It’s impolite and generally risky to point out to a business that it’s getting at best little value and often of substantial negative value (losing on legal issues, not getting bank loans, uninsured losses, advertising campaigns that decrease sales, websites that dissuade visitors from buying, awful real estate leases/purchases, still defective equipment, overpriced utilities, amateurish IT services, clueless consultants, etc.) and every business relies on a much wider range of external service providers than anyone thinks about.

Hundreds of times in putting together loan or investor proposals (very different things and when people tell you to use a business plan for that, that just exposes they haven’t chased money before) I’d go through their CPA’s financial statements and realize taping a “Kick Me” sign on the business owner’s back and sending them into the bank that way would be kinder than sending them in with their accountant’s financial statements. At best the financials have been done entirely to minimize taxes which depend on many of the figures in there and in reality the financial statements are hammered out by exhausted, offsite people even in the biggest companies who just are trying to meet tax deadlines. People who think their financial statements are a realistic and deep portrayal of the actual assets, liabilities, income, profits, cash flow, cost structure, etc. are deeply naive and those who try to manage from them without substantial internal work to make them representative (often an impossible task, they’re so skewed in structure for tax questions) are more dangerous than skilled.

Grossly incompetent internal accounting and bookkeeping staff, more common than not as it’s a specialized hire that most of us really aren’t able to evaluate candidates effectively for, mean numbers are unreliable, appear long after decisions or much can be done with them, and have a lot of hidden costs in areas like collecting accounts receivable, spotting waste or pilferage, tracking vendors’ costs, missing or misassigning many operating and facilities costs so profitability is grossly exaggerated, etc. I’ve reviewed the work of several hundred accounting firms over the years and the ones I’d recommend to a business for useful, accurate work was always a handful and only individuals at those firms (the false pretense that professional firms turn out uniformly good work if they’re large and old is like Santa Claus-warm and reassuring until given a bit of thought on human variation.)

Legal services are another where a friendly lawyer known socially already or referred by a friend is used for many areas well beyond their expertise or resources, but happy for the fees and work. I worked with law firm marketing extensively back in the 1980′s, interviewed and observed hundreds of lawyers and dozens of law firms closely while most of the several thousand businesses I’ve worked with used lawyers occasionally or continually including those with in-house attorneys. Lawyers specialize, often accidentally and without realizing it, but all do and the resources to support a specialty mean even in a 1,000 lawyer firm, only a few are qualified and effective at particular work. So the smart thing to do is use many lawyers, each best suited for the work at hand, but that’s not how lawyers sell themselves.

As general business advisors it’s even stranger as law firms themselves are poorly managed almost as a rule and few lawyers have business training (a liberal arts education and then initial work as a government lawyer in criminal prosecution or regulations is vastly more common) so at best the attorney can provide some very general (and expensive) advice based on their direct experience with similar jams their clients have gotten into. It helps sometimes but when I run into business owners who check everything with their attorney first, that’s a sign of carefully cultivated dependency for billable hours rather than prudence.

Abysmal and even mediocre legal advice is very expensive, often business killing, but only readily noticed when you lose trials and appeals you should have won or avoided entirely. It’s the poor management of risks and contracts where the big costs of poor legal advice are mostly unnoticed, often by throwing too much legal fees at some things and skimping on others that aren’t as noisy or the lawyer didn’t think about.

Insurance advice is one I’ve found far more competent people in than many business services, probably because the competition is so intense and unrelenting as well as writing money-losing policies quickly drives providers out of business.

Using a specialist in business insurance, rather than the same person/firm who specializes in home and auto insurance or life insurance is important as they’ll notice risks beyond fire, burglary, and slip & fall lawsuits that need to be addressed. Product liability, business interruption, employee theft and fraud, premises liability, bonding those handling the money, workplace violence, cumulative medical issues, discrimination/harassment lawsuits, landlord-tenant disputes, jobsite damage, etc..

There’s a bunch of risks out there, more of them usually than anyone can afford adequate insurance for all of, and businesses well covered for the highly unlikely and not covered at all for near certain events (so earthquake yes, employee theft no for example) are what I’ve typically seen (and often been.)

