Thursday, June 30, 2005

US Presidents I Remember

Here's the Presidents I remember, and my retrospective opinion:
  • Eisenhower: Barely remember him. Seems like he was like primarily because he represented the feel-good, post-war cocktail hour crowd. Beloved leader, gracious demeanor. "Our Guy" for my grandparent's generation.
  • Kennedy: Political rock star. Saw him once in person as his limo drove past my Dad and me standing on the side of the road on our Boy Scout uniforms. We stood at attention and saluted, and he rolled down the window and waved. My mom bawled when he was shot. "Our guy" for my parent's generation.
  • Johnson: Powerhouse politician. Escalating Vietnam was a huge mistake. I wonder what he might have been able to pull off had Vietnam not happened. You don't have to like a guy for him to be a great leader.Nixon: Neurotic bumbler. Restoring a relationship with China was pretty cool. He was in office when I was in college and NROTC. I appreciate that he ended the draft, but that whole Watergate thing was frightening.
  • Ford: Decent guy. We needed him at that moment. Even if he went to Michigan. It could have been Spiro Agnew.
  • Carter: I voted for him. I thought someone who was an Annapolis grad, former nuke officer, a farmer and Washington outsider was exactly what we needed in contrast to the career lawyer-politicians of the recent past. Yet he was a totally ineffective leader. Read the book "Running Critical" to get a glimpse of what the Navy and Rickover valued in a nuke officer; leadership wasn't necessary. His "general malaise" observation, while true, just made everyone get into a funk.
  • Reagan: Who knew. He figured out how to crank up the economy FDR-style without needing a shooting war to accelerate it. He also restored national pride. I think his administration was a lot like Ike's in the way people felt about the country. One of the most important legacies of his tenure was the development of 401(k) plans, which caused billions of dollars to pour into the capital markets, setting off the longest bull market ever. Unfortunately, the bull market got out of control. I've heard it said that Reagan invited us all to a great banquet, then left without paying the check.
  • Bush I: Another decent guy who had no idea how to lead.
  • Clinton: I voted for him the first time too. Like Carter, he was a Washington outsider, but he seemed like an "our guy" for my generation. He ran to England to escape the draft, but colleges were full of guys going to school to avoid the draft. Too bad he couldn't get keep his fly zipped. The Democrats are taking credit for the economic boom during the 90s, but the main thing the Clinton administration did was harvest the fruits that Reagan planted. He didn't balance the budget -- that was the result of incredible tax revenues created by the boom. In fact, my main criticism of Clinton is that his administration failed to keep the stock market from overheating. Enron, Worldcom et al pulled their crap on his watch.
  • Bush II: Would probably be a fun guy to hang out with, but over his head as CEO of the country. Sometimes men have grown into the job, but he's not there yet, and I'm not sure we can wait. He didn't cause the economic blowup, but didn't keep it from happening either. Iraq is a major blunder. It's like fishing for sharks: the battle can be glorious, but you'd better have a plan when you get him up to the boat.

I regret that our political system has gotten to the point where effective leaders rarely rise to the top. Nixon and Clinton weakened the Presidency such that too many deals have to happen to get elected. Regardless of party, an elected President owes so many favors to so many people that it's a wonder anything gets done besides settling those IOUs. What's good for the country is less important that what's good for the President's benefactors. You have to put up a good enough show for the electorate to get elected, but you don't have to win by much. American politics are much less about ideology than power.

It's not corporations vs the common citizen. It's my corporations against your corporations. You can't run a $100 million campaign on private funding.

Interesting that Kerry said he would let Americans buy their drugs from Canada. That had to freak out the drug companies. American drugs are cheaper in countries with nationalized healthcare because they require those lower prices. Prices are higher here because the economics are perverse. I wholeheartedly believe that drug companies have the right to recoup their aggregate cost of development, be protected by the patent system, and reap profits on the sale of their product. For many products, we chose whether they are worth it, and great but overly expensive products don't make it because the demand never develops at the high price. But few products have life-or-death implications like medicines. I can't afford a Ferrari, but can live without one. I'm glad there are rich guys who can afford Ferraris, because it's nice to know such things exist.

But I don't like it if there's a drug that could change, or even save my life, and I can't afford it, but the rich guy can. We try to neutralize that in this country with our private health insurance system, but the demographics are changing such that almost everyone is a consumer of medicines, and the risk sharing aspect of typical insurance economics has been replaced by what is essentially a for-profit taxation system. The only choice insurers have is to keep raising premiums. Because health insurance is employer provided, American employers are finding it too expensive to hire American workers. Jobs get moved offshore. Corporations survive, but communities fail. Coca-Cola, Microsoft and Pfizer may be headquartered in China by 2020. It's not hard to paint a picture where the standard of living in North America, Europe and Australia falls as Asian, African and South American standards rise.

