cellular repair?”

If so relatively modest increases in medium-term life extension technology will compound into biblical life expectancies for our generation … and perhaps even Sam. The ability to extend life by two years in 2020 will allow the recipients to benefit from an additional two years of current technological improvements in .. say .. 2060. That life extension will subsequently buy another round of technological improvement. It comes down to this: If the rate of cellular-repair technological change permanently exceeds the biological rate of aging at any point in our lives, we live forever — de Gray calls this rate the “Longevity Escape Velocity.”

Paging Shelly Kagan…

The great halogen alibi

February 8, 2008

There is not a single more subversive trend in the fight against climate change than this one:

“Thank you for listening to my presentation on government’s role in [global warming / pollution credits / energy regulation]. Now here’s what YOU can do to help reduce YOUR carbon footprint. If everyone in this country turned off their computers overnight we could power the city of Toledo for 12 whole weeks!”

Helpful? Clearly not. Innocuous? Absolutely not.

It gives the illusion that voluntary and moderate feats of individual effort and discomfort — on the level of flossing daily to fight gingivitis — can solve this problem.

The presenter has just given everyone in the room license to feel good about themselves without meaningfully contributing. The subtext is this: Turning off your computer at night buys you the right to be content with your contribution. So it’s okay — drive your SUV! Vote for James Inhofe! You earned it Mr. Computer-Turner-Offer!

The last slide of that presentation should say this:

Individual choice can not and will not curtail global warming. Your personal responsibilities lie solely with your vote and your voice.

Not all balls are round

February 5, 2008

The title of this post is not the finding of Kinsey-inspired Brown University thesis research; It is the NFL’s official slogan in Mexico. And I’m thankful that not all balls are round in Mexico because I caught the best Superbowl of my lifetime in a Oaxacan sports bar on a big-screen TV. I came to Oaxaca via New York and Mexico City, my home bases for the past three years. Oaxaca is a short flight from Mexico City, and a good place to spend the weekend.

A beautiful city, Oaxaca offers rich prehispanic and colonial history. Mexico’s first indigenous president, Benito Juarez, was born nearby. Juarez is something of an Abraham Lincoln corollary. Not only regarded as one of the greatest Mexican presidents, Juarez is also celebrated as a champion of the common man, in part embodied by his Oaxacan start. Today Oaxaca is a popular destination for tourists who want to see indigenous Mexico in a beautiful colonial setting. The city is both cosmopolitan and prehispanic. The bobo tourist, with fruit-infused cocktails and a hankering for the cultural other, mixes with the Zapotec peasant, still poor by Mexican standards.

In the center of this town of modern contrasts, I found a sports bar with a colonial facade, and I sat to watch the Superbowl. But this entry is not about the Superbowl. It is about the couple sitting at a table behind me. Mostly, they spoke Spanish. They seemed Mexican. But as the game wore on, New England victory constantly imminent, I heard the woman shouting under her breath in distinctly native English: “Get him!” “That’s pathetic!” “Yes!” Although she spoke Spanish to her companion, she yelled exasperated English at the TV.

I wanted to know more about this woman. Typical American visitors to Oaxaca are either university students enrolled in local language classes or wealthy baby boomers looking for a week of something new and fresh. But this woman spoke Spanish, was accompanied by a Mexican, and seemed different and intriguing. I asked

Where are you from?

New York.

Where in New York?


Wow, I lived in the East Village.

I lived in the West Village.

Where are you living now?

Mexico City

Where in Mexico City?

Lomas de Chapultepec

Wow, I live in Lomas de Santa Fe

In three minutes, we established perfectly parallel migratory history. We both chose a particular area of New York City. Then a particular area of Mexico City. Then a particular weekend destination. Then adjacent tables at a sports bar at the same time. Then out of all the people in the sports bar (mostly Americans), she was the only one I met. This was no coincidence, but a result of very particular cultural forces.

From the outset, I was likely to meet this person. And it’s not just because we’re both travellers (moving from New York to Mexico City to sports bars in Oaxaca). There are other types of travelers in Oaxaca. I didn’t meet any of the American students studying Spanish. I didn’t meet any of the older American tourists with fanny packs. I didn’t meet any of the Zapotec Indians who hitched a bus for forty miles with a sack of trinkets to sell in the Oaxacan market. I met the New Yorker from the West Village who lives in Lomas de Chapultepec.

Consider those who come from from Villachuato, a small town in Mexico. They’re likely to meet again in Marshalltown, a small town in Iowa (26,000 people). This town had a meat packing plant employing 450 people from Villachuato. That’s almost 2% of the population of Marshalltown and probably more from Villachuato. I won’t meet any of these 450 people. And I’m not likely to meet any of the millions of illegal immigrants in the United States, or any of the millions more who have been illegal in the United States and are now back in Mexico. I will not connect with these people, even though many live in New York and Mexico City.

It’s not just because they don’t live in my neighborhood, they don’t watch the Superbowl, they don’t stay in boutique Oaxacan hotels, they don’t go to sports bars with colonial facades, and they don’t know my friends. It’s also simple: we don’t connect; we don’t find that immediate click of common ground that makes the short interaction rich. With this woman, I connected, and I sensed it before we spoke.

With globalization, distance is nothing, although not in the way implied by a Thomas Friedman sound bite. Culture, place, and context still rule. The world is grooved.

Phil’s Blog Purpose V1.0

February 3, 2008