Opinion

The Great Debate

Why regulation — on yogurt and more — is blocking Greece’s recovery

The news that Greek-style yogurt maker Chobani is looking to sell a minority stake that would value the company at around $2.5 billion should in theory be a big boost for Greece’s beleaguered dairy industry.

But instead, the main beneficiary will be Chobani’s Turkish founder, who operates the company in upstate New York, and who has proved to be innovative in a way that Greek dairy farmers are not. In fact, they are so stuck in their traditional ways that it’s actually illegal in Greece to call low-fat yogurt “yogurt.” Any variant that contains additives of any sort must be labeled “dessert of yogurt,” which is akin to waving a warning flag at consumers.

That sort of rigid regulation is the norm in Greece, and not just in agriculture. Examples abound. There’s a rule dating back to the 1970s that prohibits producers of apple vinegar from packaging it in anything other than one liter bottles. Another set of regulations, this time from the 1980s, outlaws bulk sales of mayonnaise and the import of some types of cloves. Supermarkets are prohibited from selling aspirin. Fresh milk is required by law to have a shelf life of just five days. As for olive oil, one of the staples of the Mediterranean diet and an important source of revenue for the Greek economy, producers are strictly forbidden from blending it with vegetable oil for domestic consumption. The rationale: olive oil is at the core of the Greek diet, and the health of the population is at stake.

These rules are among the hundreds of restrictive business practices in Greece that a team from the Organisation of Economic Cooperation and Development identified last year, as part of an 11-month investigation commissioned by the Greek government. In its report the OECD made 329 recommendations for rules that should be changed to open up competition and give a much-needed boost to the economy.

Quantifying the cost of these restrictions is a difficult task, but in 66 cases, the international experts did figure out a way to do so. Eliminating them would lead to a positive effect on the Greek economy of 5.2 billion euros, or just over $7 billion, they calculated. While that may not seem like a huge sum, in today’s Greece, every penny counts. Kostis Hatzidakis, the Greek minister for Development and Competitiveness, is promising action “very soon” to retire some of the most intrusive rules that he says are holding back his nation’s competitiveness.

Patent trolls spell trouble for America’s economy

Our nation’s founders incorporated the concept of individual property rights — including intellectual property rights — into the Constitution because they knew that these rights spur innovation and help promote economic growth. However, patent assertion entities (PAEs), otherwise known as “patent trolls,” inhibit the innovation and economic growth that patents typically foster. Even more alarming, with the creation of government-sponsored patent trolls (GSPTs) — which are financially backed by a national government — patent trolls have gone global.

Patent trolls, which can either be companies or government-sponsored organizations, are entities that buy large patent portfolios — not to use the patents to create new products, but to generate revenue by filing meritless lawsuits against people who have allegedly infringed on their patents. These tactics are aggressive and often unethical, and the suits rarely have the evidence needed to win at trial. Defendants prevail in 92 percent of adjudicated patent troll-initiated lawsuits. Unfortunately, 86 percent of these suits settle out of court because patent trolls tend to target smaller companies and end users, which can rarely afford the lengthy litigation associated with these types of suits.

For example, Innovatio IP, a notorious patent troll in Illinois, claimed its portfolio included patents covering Wi-Fi implementation — the establishment of Wi-Fi access in public places such as coffee shops and hotels. It started filing lawsuits against large franchises such as Cosi, Caribou and Panera, and then sued small mom-and-pop coffee shops throughout Illinois.

Can America innovate its way to growth?

America is banking on economic growth. Its ability to pay debts, lower unemployment, and provide better living standards all depend on growth returning to its pre-recession levels and staying there. But what if it doesn’t?

Several economists are worried it won’t. Growth can come from three sources: more labor, more capital, or more innovation. The 20th century was remarkable because each of these factors grew. America’s final push to manufacturing, and away from agriculture, increased the use of capital. The volume and quality of labor also increased. More people than ever finished high school and went on to college, and many women joined the labor force. But we can’t repeat these events. Not only that, future demographic trends are not favorable. American education isn’t giving many young people the skills they need to be competitive in the global economy. An aging citizenry means a smaller share of the population will be working to support everyone else. Lower rates of economic growth will make it harder to repay America’s debt — both entitlements and outstanding treasury bonds. Servicing debt will take more resources from the economy, creating a vicious cycle of high rates and low growth.

