The last good toaster?

Toasters are a "missing middle" casualty. China wiped out all the middle and low end products, replacing them with very inexpensive and (as of two years ago) very unreliable toasters. I call this the "missing middle", because afterwords one ends up with the low end (with a great drop in average price) and the luxury/professional market. Alas, I usually buy in the "middle", so this is a bad outcome for me -- even though it's a good thing for most consumers.

In fact, with toasters, it seemed the "high end" had disappeared as well ( commercial toasters too big for our kitchen). I've visited various specialty stores, and the toasters were all made in China there too. They seemed as flimsy and unpromising as the much cheaper models sold in my neighborhood hardware store.

I figured I'd just have to wait until "made in China" came to mean quality products, just as "made in Japan" is today. Or until some retailer rediscovered the value of a "quality brand". I think brands are going to make a big comeback in the next 12 months, so that's not too long to wait.

Today, however, it occurred to me that Germany, with its protected markets and manufacturing inclination might still have reliable toasters. So I changed my toaster search to include "made in Germany". Which led to this Rowenta toaster.

It's a luxury solution of course, I didn't expect to find the "missing middle" in the export market. The electric motor is silly, and the price is steep -- though in the range of the "made in China" items sold in specialty shops. So, at least on the net, there is still a "Mercedes toaster".

Update 3/31: I struck Zeitgeist. Slate has a review of toasters out now. They found an interesting mid-range option. Some of the brands seemed to be going for "quality" too ...

Update 4/14/07: At least some of the components for some Dualit toasters are made in China, though it's "assembled in England". See the comments for more details, including this excellent comment:

Sorry to burst the bubble but the Dualit (at least the Vario 20293 Chrome) may be "assembled in England" but the parts are from China. Check out wholesale site on the internet to see the product country of origin. I bought one, the timer failed after about 3 months, when I opened up the toaster the timer clearly was labeled "made in China". I think that Dualit is assembling them in the U.K. but is using "globally sourced parts" (the new euphemism for Made in China). Buy a cheaper toaster it'll be made in China too but at least it'll say so on the outside instead of on the inside.

Amazon has complaints about early failures in the Dualit. There may simply be no escape from this trap. Maybe we'll all stop eating toast, or go back to the days of holding bread over an open flame.

Update 11/30/07: It's truly hopeless. Bigeejit writes in comments (emphasis mine):

Interesting post! I'm German, and I'm looking for a toaster not "Made in China". It's a nightmare.

Take a closer look at the parts inside of a toaster! Even it's an European or German brand toaster like a Bosch, Siemens, Krups, Rowenta, Braun, Tefal, Moulinex one... most of them look the same, and they are "Made in China".

I believe most of the toasters are manufactured in the same one Chinese plant. Each brand just gets a different plastic cover slipped over.

Well, I'm not willing to pay a high price for a German brand toaster manufactured in China.

@John Gordon: Rowenta is no longer a German brand since 1988. Today the brand is owned by SEB Group (France), and Rowenta toasters are "Made in China", too. Even the Rowenta toaster you mention.

Update 3/17/09: Professional toasters are still made in the US. From comments (Drawde):

.. There is still a toaster MADE IN THE USA. It's made by Star Mfg in MO, actually their toasters are made in TN.

These are heavy duty restaurant quality units. Our 4 slice weighs about 20 lbs, so keep that in mind in terms of storage, lifting etc.

We have the ST04 model, which I think has been replaced with a newer model designation, but I checked with the rep today and she said they are still made in TN.

They can be repaired even at a restaurant repair facility if need be, you can actually buy parts for them as well! Imagine! Of course the bad news, they are not cheap.

I think the 2 slice model is around $350 and the 4 slice $550 online. We actually picked up ours used on ebay for about $150...

Now I know what i want for my birthday ...

Update 6/25/11: This old post still gets comments. Today a vistor suggested toastercentral.com:

... the place to find and buy vintage and collectible kitchen appliances by Sunbeam, Toastmaster, Dominion, Kenmore, Arvin, Westinghouse, General Electric, Manning-Bowman, Universal and other makers from the Golden Age of chrome and bakelite...

The site appeal is primarily aesthetic, but they had a 1950s toastmaster that looked like it would be excellent. Sold of course.

Update 3/3/2012: Six years later, it all makes sense.

An American toaster

Five years ago, when China's manufacturing quality was at its worst, I used the crummy toaster crisis as a missing-middle example. It was easy then to find cheap goods that were crummy, and with difficulty one might find luxury or industrial goods that might be reliable, but the market for quality goods at a reasonable price had evaporated.

A cheap toaster might cost $25, but a $75 toaster wasn't any better.

Since then, a few things have changed. With the Lesser depression Americans started to pay attention to how long things lasted. China's own internal markets have, I suspect, become more demanding. I think the quality of manufactured goods is better than it used to be.

About two years ago a small repair business started selling a Wide-Slot Automatic Pop up Toaster Made in the U.S.A. for about $350. Now it's down to $265 for an "introductory price". Clearly, this is a luxury good purchase.

Still, the price is coming down. Perhaps a large scale manufacturer will pick it up, particularly as China's currency (mercifully) appreciates against the US dollar. Perhaps one day a $150 US made toaster will sell as a luxury good in China, and a quality good in the US.

Economic recovery test -- the pencil sharpener

I've recently proposed the toaster test as a measure of economic recovery. We'll know the economy is healthy when it's again to buy a toaster that works well for ten years.

Personally I like the toaster test, but it takes a lot of toast to show that the toaster works. Not everyone likes toast as much as I do. Fortunately there's a cheaper alternative, one that I mentioned in a rant last year...

... This morning our last modern pencil sharpener broke. We have only one that works now. It's twelve years old, I remember coming across it in the campus bookstore ... It was made in Germany. We're going to mention it in our will, it may be worth a fortune thirty years from now...

... How to explain this emergent conspiracy of globalized incompetence and occult inflation? Clearly the answer is related to Krugman and Hilton [1] and the reelection of George Bush... Consumers are ... consistently making very poor choices, and the market is responding to the frailty of the consumer...

