Phil Hauck's TEC Blog

Tuesday, March 11, 2014

Why China Doesn’t Innovate

We read a lot about China’s dynamicism, but listen to this from an article in the Harvard Business Review:  
“The Communist Party requires a representative to be present in every company with more than 50 employees.Every firm with more than 100 employees must have a Party cell, whose leader reports directly to the Party in the municipality or province.”
So, in Chinese companies of any size, who do you think the “real boss” is?

Walmart Vs. Costco: An Inappropriate Comparison

In Green Bay during the past few months, Walmart has wanted to put a store downtown, so we got to hear all the reasons that Walmart is bad ... including the old one that Costco takes care of its employees and Walmart doesn't.  The Costco/Walmart comparison is a very inappropriate one.  They have two completely different business models resulting in different gross margins and earnings percentages.  To understand the business model difference, go to this article:

On Walmart vs Costco

And This on Local Medical System Costs ...

New North BTB Magazine annually uses state hospital association data to look at reported costs of area medical providers on a range of high volume medical services.  We know that the U.S. system costs about 30% more than the next highest, so you'd expect efforts would result in lowering costs.  Not so!  At least not overall.
     Of the seven major services reviewed, every one had an increase in average costs to 2013 from 2012.  Of a total of 78 provider data points, only 16 went down; 62 increased!

More on the Medical System ...

     According to the Harvard Business Review, an hospital system in India plans to open a 2,000(!) bed hospital in the Cayman's with the objective of siphoning off profitable U.S. surgeries and other treatments through its low cost processes. This is amazing! And another wakeup call to the U.S. way of structuring medical care. And they aren't doing it only through low salaries and wages; that's a minority of the cost differences.
     The article says that the main way they create lower costs is a Hub-and-Spoke location system, where the Hub is the large specialty center (either a single specialty or multiple ones) and the Spokes don't have ANY expensive equipment (as U.S. ones frequently do) other than diagnostics, and are primarily a gateway facility. MRIs and labs are provided electronically to the specialists at the Hub for diagnosis and prescription.
     This structure as well as how they define job roles are aimed at cost-effectiveness, not market competitiveness. They try to have people do as many procedures or services at their skill set level as possible, and locate and schedule to that. Much more cost efficient!
     Get this: The cost result, even after increasing the salary/wage levels to U.S. levels, still results in procedure costs that are about one-quarter of the U.S. medians!!!
     The article goes on to illustrate how they go to major lengths to maintain expensive equipment so it lasts longer (or contract with the equipment makers for "pay-for-use" rather than purchase), to re-sterilize all re-usable equipment and supplies for re-use, to provide videos to family members so they can provide post-surgery care at home ... and others. And all staff, including doctors, are informed each morning of the P&L results from the previous DAY!
     And yes, the outcome data is comparable to U.S. and international protocols.
     The importance to US, the PAYERS: The solutions to our cost problems, which also drive our access problems, will come from pressures/influences by US ... not from within the industry (tho they will provide the expertise) or government.
     Just sayin' ...

Complexity/Amount of Regulations Fosters Fraud, Favoritism

Per David Brooks in a recent column:
Steven M. Teles had a mind-altering essay in National Affairs called “Kludgeocracy in America.” While we’ve been having a huge debate about the size of government, the real problem, he writes, is that the growing complexity of government has made it incoherent. The Social Security system was simple. But now we have a maze of saving mechanisms — 401(k)’s, I.R.A.’s, 529 plans and on and on. Health insurance is now so complicated that only 14 percent of beneficiaries could answer basic questions about deductibles and co-pays.
This complexity stymies rational thinking, imposes huge compliance costs, and aids special interests who are capable of manipulating the intricacies. One of the reasons we have such complex structures, Teles argues, is that Americans dislike government philosophically, but like government programs operationally. Rather than supporting straightforward government programs, they support programs in which public action is hidden behind a morass of tax preferences, obscure regulations and intricate litigation.
Also, recently in the New Yorker, in a column on the corruption involved in Sochi Olympics construction:  "The more rules you have, and the more people enforcing them, the more opportunities there are for corruption."

Bogus Inequality

The fact is:  Studies from Columbia University and the Congressional Budget Office and others in the last two years indicate that Inequality has actually lessened ... not increased ... over time because of the impact of government transfer payments to the poor and other benefits they can access.  What most irritates people is that the 1% have been able to stretch their lead even more, especially thru the recent downturn.  
Studies show:
•  From 1993 to 2006, "inequality actually declined 1.8%," according to Ohanian and Hagopian in their Policy Review paper, "Mismeasure of Inequality."
•  Even President Obama says that the percentage of people within the definition of poverty has declined since 1965 to 16% from 26%.
•  When they speak of a "decades-long slide in equality," people are referring to pure "money income," which doesn't include the impact of relative taxes, and such transfer payments as Medicaid, food stamps, Unemployment Comp, the Earned Income Tax Credit, and such.  When those are considered, inequality has declined.  The measure is called the Gini coefficient; look it up.
•  Upward Mobility still exists, according to Treasury Dept. studies which track the same people over time.  In the decade of 1996-2005, roughly half of those defined in poverty in 1996 had moved to a higher quintile by 2005.  This is in sync with what happens in Green Bay; people in poverty strive and move through it.
•  During the higher economic growth years of the 80s and 90s, every quintile of income increased its income at a rate higher than inflation.  To be sure, the top 20% increased more than the next quintile, and that one more than the one lesser than it.  But none got their increase at the expense of another.  They were all able to gain.  The key to increasing the welfare of the poor, studies show, is policies and an environment that fosters job creation.  Growth economies have improved the relative status of the poor more than any other factor.

Conclusion:  IF the goal is to deliver higher family income and better standards of living, then it will best be done via economic growth with opportunities at all wage levels ... not through redistribution of wealth.  To the degree we need to take care of the poorest, those programs have been sufficiently in place for some time.