I'm pro-business, but don't want to see our standard of living fall either. While the USA still represents the greatest market on the planet (Asia is rising!!), we need to protect our standard of living by equalizing the cost of labor in foreign products. In other words, a product coming in from outside the country should have sufficient tariffs applied to make the labor component equal to something like 80% of the US labor and environmental component, including our health system costs, and the cost of protecting the environment. That keeps pressure on the American companies to drive productivity, but gives them economic justification to keep the jobs here.

Henry Ford understood. He raised his workers' wages (to $5/day!!) because he knew that it takes a middle class to afford all the new products being developed, especially his cars. If we want to keep the America we have, a land of opportunity in terms of economic wealth and personal freedom, we have to protect the middle class. The poor don't jump from the ghetto to the board room. But their kids can if we give the parents a decent middle-class job market so that the kids can concentrate on education and positive social development, rather than on basic survival (which allows the illegal drug market to thrive).

I've not made my mind up yet, but I think this issue of protection of the middle-class might well be my deciding factor.

Monday, June 27, 2005

Eminent Domain

A good friend sent me this link and comment today:
"In case there's any doubt that America is all about business"

This is one of those arguments which I take one side in the abstraction, but would be on the other if it were actually MY land in the bull's-eye. This kind of hypocritical stance is not unusual, and is in fact the way our Federal government routinely operates. It's not a Red/Blue, Democrat/Republican divide. The divide is between who's in power (and will do what it takes to stay there) and those who are currently out of the power position.

For example, the Congress insulates itself from all kinds of things the everyday American has to deal with. They have outstanding healthcare benefits, an insanely generous retirement plan, exemptions from prosecution and liability for acts which in the private sector would be called libelous, slanderous, and discriminatory. They make rules they don't personally have to live with. You can bet none of their property will ever be taken by eminent domain.

In this case about land use: one of the many issues is the ability of a community to generate commercial tax revenue. Most residents, especially in suburban areas, want THEIR neighborhood to be free of factories, office buildings, and shopping malls [which they prefer to be conveniently close, but in the next neighborhood], but yet want a full spectrum of municipal services and great schools for their kids. The catch is that those services and schools cost lots of money. In both cases, governments and schools, their budgets have a heavy labor component -- often unionized -- which brings with it constantly escalating costs associated with healthcare and retirement. So in a state like Ohio, where the schools are 60% funded on a community level, the bedroom communities get increasingly expensive to live in as more residents move in -- unless there is commensurate growth in taxpaying businesses to help foot the incremental costs of the schools.

Around our city, the larger employers figured out a long time ago that a great way to reduce their tax burden is to put the word out that they are willing to relocate within the area if some tax relief is offered. The best time to play this card is when the business is growing and needs more space, as it would presumably have to move anyway. The incumbent municipality finds itself in a bidding war with another municipality which has everything to gain and nothing to lose. The best outcome for the company is often to just expand where it is at a significantly lower tax burden.

But what happens if the business is landlocked? Is it better for the municipality and school system to just let the business leave? Remember that the majority of the costs of running the city and the school system vary with the number of residents, not businesses. So if the business leaves, both the city and school system have less revenue, but substantially the same costs. In a community with a few substantial employers, the loss of even one of them can take the municipality from an operating surplus position to one of an operating deficit in a matter of days. Large employers are required to give 30 or more days notice of significant layoffs NOT because it's the right thing to do for the employees, but because the time is needed for the government entities to prepare for the dramatic and immediate loss of revenue.

The residents of the community might just say, "good riddance" to a business that they felt was a negative presence (in all matters other than the tax revenue). As long as the residents accept that they have to either absorb the tax burden or live with reduced services and less-well-funded schools, that's a valid decision. But from the experience I have working on both land use (zoning) and school funding, I have to report with sadness that most residents will simply not take the time to fully understand the issues, and instead vote entirely on emotion and hearsay information. One side is "I love my [kids/town], don't you?" and the other is "the [school administration/city administrators] just pisses away the money, I'm not voting to increase my taxes." Then when the voting is over, both side bitch about the crummy government and the declining schools.

If the municipality in which I live, and the school system where my kids attend, came to me and said, "sorry, we have to take your land by eminent domain to keep your employer from leaving town" (as in going far enough away that I might lose my job), what would I do? I tend to think that my reaction would be to accept it as long as I got reasonable compensation for my land. Land is a lot easier to replace than a high paying job. I would definitely say it's an acceptable thing [to take someone's property] if having someone I didn't know lose THEIR land would allow me to keep MY job and keep MY taxes from skyrocketing.

