192 (24 December 2014)

Welcome to week 192!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by a title search.

(18 December 2014): “Port Delays Leave Retail Goods Stuck in Transit” [SR](http://www.wsj.com/articles/port-delays-leave-retail-goods-stuck-in-transit-1418866644)

——–Goods destined for holiday shoppers have been piling up at West Coast ports due to “negotiations between port employers and the International Longshore and Warehouse Union, which represents workers at West Coast ports who have been without a contract since July 1.”  As a result, some retailers are having items flown in from Asia, when the products can bear the additional cost, rather than rely on the ports.  In addition, this is changing the sales strategy for some firms.  For example, Tommy Bahama shirts “were shipped from Asia at the start of November and were expected to be on display in the company’s 100 full-priced stores starting this week for about 60 to 90 days.  Then, the shirts would be transferred to its 34 North American outlet stores and sold at lower prices.  After the port delays, the shirts may only command full price for about half as long.”  Produce sellers, too, are affected.  “Seattle-based fruit and vegetable exporter F.C. Bloxom Co., said his sales have fallen by half amid the port delays.”  Bloxom notes, “Not only does that hurt our sales, but we look like shaky suppliers, so maybe next year, they will buy from someone else.”

********The article makes the importance of logistics clear and provides some illustrations of the how changes in one link of a supply chain manifest throughout.

(18 December 2014): “Banks Find Niche Helping Firms Defend Against Activists” [SR](http://www.wsj.com/articles/banks-find-niche-helping-firms-defend-against-activists-1418863844)

——–“Shareholder activism is proving to be big business for Wall Street, providing banks with opportunities to cozy up to coveted corporate clients and position themselves to reap hefty fees.  Shareholder activists, which take stakes in companies and agitate for leadership, financial or strategic changes, reached new heights this year both in terms of influence and the cash at their disposal.”  Some banks, however, have focused their work on preventing such changes, i.e., on defense.  Such “defense assignments give bankers and lawyers access to executives and board members that is hard to get otherwise.  It can involve near-daily calls and frequent late-night strategy sessions, advisers say.  That can put bankers and lawyers in pole position to win big-ticket deal assignments—when, for example, the activist forces the company in question to sell a division or issue bonds.  Such assignments are the ultimate prize in activism defense.”

********A lot of attention is given to the activist campaigns of Carl Icahn and, less familiarly, William Ackman, but not much is given to the defense against such campaigns and this article provides a look at the other side of such campaigns, i.e., what the incumbents are doing and the incentives of participants.  One point made by the article is that activism tends to pay better than defense against it, bankers noting that “Activism defense isn’t an unalloyed positive for advisers.  It is time-consuming and doesn’t pay particularly well if it doesn’t lead to a transaction.”  Goldman Sachs is “the market-share leader among defense advisers.”  You can view a graphic about the extent to which Goldman and other banks are involved in defensive assignments at: http://graphics.wsj.com/activism-scorecard/.  The graphic also provides information about law firms and historical data on activist activity.

(19 December 2014): “Clemson grads launch yeast biotech firm to serve breweries” (http://www.citizen-times.com/story/news/local/2014/12/18/clemson-grads-launch-yeast-biotech-firm/20611271/)

——–“When grad student David Thornton was asked to teach a class on the science of beer making at Clemson University, he had no idea that a project he and his students would undertake as part of the course would morph into a biotech startup supplying specialty yeasts to craft breweries thirsting for new recipes.  But just two years later, the company he founded with a student, SouthYeast Labs, is growing to serve breweries in Greenville, [South Carolina,] Asheville and elsewhere in the Southeast with their unique yeasts. . . . SouthYeast specializes in ‘bioprospecting’ for unique microorganisms that can be used in the fermentation of food and drinks.”  Local wild yeasts provide the opportunity to further differentiate craft beers.