Advertising and other marketing services like website development, search engine optimization, sales literature production, advertising media buys like radio ads or newspaper, public relations services, branding/company image development/graphic design, CRM software, strategic consulting, etc. are probably worth a column here by themselves.

Enormously dumb “marketing” stuff by wildly unqualified people for what’s complex and technical work that needs to be research-based and tracked for effectiveness kills or retards most businesses.  It’s like hiring hairdressers for brain surgery.

Pouring money down the ratholes that fools who operate on bluff, uninformed opinions, and little understood trends profit from but you won’t is bizarrely common. I worked in this field after long study and made it to “Who’s Who in Advertising in America” in part by studying what the best practitioners of the century did and learned, benchmarking in other words.  There’s been a considerable body of knowledge developed in what works since about 1919 but almost no practitioners study it, so it’s like going to a doctor who never read his medical textbooks or journals and operates on patients based on what doctors in current medical television dramas do.

Big businesses routinely get terrible work in these fields (a third of award-winning ad campaigns actually drive sales down significantly while 40% of the campaigns don’t improve sales or profits at all.)

Defective or mediocre websites, the equivalent of the lousy general brochures and sales literature produced for decades before that are another sinkhole that businesses routinely bet their future on while being quite ill-served.  Overpricing this work so it consumes a business’s entire marketing budget for the year is bizarrely common too, like buying a year’s supply of Hamburger Helper in January but not being able to afford the hamburger until November.   Printed material with no plan or budget to get it into customer’s hands (generally direct mailing) is as bizarrely common as websites without any search engine optimization or E-Commerce function are common today, done by professionals at a considerable cost.

Often it’s better and cheaper to staff and do this internally (heresy!!!) for deep knowledge of what you offer and who buys it for what reasons trumps all of the huff and puff the external providers rely on since citing actual results is unavailable to them. You can’t be TOO skeptical in hiring and evaluating these services.

Information technology services is another area where it’s easy to pour vastly disproportionate cash down the drain. In the old days it was custom programming or endlessly customizing the reports from a standard software package like Excel, Peachtree, Oracle (!!!), SAP, PeopleSoft, Great Plains, relational databases, E-Commerce platforms, J.D. Edwards, etc. and to a great extent still is.

People who think turning a standard report (albeit those are generally built at the software house by people with no knowledge of the report’s purpose or use, worked with a lot of software houses too) is worth thousands or tens of thousands of dollars are people you can’t afford to have on staff or as external advisors. Making routine decisions seem awesomely complex is another classic IT cost/service problem while making complex decisions like migrating to an entire new package for key or all functions like Oracle or Salesforce or SAP etc. rarely works out as well as promised (2/3rds of major software migrations by the biggest firms fail dismally after years and enormous amounts of money and time. That’s like undertaking a new building for your business with the foreknowledge you’ll end up with a workable building on a 1:3 chance and a big hole full of charcoal and bodies 2:3 chance.

It’s easy to evaluate physical inputs to your business (well it really isn’t, the more I’ve learned about quality variations in steels, plastics, concrete, electrical power, broadband service, paper, cardboard, screws, etc. it tells you “commodity” means you don’t understand what you’re buying and how it works for you) but services are sold so much on bluster, guess, ill-informed referrals or casual acquaintance that they deserve and require much more scrutiny throughout the process of using them. Or it can cost you the whole business, let alone make progress and growth far harder than it needed to be.

Being around oil and mining booms for 3 generations, the assumption that those are all short-lived (some go on for hundreds of years like the Potosi Mine in Bolivia that’s been a treasure trove for a millenia or more) and that ONLY those create or kill booms and busts.

When you look at economic history harder than reporters and pundits, let alone “the man on the street”, you see everything goes through booms and busts.