The thing I wouldn't approve of: Having my land, or anyone else's land, taken by eminent domain to allow more expensive residential developments to be built. We tried that in the 60s under a Great Society program called Urban Redevelopment. The slumlords got money for their worthless property, the city got rid of areas of blight and supposed high crime, and developers got prime property to build office buildings and shopping centers. But what happened to the poverty-level folks who were living in those area? In many cases they were shuffled off to updated soon-to-be slums, without any real improvement in their situation. Once more, the Haves get more, and the HaveNots get screwed. The fancy condos downtown in my city probably have equal shares of liberals and conservatives living in them. Both have great views of the homeless shelters from their balconies.

It's a good lesson to play one of those simulation games like Sim City. You get to play benevolent dictator (maybe even God), and cause property to be developed any way you want, or torn down and replaced with something else if you so desire. I've never been able to get a community to survive more than a few generations, and have given up trying. It takes a balance of many variables, and even when I get to make all the decisions, it's hard. How can we ever expect a community with democratic government to get it right? I think the answer is, they won't, at least not for more than a decade or two at a time. That brings us back to Malthus, and "The Failure of the Commons."

Additional thoughts (6 Jul 05):

I was having a discussion with an old friend about this today. He felt this was an absolutely horrible decision by the Supreme Court, with his key point being that it changed the whole economic model of landholding. It's one thing, he says, to take private land by eminent domain to build a public structure of some kind, like a bridge or an airport. But it's another thing to take private land and put it in the hands of another private owner.

But don't we have to recognize that sometimes (usually?) big public works get built for the economic benefit of a few? Aren't roads and highways sometimes built on paths selected (and acquired by eminent domain) to make a wealthy person's adjacent land more developable? Isn't it interesting that when airports gets built, the adjacent land is in the hands of wheeler dealers who just fortunately bought the land before the airport development was announced?

I haven't read the Supreme Court decision in this case, but will do so soon. Hopefully the decision is narrow enough that there is overwhelming public good being service before eminent domain is ever used. All I'm saying is that whether the land is taken for direct government use (which makes the private land around it more valuable) or is taken to sell to a private sector developer who will generate tax revenue for the community, these kinds of decisions are always about lining someone's pockets. None of this is going to change until the public actually starts caring about local politics.

Monday, June 20, 2005

Is Music Sharing a Bad Thing?

I recently watched a series of panel discussions from the recent Consumer Electronics Association meetings about intellectual property

An interesting position was taken by
Gary Shapiro, the CEO of the CEA: There is really no such thing as "Intellectual Property," at least that this kind of creative material is not "property" as defined in the law of our land. He took this position, in my opinion, primarily so he could go on to say that creative material, such as music and films, cannot be "stolen" in the same way that real property can be stolen. After all, one can loan a CD to a friend, who can rip the whole contents to their disk, then return the CD to the owner. The owner of the CD gets his property back (the physical CD), after all. Taking Shapiro's position, no harm has been done.

I don't believe that Shapiro actually thinks this way, but rather that he is taking a polarizing position in the debate in an attempt to: a) support the position of his association members; b) incite a dialog.

No one questions that when an artist creates a piece of work, such as a song, he/she has the right to determine how it will be sold, to whom it will be sold, and what the price will be. When a buyer decides the price is too much for a product, the buyer does not have the option to steal the art instead. It's buy it or leave it.

Music sharing really is stealing. It is taking a piece of art from the owner, who offers it to the public for a price, and making original-quality copies available to all who choose to download it. Both the uploaders and downloaders are stealing, and most know it.

But the real issue being debated is who has liability then a theft occurs, and who has responsibility for fixing the problem.

Clearly, the person who takes possession of the property is one of the people liable. Does that mean the artist should sue all the free downloaders? Some say that this is at least misdemeanor theft, and the downloader should be arrested. After all, if you go into a Wal-Mart and shoplift the CD, it's a misdimeanor -- why should downloading carry a greater penalty? So the severity of the penalty is being debated, but reasonable folks seem to agree that it theft nonetheless.

What about the author of the software that enables the file sharing? Is Grokster or BitTorrent liable? Some would say yes, they are profiting from a criminal act. The litmus test suggested by the RIAA is that if the significant fraction of the use of the technology is to enable illegal acts, then the P2P technology creator should be liable. Others note that gunmakers are not held liable for crimes committed with their products. The P2P network guys are very careful to say they don't provide a service, only a software product.