When we buy pencil sharpeners now they look like this:



When we can buy pencil sharpeners that work as well as this one ...



the economy will be on the mend.

The meaning of Apple - will it always stand alone?

I sigh when I look upon my Samsung PalmOS phone. It's almost good, the last of a discontinued line that was within spitting distance of Apple elegance. Alas, Palm fumbled, Samsung floundered, and the moment passed. Every phone on the US market sucks. Spectacularly sucks.

I wait for the iPhone. It may not be what I want, but I know I will respect it. I may change my wants to suit it. It will not suck.

My toaster sucks. I've looked for its replacement for years. I figure I'll pick one up the next time I'm in Germany. I find myself wondering if Apple will make a toaster. I'd buy it ...

Then I read this Mark Morford SFGate column (I've added him to my bloglines collection)...

When Apple Rules The World / What does it mean when you really, really want to lick a new MacBook Pro, and swoon?

....I don't mean [Apple] they've solved world hunger or cured cancer or ended racism or muzzled Ashlee Simpson. But I do mean something that, in its way, is nearly as profound: They've managed to make the world just a bit more pleasurable, tasteful, beautiful. They've added a dash of that rarest of human qualities, especially when talking about factory-made tech crap: They have added a touch of grace.

You know it's true. Apple has done more than perhaps any other mass-market consumer line on the planet to affect the look and feel of nearly every gizmo made today. This cannot be underestimated. It's a George Bush world, after all, one that values sameness, mediocrity, intellectual and spiritual laziness. But merely rub your hand across the top of a MacBook or whip your thumb around the click wheel of an iPod and notice: Feel that throb? That's your id saying mmmmmmm.

What? What's that you say? Why yes, other tech companies have changed the world, too. Microsoft, for example. They invaded the global cube-farm and made everyone's workday a bit more bloated and annoying and sad and just a little uglier, buggy as hell, frustrating, virusy and lonely and numbing. Truly, it has been quite an impressive accomplishment...

Read the whole thing. It's a funny, slutty, paeon to Apple. It's over the top, and yet true. No other company, save Google on a good day, actually delivers elegance (Aperture excepted). Apple really is different. I can only pray it won't be alone forever; I could sure use a new toaster.

Microsoft? It's far less than the sum of its excellent people. Some corporations can do that.

PS. My new MacBook is due this week ...

Beware the traps of the Software World

I remember the World before I walked in Software.

So I know Something that is True and Important (STI). Those who were born to Software know it in their bones, but they don't know to speak it. Only we between worlds can tell these terrible secrets.

Gather close dear reader; I would have done well to understand this some years ago.

The STI is that that the Software World is kin to the Badlands of South Dakota.

When you Walk in Software you walk among mazes and valleys and cliffs. Promising paths end in sharp drops and hard walls.

Developers build things that seem right, until you walk off the end of the metaphor. The problem is more than bugs and complexity, it is something innate to imagination made digital.

In the physical world, we don't use spend months using a drill, then discover that everything we've build with it must be abandoned. In the world of Software tools, that can happen. We can use software to store knowledge and meaning, then lose all the knowledge when the software stops working without replacement.

In the physical world it may be impossible to find a good toaster, but it's easy to figure out that a new toaster is no good. In the Software world you can invest months in learning a new tool before you find the fatal flaw. Five years ago I though Apple would enable merging of iPhoto Libraries (sorry, six years ago), but their marketing team decided that was an Aperture feature, not an iPhoto feature. [1]

In the physical world, it doesn't take five years to realize that your car isn't very good.

Perhaps, to a creature of Software, the physical world would seem tricksy. For a creature that's evolved to dirt and blood, however, the Software World is more treacherous -- even if it doesn't rip limbs off as well as a chainsaw might.

In the world of Software, explorers pay a high price. We Pioneers need to be far more careful about what tools and solutions we use, and we need find new ways to navigate this space.

We must train Scouts and Pioneers who will return from the badlands to warn all of the horrors of Sharepoint and Microsoft Word ...

[1] Yes, I know about the heroic 3rd party merge efforts of iPhoto Library Manager.

Apple's battery charger, occult inflation, and the future of American industry

<rant>

This is important. Stick with me for a moment ...

Apple is now selling a battery charger. Yeah, a $30 battery charger.

Apple Battery Charger - The energy-efficient way to power your accessories.

... Each Apple Battery Charger comes with six high-performance AA NiMH batteries .... these batteries have an incredibly long service life — up to 10 years ... extraordinarily low self-discharge rate. Even after a year of sitting in a drawer, they still retain 80 percent of their original charge...

...like Apple power adapters, the Apple Battery Charger is designed with a removable AC plug, so you can replace it with plugs that fit different outlets around the world.

We used to have NiMH chargers. We owned two or three. They all failed. The batteries had very short lifespans. They discharged very quickly. We gave up.

Now Apple makes a charger and they pick the batteries. It works with the extension cables we have for other Apple chargers. It works with the international plugs we have. It addresses every problem we've had with NiMH chargers. We'll buy it for $29.

This is important.

Why?

It's important because from about 1997 through 2007, during the years when China became the world's dominant manufacturer and upset the world's equilibrium, befuddled consumers bought on price alone. Manufacturers trashed their brands in a desperate bid to shed costs, and quality plummeted on everything from toasters to heparin. The price of a VCR/DVD player fell by 50%, but the lifespan fell by 75%. Economists claimed low inflation even as they adjusted prices for "increasing" quality, but in reality quality was falling off a cliff. We had much more quality-adjusted inflation than we were measuring.

In 2008 the economies of the industrialized world collapsed, unable to adapt quickly enough to the twin shocks of the rise of China and India and the machines. Since then consumers have bought far more carefully, and the quality collapse stopped. The drop in inflation, adjusted for quality, was substantially greater than we've measured.

There was one exception among manufacturers over this past decade.

Yeah. Apple. The one significant brand that didn't die.