In the old days we often called it “the business cycle” as there is a natural and ancient flow to it, but the 24-hour newscycle of empty-headed twits

Booms in irrigated farming? Sound dull? Tell that to the earliest civilizations in Sumeria, Egypt, Babylonia, Mycenae Greece, Rome, Carthage, Indus River Valley/Mohenjo Daro…or to grain farmers going through it the past few years in the American farmlands. Farmers expand their tilled land, buy more equipment now or slaves and oxen then, invest in granaries, flour mills, grain elevators, fertilizers, pesticides, herbicides, fences, have more kids and hire more help, build new houses, vote for new public buildings in their town that show a bet on the future like schools, and take on what’s often a reckless level of debt to accomplish it that looked quite manageable and common at the time. It happens endlessly and that boom and bust cycle has been consolidating farms and ranches into bigger landholdings relying on external investment capital for at least 4 millenia, but it’s still a surprise in the news casts.

Mining booms go back to before the Bronze Age as flint and obsidian deposits are fairly uncommon and far more useful than just any local rocks. Like any physical substance (including top soil, gravel, good clays, fresh water, etc.) there’s a finite amount at any one place and depending on your technology (i.e. a rock held in your hand and a basket to carry the ores out in or a sophisticated explosive charge backed up by enormous ore handling trucks) you can only remove some percentage of what’s there. Often the richest, easiest material is the most accessible and when that’s exhausted, like the best known placer gold mining booms where a shallow metal pan manually sifting out gold dust is viable , the bust often begins unless enough capital investment in specialized equipment and hired crews can keep going. In a way it’s like declaring a bunch of Christmas shoppers descending on the tiny display of the year’s “must have” toy as the hopefully permanent boom and the sudden emptying of the store after Christmas as an unforeseen bust likely to kill the store.

Oil booms are often mistaken for 19th century gold rush booms by idiot reporters and economists but in reality last longer than most companies and stocks. Some fields are still producing 100-150 years later and like mines, old oil fields can have as much as 85% of the oil left behind waiting for bigger investment, i.e. a $10 million cost per well vs. a $20,000 cost per well, new technologies like Big Data’s 3-dimensional modeling of unseeable geology to find smaller pockets of oil. The shale oil and gas booms around the world are “game-changes” like all of the past oil and gas discoveries that amounted to much have been, just like the booms from copper, iron ore, uranium, gold, silver, rubber trees, hardwood lumber, diamonds, arable fertile farmland that didn’t require irrigation, etc..

The most destructive booms and busts are the ones built on meager assets and endless speculative hyperbole, in other words the financial and commodities markets. Surprisingly detached from reality (most chidren’s games are more based in the real environment) and endlessly distorted by “information” (guesses, lies, estimates, averages, fantasies, convenient results, hidden assumptions, etc.), the unsustainable booms crash quickly as they truly are a house of cards with the bust lasting until in theory the people who bring real money into the financial services’ casinos’ game tables have earned some more or in practice when a new boom or bubble can be concocted to help the insiders recapture their losses and lure new money in.

A cluster consultant typically looks very quickly at a few, mostly using vague big picture tools like Census data, and then decides in the hotel room that night which ones to highlight in a Powerpoint presentation for the study’s funders. So your clusters to concentrate on are greatly determined by what’ll fit on a slide or two and that the consultant recognized in those hectic short interviews with the usual suspects in town. No wonder it either seems like belaboring the obvious like clusters they noticed in the drive from the airport (“say, lots of crops along the highway, farming must be big here…hmmm”) or picking several “hot” clusters that the study’s funders desperately want to join that trend and become the Next Silicon Valley, the Next Hollywood, the Next uh really cool thing with bunches of jobs.

Every community doesn’t have the 2-3 clusters, or no cluster at all, that the academics and consultants tell you to concentrate on. When I do a thorough look, a dozen significant clusters are common in even a very low population and quite rural county while in a small city 60 or more clusters are evident and in a major city it’s more likely hundreds. So choosing a coupe of clusters to focus on says more about one’s own attention span and commitment to learning their community’s clusters. People who’ve been in place for a long time who want someone else to find all their clusters baffle me, it’s much like your child explaining that basketball practice has consumed all of their homework alloted time so you’ll need to hire the neighbor’s diligent child (wears glasses so must be smarter) to take your child’s tests incognito as your child does need the passing grades and advancement. Hear it all the time and clusters are easy to spot as pattern recognition goes as you’re by definition looking for a bunch of something, so haystacks rather than a needle in a haystack.