What about the folks who make the technology that plays the stolen art? Should they have responsibility for creating protection mechanisms so only properly licensed art can be viewed/played? The CEA emphatically says no, and I tend to agree. Car manufacturers are not required to secure the trunk of a car so that personal items placed in the trunk cannot be stolen. If someone steals your golf clubs from the trunk of you Z4, you can't hold BMW liable. The car makers don't even have to put a lock on the trunk. Their prospective buyers might not choose to purchase that car because of it, but the golf club manufacturer doesn't get a vote.

And finally, what responsibility does the artist have for protecting their property? Seems to me that this is where a great deal of the burden needs to be placed. Let's say CDs had been designed to be perfectly copy protected, and that no device on the planet could ever duplicate a CD or rip songs from the CD which could be played on anything else. Would the artist put a stack of his perfectly protected CDs in the main concourse of Grand Central Station with a basket that says "$5 each" and expect more that a very small minority of people to actually pay? Of course not, the artist and the retailers are expected to take reasonable steps to prevent theft. They do so with the physical media but have been greedy and negligent in demanding the same kind of security for the digital versions of their property.

So where I've come down on this thing is that the movement from analog LPs to digital CDs, the artists and the record companies have been lazy about demanding tighter security, preferring to get to market quickly with CDs and not wanting to invest anything in tighter security, and are now suffering the consequences.

If we want to stop this problem, the artists need to withhold their material from the market until the technology guys figure out a better system of security. How many have the stamina to do this?

Of course, the outcome of such a boycott might be that other artists might figure how to make money in spite of the lack of security.

It's a little like the shoplifting problem -- retailers can stop shoplifting by locking all their merchandise behind glass doors. But they tolerate a little theft because buyers have shown that they only purchase items they can touch and feel, and it's too labor intensive for the retailer to have an employee follow every shopper around unlocking doors (which most shoppers would find too intrusive anyway). To be sure, the retailers continue to seek new ways to prevent shoplifting without harming the shopping experience for the legitimate customers. The same kind of balance will be found with digital media.

Additional thoughts: (20 Jul 05):

The Supreme Court has decided that Grokster et al could be held liable for copyright infringment if it is found that: a) their business model is predicated on enabling users to commit infringment; and, b) if the P2P network makes no effort to dissuade their users from infringing.

People who think the P2P network should be held blameless cite to the wisdom of the Betamax case, in which the Supreme Court decided that Sony was not a de facto participant in copyright infringement simply because they made a device which could be used to perform infringment. It was recognized that there was substantial non-infringing uses for the device (e.g. time-shifting), and that tipped the balance. The decision did NOT change the fact that unauthorized duplication and distribution of protected materials is illegal, only that Sony could not be held liable.

Here is the exact language from the Supreme Court decision on Grokster:
"One who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, going beyond mere distribution with knowledge of third-party action, IS LIABLE for the resulting act of infringement by third parties using the device, regardless of the device's lawful uses."

Justice Souter wrote additionally in his separate opinion: "The record is replete with evidence that from the moment Grokster and StreamCast began to distribute their free software, each one clearly voiced the objective that recipients use it to download copyrighted works, and each took active steps to encourage infringment." ... "StreamCast's executives monitored the number of songs by certain commercial artists available on their networks, and an internal communication indicates that they aimed to have a larger number of copyrighted songs available on their networks that other file-sharing networks. The point, of course, would be to attract users of a mind to infringe..." "Finally, there is no evidence that either company made an effort to filter copyrighted material from users' downloads or otherwise impede the sharing of copyrighted files."

So the Supreme Court didn't "find Grokster guilty." What it said was that the trial court applied an improper standard in this case, then clarified what the standard should be. The case was remanded to the trial court, and the decision as to whether Grokster et al are actually guilty will be decided by the trial court, using this new standard. It doesn't look good for Grokster give the evidence, but anything can happen in a jury trial (e.g. OJ Simpson and Michael Jackson).

Thursday, June 9, 2005

What Happened to CompuServe?

A friend of mine on a consulting assignment asked me about the sequence of events which transformed CompuServe from a subsidiary of H&R Block to a part of both AOL and Worldcom. I figured it was worth posting in my blog...

The process started with HRB coming to the conclusion that they wanted to sell their 80% interest in CompuServe (soon after the 20% was sold on the open market). Through their investment bankers, they shopped it to a number of potential buyers, including AOL, LBO specialists and even AT&T. None of the offers were acceptable to HRB, as most required HRB to take a stock they didn't trust as currency (e.g. AOL), or required seller debt financing, or the price was just not what they were looking for.