I have a lot of issues with Apple. Their quality, especially their software quality, is overrated. Even so, there's a reason that 8/10 of our tech money goes to them (not counting the significant portion that pays for telecomm services). Apple, led by the most eccentric and powerful CEO since Howard Hughes and Seymour Cray, behaved like a privately held company with public company finances. When everyone else squeezed margins, Apple's margins rose. Eveyone else fought on price, Apple fought on design and value. We know who won.

If Apple made a toaster, they'd own the toaster market. I'm half-convinced they're going to do that.

If Apple made a van, it would have a 100 amp generator, diagnostics posted to MobileMe with an iPad app, indicator lights that tell you what freakin' door is open, five plug/USB outlets (they'd omit the ugly cigar lighter thing of course), a non-brain-dead security system, a fantastic sound system a geezer could run, a simple key to complement your iPhone remote control app.

I'd buy that freakin' van.

Pay attention America! This ain't hard!

No, actually, it is hard. It's not the technology that's hard. It's not the marketing that's hard. It's trying to be Apple without Steve Jobs and with the baggage of a failed model for organizing work. The American publicly traded company is obsolete.

We're in aftermath (we hope) of the greatest financial collapse in 80 years. If we'd handled the Great Recession (or is it GD II?) like Hoover did GD I, we'd have work camps by now. Part of our rehabilitation requires effective regulatory oversight. Another part, a part I've more to write about, will require solutions to the mass disability of the modern era.

The last part of our rehabilitation requires an alternative to the failed model publicly traded company. We can't rely on one-of-a-kind obsessed all-powerful super-wealthy genius CEOs. We need a different form of corporate ownership. One that will produce the toasters and vans we want with the value we need.

</rant>

Private farming now, private manufacturing when?

Emily and Christina have joined a farm coop. We get a weekly produce share, and we're invited to visit and put the kids to work (as if).

It's good stuff. No melamine. No salmonella.

So what's next?

Why not private manufacturing?

Can't find a decent toaster? What if we could buy shares in a local manufacturing facility, and get goods built to our specs?

Well, we have been expecting computer controlled on demand manufacturing for a while ...

Gordon's Notes: A quick preview on the next thing to blow your world apart (Nov. 2005)

Do it yourself. Almost. ... Dan's Data provides a quick update on the state of the art in 3 dimensional "printing". As in download the specs, run the illegal hacking software, and print yourself an anonymous encrypted cell phone...

Probably going to happen, even without the nano stuff.

Maybe I'll get a good toaster before I die ...

Why quality collapsed in the bubble years: Akerlof and the last good toaster

Six years ago, I mourned for the demise of the last good toaster. I could find lots of cheap toasters, but they didn't last long.

It wasn't just toasters. Between about 1999 and 2009 the quality of a lot of goods seemed to collapse -- even as consumer prices fell. I wrote cranky posts about the "occult inflation of shrinking quality", but I seemed to be a chorus of one. It wasn't just toasters that disappointed, we couldn't buy a decent DVD/VCR or pencil sharpener or window unit air conditioner. Similar quality problems emerged with drywall and heparin [1] and, notoriously, just about every computer manufacturer on earth save one.

For us it felt like a market failure. We were willing to pay more money for higher quality, but there didn't seem to be a relationship between price and quality. Brands like SONY and Panasonic didn't mean much any more.

A few brands kept their reputation. Canon and Nikon held on, and a phone maker led by a difficult genius made a reliable battery charger and eventually became the world's most valued corporation.

I wonder if it was Apple's example that changed the picture. Because reading John Roberts [3], it seems we fell into Akerlof's quality trap (emphases mine) ...

... Trade may break down almost completely (Akerlof, 1970). If eliminating the asymmetry of information is not possible, then buyers will refuse to pay more than the expected value of goods, averaged across the different quality levels they expect to be offered. Then the best quality goods may not be offered at all, because they command only a middling price that does not reflect their true value. Consequently the distribution of qualities that are actually offered is worse than what is potentially available. Since the selection of products on offer is not representative of the underlying distribution of quality, but is instead an adverse selection, buyers will rationally lower their willingness to pay even further. Then, even more potential sellers of relatively high-quality items may no longer be willing to sell at the lower price. The overall result may be that nothing but very low quality items are available -- only lemons are on offer -- and markets fail to exist for high-quality products, although buyers are anxious to have such goods and would willingly pay enough for them to compensate the sellers if they were sure to get what they paid for. [3]

In a world where quality seemed to be unobtainable at any price, Apple offered relatively higher quality [4] products at a relatively higher price. I think they broke the cycle [5]. It probably helped that after the debt/real estate bubble burst consumers paid more attention to the costs of unreliable goods.

It's quite a story - a textbook illustration of research that earned Askerlof a share of the 2001 Nobel Prize in Economics. So why haven't we read about this from anyone but a crankish blogger? Where are the economists?

[1] The investigation continues incidentally - More Suppliers Linked to Heparin Contamination - WSJ.com.
[2] I've been told that it's now very hard to buy a reliable dish washer 
[3] Roberts, J. The Modern Firm. Oxford University Press 2004. p 82-83
[4] Apple, with a few exceptions, doesn't make very high quality products. Their software is notoriously buggy, and they made generations of laptops with flaky hinges. Compared to the competition though, they were sterling. 
[5] The cycle-breaking alone brought them success, but the mind-blowing innovation of the iPhone and iPad took them to the top.

Update: Shortly after posting this, I discovered that in 2007 I made the same connection to asymmetric information theory that Roberts detailed in his text. Maybe I should have been an economist.

Grumpy old boomers: pencil sharpeners, garbage cans, toasters, DVD/VCR combos and emergent fraud

This morning our last modern pencil sharpener broke. We have only one that works now. It's twelve years old, I remember coming across it in the campus bookstore. Even then reliable sharpeners were hard to find, so I bought several. Only one survives. It was made in Germany. We're going to mention it in our will, it may be worth a fortune thirty years from now. By then billionaires will employ artisans to craft beautiful objets d'art that sharpen pencils, and the rest of us will be using our teeth.

We tossed the broken one in the garbage. Alas, the can was broken. Well, that's almost reasonable. One year in a house with our 3 kids would even have weakened a German garbage can. No surprise this one broke.