********The birth of SouthYeast grew out of a poster presented at the annual meeting of the American Society of Brew Chemists.  “There, brewery scientists expressed interest in trying their yeasts.  And, eventually . . . some big breweries asked the group to bioprospect individual yeasts for them.”  This article comes on the heels of an article in the Wall Street Journal entitled “Universities Push Harder Into Realm of Startups” (http://www.wsj.com/articles/universities-push-harder-into-realm-of-startups-1418842795), the title of which is self explanatory.  It seems, in this case, the Clemson University didn’t push hard—some universities and university systems are pushing quite hard—but it did provide meaningful funding for SouthYeast early on.  I found it interesting that SouthYeast seems to be satisfied in filling its current niche.  How long will that niche be available now that the word is out?  You can learn more about SouthYeast at: https://www.facebook.com/Southyeast.  The instance of SouthYeast shows, to my mind, that the academic practice of communicating research findings will play an important role in advancing university-to-market activities.  However, that research must be communicated to the right people.

********Wild yeasts have long played a role in brewing the Lambic beers of Belgium.  A book that provides a bit more information on wild yeasts seems to be Wild Brews: Beer Beyond the Influence of Brewer’s Yeast (http://www.amazon.com/Wild-Brews-Beyond-Influence-Brewers/dp/0937381861/).

(19 December 2014): “’How It’s Made’” TV’s Quietest Hit” (http://www.wsj.com/articles/how-its-made-tvs-quietest-hit-1418940222)

——–“Scenes of chugging machinery, whizzing conveyor belts and tool-wielding workers are the stuff of drama on ‘How It’s Made.’  The TV series has documented the manufacturing process behind more than 1,200 products over the course of 12 seasons on the airs.  From the mundane (pantyhose, hot dogs, playing cards) to the high-tech (solar panels, semiconductors, race-car engines), the show presents a behind-the-scenes inventory of the things we take for granted.”  The program of Montreal-based company Productions Maj, which airs on the Science Channel, averages about 300,000 viewers, which is “typical for a niche cable channel.  “The show’s format is as straightforward as its title.  A half-hour episode consists of four segments, each devoted to a different product.  (Sometimes producers devote a double feature to stuff that’s especially complicated to make, such as buttons.)

********The article contains a video to the waffle cone production.  The Science Channel website for the show is: http://www.sciencechannel.com/tv-shows/how-its-made.  There you will find many music videos—narration free.  Don’t take a look at these unless you have some free time available.  If you have four minutes, I recommend “Frozen Pancakes” at: http://www.sciencechannel.com/tv-shows/how-its-made/videos/music-video-frozen-pancakes.htm.  If you have another two minutes, you might check out the “I Love Lucy” candy factory video for a laugh.

********These are, of course, instances of the division of labor, the most influential expression of which was given by Adam Smith in The Wealth of Nations, Book 1, Chapter 1, which you can find at: http://www.econlib.org/library/Smith/smWN1.html; there, too, you can learn (chapter 3) that the division of labor is limited by the extent of the market.  Smith wrote on the pin factory, describing in some detail the many steps involved.  As it turns out “How It’s Made” has an episode on “Needles and Pins” at: https://www.youtube.com/watch?v=wZJPpuL2sqQ.  I wonder what the Scottish professor would think of this?  What strikes me after having looked at a few of these videos is the absence of people.  They are there, but largely in a supporting role.  Still, people had to design and produce the machinery that made the machines. Nonetheless, there is continuing concern about the substitution of robots for people, as mentioned in a recent article in the New York Times: http://www.nytimes.com/2014/12/16/upshot/as-robots-grow-smarter-american-workers-struggle-to-keep-up.html.

