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Heading to Bankruptcy: Consumption greater than income, leading to debt-driven consumption.

Safe growth:  Less consumption than income, and invest the savings.

Risky growth:  Borrow to invest, betting that the investment return is greater than the cost of servicing the debt.

Safe haven:  Store savings in sound money.

Running your personal finance is in many ways similar to running a company or an economy.

For individuals:  You sell your time, skills, and energy to cover your needs and wants, hoping to have some savings at the end of day for emergency or investment.

For companies:  You sell a product or service to cover your costs of producing it, hoping to generate some profit to give back to shareholders or to invest for future growth.

For economies:  You produce to satisfy the needs and wants of your citizens, hoping to generate some surpluses to support innovative ventures.

admin :: Mar.14.2010 :: Business/Management, Strategy :: No Comments »

The U.S. economy is losing its global competitiveness due to the following policy errors:

1.  High Taxes and Labor Unions are making manufacturing uncompetitive in the global market, resulting in a shift of the economy towards more driven by service & consumption.   Engineering jobs are now replaced with sales and customer service agents, making science, math, and engineering unattractive subjects in college.

2. Stringent immigration laws are driving science, math, and engineering foreigners trained in U.S. universities (often on a full scholarship) back to where they come from, helping those emerging economies to compete with the U.S. economy.

3. Loose & government rigged monetary policies fuels high profits in the financial industry.   Attracting the best minds in the country to the business of money shuffling and casino banking.

4. Expansion of government and government sponsored industries are crowding out talents, credit, and profits for the private sector.

admin :: Mar.04.2010 :: The World, Business/Management :: No Comments »

Milton Friedman had pointed out that socialism and dictatorship is the natural tendency of human societies.  He had also observed that free market capitalism and the subsequent prosperity is the exception rather than the norm in human history.

In fact, we can generalize the above conclusions to all human organization.   And such tendency is what drives big companies to failure.  These companies once had all the resources to maintain their market dominance.  Unfortunately, sooner or later the succumb to the “law of socialistic tendency” and gradually loses to more efficient competitors.

At the core of the “law of socialistic tendency” is the sense of entitlement based of seniority.  People who served the company well ages ago but failed to keep up with technological innovations are kept and often promoted to high posts, crowding out opportunities for smart, motivated, and more efficient new-comers.   Therefore gradually the company would be full of inefficient, inflexible, and over-paid employees or bureaucrats, whose skills and knowledge are outdated, while expert in playing politics.

In a slowly changing technological landscape, the company might survive longer as the inefficiency gradually grows in comparison to young competition.  However, as technological innovations grow at rapid pace, the company would find its workforce grossly inefficient.  Failure to re-structure and fire the dead-weights in the workforce due to the culture of entitlement would result in a slow death for the company and all its stakeholders.

I often wonder, “how can big companies with vast resources and an absolutely advantageous market position slowly let itself overtaken by small competitors?”  Today I found the answer from Milton Friedman.

admin :: Mar.04.2010 :: Business/Management, Finance/Investment :: No Comments »