We can't replace it. There are no more square, tough cans that use standard cheap trash bags. There are only round cheap things that use exotic bags that will only be sold for the next six months.

Our two DVD/VCR combos limp along. One has a broken DVD player, the other a broken tape player. There's no point in replacing them -- the replacement would only last three to six months then it would break. We won't replace our crummy old toaster, because the modern modern alternatives won't last more than a few weeks.

How to explain this emergent conspiracy of globalized incompetence and occult inflation? Clearly the answer is related to Krugman and Hilton [1] and the reelection of George Bush. The American consumer is simply overwhelmed, unable to process and cope with the complexity of the new age. Consumers are repetitive and consistently making very poor choices, and the market is responding to the frailty of the consumer.

I'm hopeful that a correction is coming. It's too late for we boomers to get our heads around the new world -- we're too old and slow. We can, however, retreat into "grumpy old person" buy nothing, replace nothing stasis -- and that will give the young more leverage. It's up to their minds to absorb the new rules, and reboot the marketplace.

Go for it kiddies, we gomers are depending on you!

[1] BTW, I'm seriously starting to feel sorry for Ms. Hilton.

Why are so many products so bad? Assymetrical information theory

Does this explain why we can't buy a good toaster any more? Or why pet food doubles as a euthenasia agend?

Schneier on Security:

...In a market where the seller has more information about the product than the buyer, bad products can drive the good ones out of the market...

This is asymmetric information theory, which won a Nobel in 2001. In a market where brands are not meaningful, doesn't the seller always have more product information than the buyer?

Flatline - escaping the hideous smiley face of junk

I remember the hideous smiley faces of the 1970s. For years they haunted boomer dreams, but now we're trapped in the pit of the smile, deluged in cheap junk that's worth less than nothing ...

Gordon's Notes: Riding the dragon - Fallows on China

James Fallows .... The curve is named for the U-shaped arc of the 1970s-era smiley-face icon, and it runs from the beginning to the end of a product’s creation and sale. At the beginning is the company’s brand: HP, Siemens, Dell, Nokia, Apple. Next comes the idea for the product: an iPod, a new computer, a camera phone. After that is high-level industrial design—the conceiving of how the product will look and work. Then the detailed engineering design for how it will be made. Then the necessary components. Then the actual manufacture and assembly. Then the shipping and distribution. Then retail sales. And, finally, service contracts and sales of parts and accessories.

The significance is that China’s activity is in the middle stages—manufacturing, plus some component supply and engineering design—but America’s is at the two ends, and those are where the money is. The smiley curve, which shows the profitability or value added at each stage, starts high for branding and product concept, swoops down for manufacturing, and rises again in the retail and servicing stages. The simple way to put this—that the real money is in brand name, plus retail—may sound obvious, but its implications are illuminating....

So how can one escape the smile and restore "balance to the force"? One approach is fundamentally Darwinian. Strong brands invest in defect analysis and early detection, eliminating suppliers who deliver flawed product. Consumers forget about commodity products and invest in brands. Consumers miraculously develop a memory for what brands fail...

Oops. The memory part is the problem. Do you remember what companies had melamine in their dog food? Do you think you'll remember a year from now? Diethylene glycol in the dime store toothpaste? The DVD player that broke after one month? The wireless home phone that always crackled? The noisy fan, the sloppy wrench, the flimsy toaster ....

What other strategies are there? How else can the curve be balanced between design, brand, manufacturing and retail? How can costs be shifted from retail and brand to invest in better manufacturing and design -- anywhere?

I think we need to look for new options. What if an insurance company were to provide insurance policies guaranteeing devices performed to spec on delivery and for two years post sale? The policy would include a large rider to cover recalls, including a prize to anyone who found a recall qualifying defect. Anything that qualified for coverage would be able to display an appropriate and meaningful "seal of approval". Consumers could choose to get the insurance or not, some might decide the "insurable" measure was enough by itself. Vendors would, of course, have to pay for the "seal".

Perhaps this would produce a kind of "meta-brand", allowing manufacturers to outsource branding and shift investments to design and manufacturing - flattening the hideous smiley.

Riding the dragon - Fallows on China

James Fallows, one of my favorite writers, returned to China a year or two ago to feel the beating heart of the new world. He's digested a portion of his experiences in an essay for The Atlantic. After reading the essay, I think I understand why there's been so little response from the economists I respect to recent problems with just about everything we buy, eat and use (emphases mine):

China Makes, The World Takes, James Fallows, The Atlantic July/Aug 2007

... One facility in Guangdong province, the famous Foxconn works, sits in the middle of a conurbation just outside Shenzhen, where it occupies roughly as much space as a major airport. Some 240,000 people (the number I heard most often; estimates range between 200,000 and 300,000) work on its assembly lines, sleep in its dormitories, and eat in its company cafeterias... From the major ports serving the area, Hong Kong and Shenzhen harbors, cargo ships left last year carrying the equivalent of more than 40 million of the standard 20-foot-long metal containers that end up on trucks or railroad cars. That’s one per second, round the clock and year-round—and it’s less than half of China’s export total...

...But what is of intense interest to him, he said, is a company that has built up a brand name and relationships with retailers, and knows what it wants to promote and sell next—and needs to save time and money in manufacturing a product that requires a fair amount of assembly. “That is where we can help, because you will come here and see factories that are better than the ones you’ve been working with in America or Germany.”

Here are a few examples, all based on real-world cases: You have announced a major new product, which has gotten great buzz in the press. But close to release time, you discover a design problem that must be fixed—and no U.S. factory can adjust its production process in time.

The Chinese factories can respond more quickly, and not simply because of 12-hour workdays. “Anyplace else, you’d have to import different raw materials and components,” Casey told me. “Here, you’ve got nine different suppliers within a mile, and they can bring a sample over that afternoon. People think China is cheap, but really, it’s fast.” Moreover, the Chinese factories use more human labor, and fewer expensive robots or assembly machines, than their counterparts in rich countries. “People are the most adaptable machines,” an American industrial designer who works in China told me. “Machines need to be reprogrammed. You can have people doing something entirely different next week.”....