(19 December 2014): “How economic theory can help stop sexual assault” (http://www.pbs.org/newshour/making-sense/economic-theory-can-help-stop-sexual-assault/)

********Michael Chwe is a professor of political science at UCLA.  He is a game theorist and has written Rational Ritual: Culture, Coordination and Common Knowledge (http://www.amazon.com/Rational-Ritual-Culture-Coordination-Knowledge/dp/0691158282/) and Jane Austen, Game Theorist (http://www.amazon.com/Jane-Austen-Theorist-Michael-Suk-Young/dp/0691162441/).  The present article seems to draw more upon insights from the former book, which is the earlier of the two.  In this article Chwe argues that the economic concepts of “mechanism design” and “social norms marketing” provide frameworks for thinking about and decreasing sexual assault.  With regard to mechanism design, he discusses Project Callisto, “a web-based system for sexual assault reporting” that provides for the preservation of sexual-assault evidence “even if action is not immediate.”  With regard to social norms marketing, he notes that “a great deal of social behavior, even violent behavior, is socially regulated in the sense that whether a person does it depends on whether other people do it and condone it.”  In relation to this he discusses the effective elimination of foot binding in China and the reduction of genital mutilation in Africa.  Although his focus in his article is sexual assault, it is easy to see how this approach might well apply to other issues of the day.

(20 December 2014): “In search of lost time: Why is everyone so busy?” (http://www.economist.com/news/christmas-specials/21636612-time-poverty-problem-partly-perception-and-partly-distribution-why)

********In its Christmas Double Edition, The Economist take a broad, somewhat academic, look at the issue of time scarcity in one of its articles.  According to analysts at the McKinsey consultancy firm, “Everybody, everywhere seems to be busy.  In the corporate world, a ‘perennial time-scarcity problem’ afflicts executives all over the globe, and the matter has only grown more acute in recent years . . . These feelings are especially profound among working parents” and women in particular.  There is a good deal of analysis in the article, as well as a surprise or two: “Thirty years ago low-paid, blue-collar workers were more likely to punch in a long day than their professional counterparts. . . . But nowadays professionals everywhere are twice as likely to work long hours as their less-educated peers.”  Indeed, most of the perks of those positions have disappeared.

********A number of professionals working in the area of time allocation are mentioned in the article.  In addition, reference is made to the Centre for Time Use Research (http://www.timeuse.org/), which is allied with the Department of Sociology, University of Oxford.  There you will find, among other items, links to the Multinational Time Use Study and the American Heritage Time Use Study.  The database on time use studies looks interesting, too.  You can learn more about its contents at: http://www-2009.timeuse.org/information/studies/.

(22 December 2014): “Why Saudis Decided Not to Prop Up Oil” [SR](http://www.wsj.com/articles/why-saudis-decided-not-to-prop-up-oil-1419219182)

——–“In early October, Saudi Arabia’s representative to OPEC surprised attendees at a New York seminar by revealing his government was content to let global energy prices slide. . . . Hard-hit countries like Iran, Russian and Venezuela suspected the move was a coordinated effort between the oil kingdom and its longtime ally, the U.S. to weaken their foes’ economies and geopolitical standing.  But the story of Saudi Arabia’s new oil strategy, pieced together through interviews with senior Middle Eastern, American and European officials, isn’t one of an old alliance.  It is a story of a budding rivalry, driven by what Saudi Arabia views as a threat posed by American energy firms, these officials said.”  Contributing to this budding rivalry is “Shale-oil production in places like Texas and North Dakota.”  Since World War II the U.S. and Saudi Arabia have been close allies; “During the 1980s, the Reagan administration credited the Saudis with maintaining high oil production to drive down prices and weaken the Soviet Union’s finances” and contributed to the U.S. economic recovery.  “But the U.S.’s emergences as an energy rival is testing this foundation in ways not yet widely appreciated, said U.S. and Saudi officials, as have major differences over American Middle East policies.”

********The Saudi action to maintain production has contributed to a reduction in world oil price, presumably at a price so that shale oil production in the U.S. will not be economic, i.e., production will take place at a loss.  Of course, not all shale oil will disappear at lower prices, but some will.  Without a doubt any country that is highly reliant on oil export revenues for government expenditures will be adversely affected.  It is worth noting, however, as the article does, that Saudi Arabia is probably the most highly dependent on oil.  To be specific, “Riyadh depend on oil for 90% of its budget.”  But Saudi Arabia also has a cushion of “$750 billion [of] foreign exchange reserves” to fall back upon.