It dawned on me that choosing which existing local clusters to focus the community’s development resources on is much like looking around the family table at one’s dozen children, aging parents and in-laws, old and new family dogs, and quickly deciding before dessert is served:
1. These 3 kids are clearly the future based on recent awards within my field of vision right now, sheer proximity, likeability, or comparative height. They get to go to college on me, grad school if they want it. Probably should buy them a car too. (Subsidies, taxbreaks, workforce training, custom facilities, R&D help, industrial parks, and bragged about to neighboring communities.)

2. The other 9 children haven’t really caught my attention tonight despite their lifetime of efforts, achievement, growth, charm,or importance to keeping this family farm working. So they don’t get any further investment and instead will all have to take on part-time or full-time jobs in town to pay for their top 3 sibling’s college education and new cars. Sure there will be grumbling (taxpayers paying for the chosen subsidy receivers) but they just have to realize they don’t really matter to me anymore no matter how much I actually depend on them.

3. The parents and in-laws? Their productive years are over and they’re just a drain so it’s best to set new policies and constrain resources to prompt their demise or departures. It’s Schumpeter’s “Creative Destruction” where the old and uncompetitive clusters are ignored or starved so new can arise from them (not sure if that would be their grandchildren starting clusters or they’re revived as zombies- cash-cow taxpayers expecting less than nothing.)

As you can see, declaring vast swaths of the local business community irrelevant or at least uninteresting, and especially unworthy of further time and attention is bizarrely cruel even if it does fit more neatly into the study’s executive summary or slides 8-10 of the powerpoint presentation. The interrelationships between a community’s clusters are easy to overlook and fascinating too…the cafe has lousy food, the motel was last updated in the 1960′s, the high school thinks it’s just there to train student athletes for college scholarships/local entertainment, and the town’s available buildings have no local tradesmen to fix or remodel them, hmmm every other cluster is going to have significant problems from those other clusters’ performance or absence.

Arthur Herman’s new book “Freedom’s Forge”, Jon Gertner’s “The Idea Factory”, Burton Folsom’s “FDR Goes to War” as well as books by Niall Ferguson, Thomas Fleming, John Keegan etc. on World War I have been revelatory about how much false history we’ve been taught. World War I was an economic disaster for everyone involved and it’s economic destruction resonates to this day. Rather than serving as an economic stimulus as war is often declared to be, the world economy was in perhaps it’s peak condition with every country growing and modernizing rapidly in rising living standards for the general population amid a cascade of meaningful innovations. So assuming the next World War was a panacea for economic growth takes ignoring most evidence and grabbing at straws. It noticeably broke the British Empire. But the U.S. did emerge far economically stronger in 1945 than it had been since just before World War I. How?

The credibility of the New Deal political solutions had worn thin with as many unemployed after 8 years of these policies and deficit-fueled economic stimulus. Putting enough people on the public payroll just prior to the 1936 and 1940 Presidential elections, and telling them their jobs depended on an FDR win so vote that way…and then laying many off after the election was faltering (Burton Folsom points out how $5 billion in federal stimulus dollars were used to buy the 1936 Presidential election, a pattern we saw again in 2012.) The deficit’s accumulation to a vast size compared to annual federal revenues, and raising tax rates on everyone to the point FDR was pushing for 100% income tax rate on top earners, and got a 97% rate, meant Keynesian stimulus was becoming impossible to sustain (much like 2013′s realizations.)