... You are an American inventor with a product you think has “green” potential for household energy savings. But you need to get it to market fast, because you think big companies may be trying the same thing, and you need to meet a target retail price of $100. “No place but China to do this,” Mr. China said, as he showed me the finished product...

... Casey’s PCH has a Google Earth–like system that incorporates what he has learned in 10 years of dealing with Chinese subcontractors. You name a product you want to make—say, a new case or headset for a mobile phone. Casey clicks on the map and shows the companies that can produce the necessary components—and exactly how far they are from each other in travel time. This is hard-won knowledge in an area where city maps are out of date as soon as they are published and addresses are approximate. (Casey’s are keyed in with GPS coordinates, discreetly read from his GPS-equipped mobile phone when he visits each factory.) If a factory looks promising, you click again and get interior and exterior photos, a rundown on the management, in some cases videos of the assembly line in action, plus spec sheets and engineering drawings for orders they have already filled. Similar programs allow Casey and his clients to see which ship, plane, or truck their products are on anywhere in the world, and the amount of stock on hand in any warehouse or depot. (How do they know? Each finished piece and almost every component has an individual bar code that is scanned practically every time it is touched.)...

... Even some newly built facilities leave to human hands work that has been done in the West for many decades by machines. Imagine opening a consumer product—a mobile phone, an electric toothbrush, a wireless router—and finding a part that was snapped on or glued into place. It was probably put there by a young Chinese woman who did the same thing many times per minute throughout her 12-hour workday....

... It is conceivable that bad partnerships, stolen intellectual property, dilution of brand name, logistics nightmares, or other difficulties have given many companies a sour view of outsourcing; I have heard examples in each category from foreign executives. But the more interesting theme I have heard from them, which explains why they are willing to surmount the inconveniences, involves something called the “smiley curve.”

The curve is named for the U-shaped arc of the 1970s-era smiley-face icon, and it runs from the beginning to the end of a product’s creation and sale. At the beginning is the company’s brand: HP, Siemens, Dell, Nokia, Apple. Next comes the idea for the product: an iPod, a new computer, a camera phone. After that is high-level industrial design—the conceiving of how the product will look and work. Then the detailed engineering design for how it will be made. Then the necessary components. Then the actual manufacture and assembly. Then the shipping and distribution. Then retail sales. And, finally, service contracts and sales of parts and accessories.

The significance is that China’s activity is in the middle stages—manufacturing, plus some component supply and engineering design—but America’s is at the two ends, and those are where the money is. The smiley curve, which shows the profitability or value added at each stage, starts high for branding and product concept, swoops down for manufacturing, and rises again in the retail and servicing stages. The simple way to put this—that the real money is in brand name, plus retail—may sound obvious, but its implications are illuminating.

At each factory I visited, I asked managers to estimate how much of a product’s sales price ended up in whose hands. The strength of the brand name was the most important variable. If a product is unusual enough and its brand name attractive enough, it could command so high a price that the retailer might keep half the revenue. (Think: an Armani suit, a Starbucks latte.) Most electronics products are now subject to much fiercer price competition, since it is so easy for shoppers to find bargains on the Internet. Therefore the generic Windows-style laptops I saw in one modern factory might go for around $1,000 in the United States, with the retailer keeping less than $50.

Where does the rest of the money go? The manager of that factory guessed that Intel and Microsoft together would collect about $300, and that the makers of the display screen, the disk-storage devices, and other electronic components might get $150 or so apiece. The keyboard makers would get $15 or $20; FedEx or UPS would get slightly less. When all other costs were accounted for, perhaps $30 to $40—3 to 4 percent of the total—would stay in China with the factory owners and the young women on the assembly lines....

So today, my mother can't buy a phone that works. I can, but I use research tools unimaginable ten years ago to find the one model available for sale at the moment that will work reliably for at least two years (A Panasonic phone was my last answer). On the other hand, I've given up on finding a DVD/VCR that's reliable, or a toaster that I can trust. In those cases, I just do without.

It doesn't matter, and neither do the calls I and others make for more oversight, more financial consequences. After reading Fallows one fact cannot be ignored -- we are riding the dragon, and nobody in particular is steering anything. We're not getting off until the beast is full.

Civilization, complexity and the limits of human cognition - another attempt at explaining the 21st century

The 70s were pretty weird, but I was too young to notice. (Not coincidentally, the Toffler/Farrell Future Shock book was written then.) By comparison the 80s and 90s more or less made sense. In 1992 Fukuyama wrote "The End of History" and that seemed about right for the times.

Things got weird again in the late 90s. I was in a .com startup and I remember valuations getting crazy about 1997, 3 years before the .com crash. We were still picking ourselves up from the crash when 9/11 hit. (A year later, on a purely personal note, my youngest brother vanished.) In the early 00s came Enron and other frauds almost forgotten now. Then in 2008 the real estate collapse and the Great Recession. We were barely recovering from the Great Recession when Trumpism hit. Followed by COVID (which was expected and not at all weird) and the Great Stupidity of the American Unvaccinated (which we did not expect and is perhaps weirdest of all).

Each time the world went off kilter I have tried to figure out a root cause:

In Feb 2009 I tried to figure out the crash of 2008:

At last count my list of contributing factors to the crash of '09 included ...

1. Complexity collapse: we don't understand our emergent creation, we optimized for performance without adaptive reserve
2. Mass disability and income skew: The modern world has disenfranchised much of humanity
3. The Marketarian religion: The GOP in particular (now the Party of Limbaugh), but also many Democrats and libertarians, ascribed magical and benign powers to a system for finding local minima (aka The Market). The Market, like Nature, isn't bad -- but neither is it wise or kind.
4. The occult inflation of shrinking quality: What happens when buyers can't figure out what's worth buying. Aka, the toaster crisis - yes, really.
5. performance-based executive compensation and novel, unregulated, financial instruments: a lethal combination. See also - You get what you pay for. The tragedy of the incentive plan.
6. Disintermediating Wall Street: Wall Street became a fragile breakpoint 
7. The future of the publicly traded company: A part of our problem is that the publicly traded company needs to evolve
8. The role of the deadbeats: too much debt - but we know that
9. Firewalls and separation of powers: a culture of corruption, approved by the American electorate, facilitated dissolving regulatory firewalls
10. Marked!: Rapid change and the Bush culture made fraud easy and appealing

I put Marked! pretty low on the list, but maybe I should bump it up a bit. The Hall of Shame (Clusterstock) lists a lot more fraud than has made the papers [1]...