********A related article appears in a Christmas Eve article of the Wall Street Journal [SR](http://www.wsj.com/articles/oil-companies-predicament-who-should-cut-production-1419358086), where it is asked, “If the global glut of oil that has sent crude prices plunging has come largely from the U.S., why aren’t American energy companies turning off the tap?  The answer can largely be explained by simple game theory.  In short, even though it’s in the collective interest of the country’s oil producers to cut production, the interests of any of those producers is the opposite.  Each one of them is waiting for a rival to make the change.”  According to economist Roger McCain of Drexel University, “This behavior . . . is a classic example of the ‘prisoner’s dilemma.”  He notes: “If you can’t coordinate, you may as well go for what you can get, and make decisions of the basis of self-serving rationality.”  U.S. law, of course, “bars companies from acting in concert to influence prices, so an organized response from the oil industry is all but impossible, experts say.”  You can learn more about the prisoner’s dilemma at: http://en.wikipedia.org/wiki/Prisoner%27s_dilemma.

(23 December 2014): “Iron-Ore Producer’s CEO Bets on the Midwest” [SR](http://www.wsj.com/articles/iron-ore-producers-ceo-bets-on-the-midwest-1419304367)

——–“Cliffs Natural Resources Inc. is banking on the Midwest, a forgotten niche in the global commodities market. . . . Last year, Minnesota and Michigan produced 99% of all U.S. iron ore, shipping out $5 billion of steel’s main ingredient.  Three-quarters of the ore went to American mills, which continue to make millions of tons of steel a year for car makers and gas drillers.”  The “windswept gray landscape” around Hibbing, Minnesota, which is northwest of Duluth, “once inspired native-son Bob Dylan to with ‘North Country Blues.’”  Cliffs last year “booked an overall loss of $6 billion” but its “five iron-ore mines are the company’s top-performing unit.”  Midwestern mines benefit from “a captive market” due to the high cost of shipping iron ore from other producers; “Shipping ore from Brazil or Australia costs more than $50 a ton.”  High-quality iron-ore pellets at “Hibbing and its sister mines” are produced at a cost of $59 a ton.  “That iron ore is then sold to steelmakers for around $100 a ton, providing significant profits.”  According to Cliffs’ CEO Lourenco Goncalves, “No company . . . is as immune to seaborne iron ore as Cliffs.”

********This article provides context for a remarkable video showing Boy Dylan in 1963, at age 22, playing “North Country Blues”: http://www.wimp.com/silencedcrowd/; Dylan was born in Duluth.  Out of curiosity, I found that Hibbing, a town of 16,000-plus, has a daily newspaper—the Hibbing Daily Tribune (http://www.hibbingmn.com/).  It has an easy-to-use search feature that turned up many hits on ‘iron ore’.  Local newspaper provide the context and impact that national stories sometimes lack.

(24 December 2014): “Plastic Surgery Tourism Brings Chinese to South Korea” (http://www.nytimes.com/2014/12/24/business/international/plastic-surgery-tourism-brings-chinese-to-south-korea.html)

——–“Cosmetic surgery, pervasive in South Korea, is now the must-do activity for many Chinese visitors.  The lights stay on all night in the Gangnam district, where plastic surgery clinics line the streets.  Signs in Chinese beckon visitors.  Once they are inside, translators stand ready.  Seizing an opportunity to tap the steady and ubiquitous flow of China’s newly rich who are traveling overseas, South Korea’s government is promoting the country as a place to shop, eat, stay—and perhaps get a nip and tuck. . . . The South Korean government is setting aside as much as $4 million a year to help promote the medical tourism industry, which is dominated by plastic surgeons.”  South Korea has “the highest rate of cosmetic surgery per capita of any country in the world.”  Young Chinese women see “plastic surgery as a way to enhance their personal or professional prospects.”

********The article goes on to note that “Seoul Touch Up, a government-approved medical tourism agency, states in its marketing materials that ‘Korean women are arguably more objectified by their male counterparts than any other women in the world.”  You can learn more about Seoul Touch Up at: http://www.seoultouchup.com/.

May you have a good week!

Bruce

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