Eventually John Sidgmore of Worldcom figured out a structure that made everyone happy (we had known Sidgmore for a number of years, from the days when he joined UUNET, whose first network was an IP-over-X.25 implementation running over our network).

At the time UUNET was the major dialup network provider to both AOL and MSN, and Sidgmore knew Steve Case well. The imaginative deal he proposed was accepted by all parties, and was executed like this:

Step 1: WCOM bought all of the outstanding shares of CSRV using WCOM stock as the currency. The value of the WCOM stock was approx $1.2 billion, and HRB sold all of it within a day or two, pocketing the cash (Had HRB held the stock for another 18 months, it would have turned into $3.5 billion. But then if they had held it for 3 years, it would have been worthless...) At this point, HRB is completely out of CompuServe, and Worldcom owns 100% of CompuServe.

Step 2: WCOM sells CompuServe Interactive Services and various pieces of the intellectual property and infrastructure to AOL. WCOM actually has to throw some cash into the deal -- about $100 million as I recall -- but gets back a long-term dial services agreement from AOL for zillions of hours. AOL gives their network subsidiary, ANS, to WCOM in this transaction. WCOM and AOL agree to a complex infrastructure cooperation agreement which defines who owns what (e.g. AOL owned the CompuServe mainframes, but WCOM owned the source code and use licenses for the CompuServe operating system -- my idea by the way, to make sure neither party could hold the other hostage). At this point, CompuServe Network Services (renamed Worldcom Advanced Networks) and UUNET are sister companies within Worldcom, both reporting to Sidgmore. ANS became part of UUNET.

Step 3: However, during one their acquisitions, WCOM had picked up a little IP networking company called GridNet, based in Atlanta. Management of GridNet was assigned to WAN (the former CNS). I found out that GridNet had been given responsibility for managing another little network company in Memphis, and I don't even remember their name, but great folks. I made the recommendation that this company be shut down, but instead it was absorbed into a group managed by Robert Hudspeth, who I believe had been responsible for Memphis guys in the company that WCOM had acquired to bring the Memphis guys into WCOM (beginning to understand what a complex world WCOM was?). Anyway, it was at this point that we began using the GridNet technology to consolidate dial points on the old CompuServe network. We made it so that you could call their modems using a CNS phone number, and by reading the DNIS (Caller ID), their modem system would route the call to a "reverse gateway" which would present the CompuServe LOGOUT interface.

Step 4: Sidgmore decided to take a Darwinian approach to determining whether CNS should continue to survive: he directed us to give our entire customer list to UUNET Sales, and they immediately began going to our customers and cherry picking the folks whose usage profiles matched UUNET technology (IP orientation, coverage matchup with the UUNET network, no fancy billing). The trend was clear, UUNET was going to drive the price of dialup network down to a point where CNS would be losing money, because we were still saddled with about $250 million/year in non-WCOM telephone expense, primarily via AT&T and MCI. Ultimately, the CNS management team decides that the only sensible thing to do was roll in under UUNET and stop the war. The CNS leadership reported to Mark Spagnolo, the UUNET CEO. The CNS integration with GridNet ceases, and GridNet is shut down.

Step 5: WCOM buys MCI. The SEC and FTC require MCI to divest their IP network, but interestingly allows them to keep Tymnet. Vint Cerf, to whom Tymnet reported, initiated conversations with us about merging the CNS and Tymnet networks. What we found was that the Tymnet network was a generation of technology behind the CNS network, and that besides, the CNS network had features DESIGNED to allow users to move from Tymnet to CNS with a minimum of hassle, but not visa versa. That conversion was just starting when I left.

Step 6. Meanwhile, the technology we developed to facilitate reaching the CNS network over GridNet access was applied to begin moving the CNS network to UUNET. This conversion is still going on -- there are still CompuServe nodes running in the middle of the MCI network. One of the reasons is the POS authorization network service. It is my understanding that MCI now provides 100% of the dialup POS authorization service in this country (one of the significant competitors was Tymnet!).

Step 7: WCOM self-destructs. Bernie is fired, Sidgmore dies, Spagnolo leaves, and the former MCI executive team rises to the top (other than Mike Cappellas, who is hired after Compaq is acquired by HP). UUNET disappears as an organization, and ultimately as a brand as what had been competing and redundant internal divisions (e.g. both MCI and WCOM had substantial technology headquarters) were reorganized under an MCI-like structure with MCI leadership.

Gradually, the old CompuServe team is disbanding and moving on to a next life. It was the ride of a lifetime.

The Columbus Dispatch did a story on Sept 6, 2009 about the history of CompuServe. It has been captured here if you wish you read it.