• Fairfield Greenwich Group: quietly complicit in the Madoff fraud?
• Angelo Mozilo: white collar mobster
• Sam Israel: a $400 million fraud. In the old days, he'd have been front page news. I never heard of him.
• Many more, each of which would have been in the news once - including: JS Forte, RS Piccoli, JG Ossie, D Palmer, A Nodel, Marc Dreier.
• Those swindlers who have made the news... Allen Stanford, and, of course, Mr. Madoff.

By 2010 I was focusing on RCIIIT: The rise of China and India and the effects of IT.

... The Rise of China and India (RCI) has been like strapping a jet engine with a buggy throttle onto a dune buggy. We can go real fast, but we can also get airborne – without wings. Think about the disruption of German unification – and multiply than ten thousand times.

RCI would probably have caused a Great Recession even without any technological transformations.

Except we have had technological transformation – and it’s far from over. I don’t think we can understand what IT has done to our world – we’re too embedded in the change and too much of it is invisible. When the cost of transportation fell dramatically we could see the railroad tracks. When the cost of information generation and communication fell by a thousandfold it was invisible ...

In 2016 and again in 2018 I tried to explain Trumpism by contributing factors (I was too optimistic about Murdoch's health though):

• 65% the collapse of the white non-college “working class” — as best measured by fentanyl deaths and non-college household income over the past 40 years. Driven by globalization and IT both separately and synergistically including remonopolization (megacorp). This is going to get worse.
• 15% the way peculiarities of the American constitution empower rural states and rural regions that are most impacted by the collapse of the white working class due to demographics and out-migration of the educated. This is why the crisis is worse here than in Canada. This will continue.
• 15% the long fall of patriarchy. This will continue for a time, but eventually it hits the ground. Another 20 years for the US?
• 5% Rupert Murdoch. Seriously. In the US Fox and the WSJ, but also his media in Australia and the UK. When historians make their list of villains of the 21st century he’ll be on there. He’s broken and dying now, but he’s still scary enough that his name is rarely mentioned by anyone of consequence.
• 1% Facebook, social media, Putin and the like. This will get better.

That 1% for Facebook et all is pretty small — but the election of 2016 was on the knife’s edge. That 1% was historically important.

A few months ago I listed 3 causes for the post-COVID supply and labor shock economics of 2021:

1. Wealth became extremely concentrated. 

2. Returns on labor for 40% of Americans fell below modern standard for economic life.

3. Good investments became hard to find.

It's almost 2022 now, so we're into almost 25 years of the world not making sense any more. So now I'm digging even deeper for a root cause.

Today I'm going with Gordon's Law: the complexity of a complex adaptive system will increase until it reaches a limiting factor. Our civilization is a complex adaptive system and its complexity increased until it hit a limiting factor -- the complexity capacity of the average human. These days between 40 and 50% of American's can't handle civilization 2021 (sometimes I call this mass disability (see also). Witness among other things, The Great Stupidity of the FoxCovians.

It's a variant of the "Future Shock" Toffler wrote about 52 years ago. I don't have a fix; I don't think the world will get less complex. Our technologies are moving too fast. Maybe we'll just get used to not understanding the world and civilization will stumble on regardless. After all, for most of human history the world was incomprehensible -- and we did manage. Sort of. Mostly without civilization though ...

Globalization: Krugman on mitigating the social impact

I've written quite a bit about globalization lately, particularly in the context of toxic food, medicine, and consumer products. Not to mention the toaster problem, or those DVD/VCR combo units that last (at most) six months. Cheap goods from Walmart aren't cheap if you need to buy 3 times as many of them. (Incidentally, this shows up as increased productivity rather than increased inflation.)

So I'm against trade agreements and globalization? Well, no. I not only buy the party line on trade and poverty, I saw the positive effects of trade in Bangladesh in the early 80s. It's true that Ricardo's theory comparative advantage didn't anticipate how fraud and deception would lessen the mutual advantages of trade, but it's also true that billions of people are emerging from poverty on the back of international trade flows. Even from the selfish perspective of the privileged, that translates into a much safer, albeit warmer world. The net balance is clearly positive, and the balance for all participants is individually positive.

It also won't be sustained if we don't mitigate the disadvantages for the non-wealthy American, including soon-to-be outsourced IBM workers and everyone who doesn't have an advanced degree. We need stronger regulation of imports, and the beginnings of a world regulatory authority. We need to treat declining product lifespans as increased inflation rather than increased productivity. And, above, all, we need to change the American contract between society and citizen, starting with health-care...

Divided Over Trade - Krugman -New York Times:

...So what’s the answer? I don’t think there is one, as long as the discussion is restricted to trade policy: all-out protectionism isn’t acceptable, and labor standards in trade agreements will help only a little.

By all means, let’s have strong labor standards in our pending trade agreements, and let’s approach proposals for new agreements with an appropriate degree of skepticism. But if Democrats really want to help American workers, they’ll have to do it with a pro-labor policy that relies on better tools than trade policy. Universal health care, paid for by taxing the economy’s winners, would be a good place to start...

John Edwards, in other words. Everyone else is just business as usual.

Jackpot: Leonard predicts oil spill in 2008

There should be a blogger prize for best medium term prediction. Leonard gets my vote for his 2008 prediction, quoted by him in today's article...

How to guarantee a Gulf oil spill - How the World Works - Andrew Leonard Salon.com

... Try, if you can, to ignore all the lurid coke-and-sex bombshells contained in the three Department of Interior Inspector General reports about the shenanigans at the U.S. Minerals Management Service (MMS). The program director who snorted speed off a subordinate's toaster oven, and made her give him a blow job while driving around the neighborhood. The two "MMS Chicks" who were notorious for getting plastered at conventions and having one-night stands with oil industry employees.