But not all hope is lost; there’s still innovation. Innovations make existing resources more productive. Productivity is measured by calculating how much output (GDP) increased or decreased given the inputs (capital and labor) used. If you get more output for the same amount of inputs, productivity has increased. That means if western economies innovate more, and thereby constantly increase productivity, they will still grow. If productivity outpaces the economic headwinds, America can still grow at the pace it used to. But that’s easier said than done.

Mass flourishing: How it was won, and then lost

This essay is adapted from Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change, published this month by Princeton University Press.

The epic story of the West is the development in the 19th century of a mass prosperity the world had never seen and its near-disappearance in one nation after another in the 20th. Mass Flourishing is a history linking this story to the rise and fall of homegrown innovation. It is also a text on the nature and sources of prosperity. It has two components. The material part is growth of productivity and wages. The non-material part is flourishing – successful exercise of creativity and talents. To flourish, people have to engage a world of challenges and opportunities. The economy’s dynamism and the resulting experience of business life are central to our well-being.

Mass prosperity came with the mass innovation that sprung up in 1815 in Britain, soon after in America and later in Germany and France: It brought sustained growth to these nations — also to nations with entrepreneurs willing and able to copy the innovations. It also brought flourishing to large and increasing numbers of people — mass flourishing. There were experiential benefits: Routine work, dull and lonely, gave way to careers that took twists and turns and jobs that were rewarding. There were also developmental benefits: As people used their imagination to create new things and their ingenuity to meet challenges, they found self-expression, self-realization and personal growth in the process.

from Paul Smalera:

Paradise regained: Clayton Christensen and the path to salvation

Is it possible in the year of our Lord 2012 that leadership still isn't well understood? In 2012, despite business journalism’s fetishization of Steve Jobs, the most successful leader ever, whose apotheosis was Walter Isaacson’s doorstop, Steve Jobs, a biography of the half-Syrian, bearded man who built the world’s most valuable company, brick by brick, and found himself, like an earlier CEO of sorts, with legions of devoted apostles, some powerful enemies, and an inextinguishable legend? Is it possible, despite the endless streams of management self-help articles burbling out of Fast Company, Inc., Harvard Business Review, Businessweek, Fortune and the blogs of droves of self-appointed leadership gurus, we need more advice? And is it possible despite the emails – so many emails, Jesus wept – those emails that aggregate all this content using algorithms and intern labor, and slice it up so that the middle manager in Minnesota and the lawyer in Los Angeles and the new media marketer in New York are all .0058% more likely to click through to a relevant article? Is it possible, really possible, the answer to our prayers is another book on leadership?

It is, thinks Clay Christensen. Business folks – the unquenchable consumers of all that content – have been taking the paradoxes of leadership, because they are so familiar, for granted. When they do this, they ruin their companies and then they ruin their lives. Like that subway step everyone tripped over for years without noticing, they take for granted that the well-worn grooves on our society’s pathways are the right ones to be in. They don’t watch the road to see when a turn they are on is about to become rutted, or when they might hit mud and tip over. They feel, like the pioneers, safe in a wagon train, but then something goes wrong, and they are very alone, very fast. They need the wisdom of a pioneer who has crossed the valley, and studied the path.

    Paradox one: Leading is usually about getting people to go someplace difficult and new, even if (or precisely because) they’re perfectly comfortable and prosperous where they are right now. Paradox two: A leader can’t just motivate people to change, she has to persuade them to actually take the journey, and care about its success or failure. Paradox three: Even if a leader succeeds, there’s no guarantee she will get any credit, or gratitude for the services rendered. Except for the millions of dollars in compensation some business leaders make, the magazine cover stories and books written about them, the hobnobbing with President Obama, being a leader can be the most thankless of tasks. Of course, if you do it wrong, you get shown the door.

Still. Celebrity, money, power – hard to shed a tear, it’s true. But pay attention, for a moment, before we get to the personal, to the failures of business leadership. The landscape is littered with the carrion of companies that blew it; high fliers that flamed out. If leadership can be occasionally rewarding, it is far more often the case that business leaders, even ones who have been coronated by adoring customers and media, end up, over the long haul, stumbling and failing. To put it in more fruitful terms: For every Apple, there is a Blackberry.

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