Try -- and yes, I know it's hard -- try even to ignore the allegation that one program director told a subordinate that if she could score him some coke during the MMS performance appraisal period, he would increase her performance award. What's the big deal? Who wouldn't be motivated by such an incentive? And what's a little drunken sex and coke binging on government time among friends? It happens to the best of us.

The significance of the three reports delivered by the inspector general to Congress on Wednesday lies not in the prurience of some of the indiscretions, but in the symbolism. The Royalty-in-Kind Program of the U.S. Minerals Management Service is where offshore drilling meets the U.S. government. And gosh, is it ever one heck of a mess. You want a toxic oil spill in the Gulf of Mexico? Just read the reports.

That was the Bush modus operandi. Government must be destroyed, so turn it over to the incompetent and the corrupt.

How will we know the economy has recovered?

We will know the economy has truly recovered when it is possible to buy a good toaster.

21st century deception and the evolution of the emergent mind

I had two (or is it one?) idiosyncratic talents as a wastrel youth. I had a knack for great boondoggles, and I could, upon a cursory book reading, write a persuasive this-is-connected-to-that high school English essay.

This is one of those connectionist essays. I'm going to claim that many of the themes of this blog, such as

• brain and mind, emergence, enlightenment 2.0, and the intelligence of the mass
• politics, war and the GOP's (many) con jobs
  
• globalization, libertarianism's limits and the the death of the toaster. Not to mention melamine
  
• natural selection in organisms and economics
• the duty the strong owe the weak
• spam and reputation management
• future shock, drm and privacy as a luxury
  

are fundamentally related to the quintessential human activity - the detection and execution of fraud and deception [1]. Quintessential, because it is likely that deceiving and detecting deception played a central role in the evolution of human mind and culture.

My hunch is that each transformation of the human landscape, either by technology or culture, opens new avenues for fraud and deception. I suspect, for example, that if we looked closely we'd find that widespread adoption of printing and reading led to a vast array of newly effective cons and schemes. Print must have been very persuasive in those days; anything that was printed would bypass the fraud detection measures of the pre-print era.

We live now in another golden age of fraud. It's not just the obvious spam driven stock manipulation, the raging identity theft, Hilary's friends at InfoUSA, or even fake gluten, medications, glycerine, and surgical supplies. It's also the vast array of extremely unreliable consumer goods that are so cheap they've eliminated the alternatives, incidentally creating a deceptive inflation picture.

There's a bright side - I hope. We're overwhelmed at the moment, but our children will grow up in this world. They will spot the Bush/Rove cons their parents missed, they will resurrect the concept of a brand reputation and push the fakes back into dark alleys, they'll recognize the limits of "caveat emptor" and resurrect the FDA. Best of all, just as deception detection upgraded brains tends of thousands of years ago, so too will "social" deception detection raise our emergent IQ. Maybe just in time to respond to Sachs call for a new enlightenment.

So I am an optimist, after all. True, the glass is half empty. True, the contents are poisoned. Nonetheless, we will live to quaff again ...

[1] I need to here credit my 1994 UMN cognitive science professor - Paul Johnson. I thought harder and read more in his class than any other in far too many years of education. Dr. Johnson's research focuses on the cognitive science aspects of deception.

Poisoned Toothpaste from China: this would be a good time to start freaking out

A week ago I wrote:

I've written quite a bit about globalization lately, particularly in the context of toxic food, medicine, and consumer products. Not to mention the toaster problem, or those DVD/VCR combo units that last (at most) six months. Cheap goods from Walmart aren't cheap if you need to buy 3 times as many of them. (Incidentally, this shows up as increased productivity rather than increased inflation.)

Not to mention counterfeit surgical supplies and suspiciously murky globalized supply chains.

Today the NYT (bless them, they're on a roll now!) adds Diethylene glycol poisoned toothpaste to the list (emphases mine). Note that children, incidentally, often don't spit out toothpaste. Also note one significant difference from the other toxic products - diethylene glycol was an official ingredient of the product.

Poisoned Toothpaste in Panama Is Believed to Be From China - New York Times

Diethylene glycol, a poisonous ingredient in some antifreeze, has been found in 6,000 tubes of toothpaste in Panama, and customs officials there said yesterday that the product appeared to have originated in China.

“Our preliminary information is that it came from China, but we don’t know that with certainty yet,” said Daniel Delgado Diamante, Panama’s director of customs. “We are still checking all the possible imports to see if there could be other shipments.”

Some of the toothpaste, which arrived several months ago in the free trade zone next to the Panama Canal, was re-exported to the Dominican Republic in seven shipments, customs officials said. A newspaper in Australia reported yesterday that one brand of the toothpaste had been found on supermarket shelves there and had been recalled.

Diethylene glycol is the same poison that the Panamanian government inadvertently mixed into cold medicine last year, killing at least 100 people. Records show that in that episode the poison, falsely labeled as glycerin, a harmless syrup, also originated in China.

There is no evidence that the tainted toothpaste is in the United States, according to American government officials.

Panamanian health officials said diethylene glycol had been found in two brands of toothpaste, labeled in English as Excel and Mr. Cool. The tubes contained diethylene glycol concentrations of between 1.7 percent and 4.6 percent, said Luis Martínez, a prosecutor who is looking into the shipments.

Health officials say they do not believe the toothpaste is harmful, because users spit it out after brushing, but they nonetheless took it out of circulation.

Mr. Martínez said at a recent news conference that the toothpaste lacked the required health certificates and had entered the market mixed in with products intended for animal consumption.

He said laboratory tests had found up to 4.6 percent diethylene glycol in tubes of Mr. Cool toothpaste. The Excel brand had 2.5 percent...

,,,In Panama City, a consumer notified the pharmacy and drugs section of the Health Ministry after seeing that diethylene glycol was listed as an ingredient in toothpaste at a store...

...Over the years, counterfeiters have found it financially advantageous to substitute diethylene glycol, a sweet-tasting syrup, for its chemical cousin glycerin, which is usually much more expensive.

Is anyone so naive as to imagine we're detecting 100% of these incidents? This would be a very good time for the American public to, you know, freak out.

Causes of the crash of '08 - how much fraud?

At last count my list of contributing factors to the crash of '09 included ...

1. Complexity collapse: we don't understand our emergent creation, we optimized for performance without adaptive reserve
2. Mass disability and income skew: The modern world has disenfranchised much of humanity
3. The Marketarian religion: The GOP in particular (now the Party of Limbaugh), but also many Democrats and libertarians, ascribed magical and benign powers to a system for finding local minima (aka The Market). The Market, like Nature, isn't bad -- but neither is it wise or kind.
4. The occult inflation of shrinking quality: What happens when buyers can't figure out what's worth buying. Aka, the toaster crisis - yes, really.
5. performance-based executive compensation and novel, unregulated, financial instruments: a lethal combination. See also - You get what you pay for. The tragedy of the incentive plan.
6. Disintermediating Wall Street: Wall Street became a fragile breakpoint
7. The future of the publicly traded company: A part of our problem is that the publicly traded company needs to evolve
8. The role of the deadbeats: too much debt - but we know that
9. Firewalls and separation of powers: a culture of corruption, approved by the American electorate, facilitated dissolving regulatory firewalls
10. Marked!: Rapid change and the Bush culture made fraud easy and appealing

I put Marked! pretty low on the list, but maybe I should bump it up a bit. The Hall of Shame (Clusterstock) lists a lot more fraud than has made the papers [1]...

• Fairfield Greenwich Group: quietly complicit in the Madoff fraud?
• Angelo Mozilo: white collar mobster
• Sam Israel: a $400 million fraud. In the old days, he'd have been front page news. I never heard of him.
• Many more, each of which would have been in the news once - including: JS Forte, RS Piccoli, JG Ossie, D Palmer, A Nodel, Marc Dreier.
• Those swindlers who have made the news... Allen Stanford, and, of course, Mr. Madoff.

Good old fraud didn't cause the crash of '08, so I'm not going to move it up from the bottom of my list. I think it's more of a cofactor -- the primary drivers of the crash also made fraud easy, profitable, and almost culturally acceptable. In turn fraud, at more levels than we can imagine, accelerated the downturn.

One interesting note. Emily remembers John McCain's reaction when the crash began in the fall of 2008. McCain said "fire Cox". At the time that seemed rather odd, and McCain was criticized for coming up with Chris Cox (#18 on the list). In retrospect, one wonders how much political insiders knew about the amount of fraud in the system. Politicians of both parties spent a lot of time with people like Allen Stanford, and I'm guessing, despite the photographed smiles, that they felt a severe need for soap every time they shook his hand ...

[1] Inanely, we have to plow through a lot of links to get to the interesting ones, including a number of unfair listings - though this one's fair.

The Modern Firm - a review

I like to read management books years after they're popular, not least for the unintended humor.

In 2004, for example, John Roberts' ($6 used, including shipping) used Nokia and BP as shining examples of corporate excellence, but mentioned Apple only as a company led astray by a CEO's enthusiam -- for the Newton.

Obviously things look different now. BP's fast moving culture led to the Deepwater Horizon spill and Nokia's pride blinded them to the Doom of Cupertino.

Of course if that's all there was to Roberts' book, I wouldn't be writing about it now. Yes, like all business books from The Prince to the latest fad, there's a healthy helping of CEO sychophancy in addition to the usual misguided analyses of the gem of the moment. Happily though, there's also a solid review of the history of corporate economics.

It's the economic history that's worth the $6. In particular, Chapter 3 on the "Nature and Purpose of the Firm" alone is worth the (used) price of admission. From Smith to Coase to Akerlof and information asymmetry Roberts ties together themes I've been pecking at for years.

Economic models aside, what else is interesting in the book? After a decade years of participant observation of the mysterious Peoples of the Firm I did find a few reasons to read the later chapters. Nokia is a great lesson of a corporation that did a lot of things, maybe most things, right -- and yet still got clobbered. It's worth remembering that sometimes stuff happens. If Steve Jobs had stayed at Disney Nokia might still be great. I recommend reading the chapters on "motivation", exploitation and exploration, and organizational structure to better understand why CEOs follow consulting company recommendations. These chapters can also help you catch the warning signs that you're in a dying division.

It's a good enough book, not least because of the quaint hand drawn diagrams, but there's much more to be told in books to come. 21st century corporations aren't really the kinds of machines Roberts dreams of -- they're more like feudal kingdoms or ecosystems rife with agendas and conspiracies (and now, of course, now they're Persons). Perhaps for reasons of self-preservation, and the timing of the book, Roberts steers clear of corrosive impact of winner-take-all executive compensation (watch for problems to come at Apple). He barely mentions China (2004 is a long time ago) and the role of economic geography and innovation clusters. There's nothing about how corporations use finance as weapon, or about regulatory capture, or the role of talent. Unsurprisingly, he's not interested in the corporation as an ant-hill like emergent entity.

The story of the 21st century corporation is yet to be told. I wonder if we'll have to wait for a (sentient) Corporation to write its own story.

See also:

• Why quality collapsed in the bubble years: Akerlof and the last good toaster (information asymmetry - Akerlof - 3/2012)
• How big should financial firms be? 3/2009
• Why do corporations (firms) exist?
• Ants, corporations and the great stagnation 12/2011
• Emergent computation -- the thinking world (Nature) 1/2004
• Speculation: The corporate ecosystem and American stasis 11/2010
• Self sustaining entities: corporations and the Spanish Inquisition 6/2006
• The Corporation - what next? 8/2010
• Canopy Economics 5/2004
• Beyond the first cause: Deepwater Horizon and the publicly traded company 6/2010
• Troubled capitalism: The corporate entity 8/2010
• The corporation as psychopath 5/2004
• Wanted: examples of publicly traded companies with accounting solutions that support internal collaborative projects 1/2008
• The American corporation and the centrally planned economies of the soviet empire 3/2008 - "Corporation as a Command Economy" DeLong.
• Llamas and my stegosaurus: Artificial Persons