What worked? (sorry for the long prologue)

One of the most skillful manufacturing managers in the nation’s largest industry Bill Knudsen who’d built both Ford and General Motors over the previous 30 plus years was put in charge of mobilizing for the war FDR was stumbling into. Knudsen got over a THOUSAND new factories built across the U.S. in 3 years, many making entirely new products with new workforces and management , new tooling, a focus on vastly greater production, and using the latest technologies, materials, processes. Those factories were put on and learned to instantly innovate, implement new quality control processes that Bell Labs and Western Electric had been working out to make the finicky vacuum tubes (W. Edwards Deming and Joseph Juran came from there and ignited the century’s quality movement that also rebuilt the Japanese economy after the war.) Instant model and technology changes stress an organization quite painfully and can be avoided in peacetime but the pace of reacting to enemy improvements taught powerful lessons that made the U.S. manufacturing world beaters again. The uncertainties of the Great Depression closed many manufacturing plants, stunted industries, and left most plants with the same production equipment and processes that they’d worked out between 1890-1929 in the same facilities. That was a reliance on cheap semi-skilled labor, limited availability of powered tools, massive machine tools required decades of experience to use effectively, old materials stretched to poorly fit new purposes, and a reliance on complex mechanisms with many moving parts that needed constant adjustment and repair. Knudsen recognized the cost of tooling and building new factories and made sure that was factored into the prices the government paid for it’s stuff, essentially the opposite of Wal-mart and a lot of federal procurement that ignores those costs and considers ephemeral orders requiring long-term investment to fill just a convenient prerogative of big buyers (leaving a lot of wreckage and waste in their wake.)

New industries were forming that created hundreds of thousands of good jobs and new companies for decades forward. Electronics emerged in the 1920′s and 1930′s at Bell Labs, MIT/Raytheon, Tuxedo Park’s private lab/tech incubator run by Henry Loomis, Fred Terman’s work with the telecom and power companies around Stanford and his protegees Hewlett & Packard, Lee DeForest and Philo Farnsworth’s work in pioneering television and radio networks and would change most industries as well as create many more with wartime applications moving them forward in size, capacity, durability, flexibility, and cost incredibly quickly.

Computers took off then (not when later noticed by the media) with IBM already providing computers to large organizations since before 1900 (when it was Herman Hollerith’s firm) and MIT’s Vannevar Bush building more flexible computers for cracking the Japanese codes in the later 1930′s for U.S. Naval Intelligence. Vannevar Bush is the father of Route 128 around Boston and Raytheon directly as well as DARPA and the Internet. Konrad Zuse’s computer development work in Germany is mostly ignored here as are the substantial British computer development work fueled by German code-breaking needs under Alan Turing’s guidance. Austrian refugee/Jewish scientist John Von Neuman who’d come to Princeton’s Advanced Studies thinktank to flee the Nazi’s had at least as profound an effect on U.S. science and mathematices, especially computer science, as fellow refugee and Princeton AS scholar Albert Einstein, but is now mostly forgotten (there’s a terrific biography of Von Neumann by a retired editor of The Economist.)

Adapting for war production with material flowing from across the country out every coast and border simultaneously as well as drawing inputs from the rest of the world meant the transportation system grew for export and transcontinental capacity in a way it hadn’t since the original railroading boom in the 1850′s-1880′s (Stephen White’s “Railroaded” is a superb guide to how irrational that truly was based on government funding/subsidies/and policies exploited by a rogues gallery.) The interstate highway system, the Lincoln Highway built during the 1930′s, was eclipsed with vastly expanded seaports, river barges, cargo aircraft/new airports and airbases, bigger cargo trucks and millions more of them, new locomotive engines requiring much smaller crews/less maintenance and new rolling stock allowing for much longer trains, new bridges and highways to service new war factories/mines/oilfields, new oil pipelines across the country and new refineries, additional electrical transmission for new war factories and thousands of new residents in those towns…the country became both far better interconnected and far more able to serve export markets simultaneously. The pressures of the war and the sheer scale of building trumped the “Not in my backyard” that now paralyzes such efforts as well as putting so many political plums out there for politicians to grab at, much of the investment still managed to go where it made sense instead of just political nonsense.

The U.S. left the Great Depression with a workforce that had gone through much of their working lives unemployed, badly employed, or intermittently employed. Unemployment rates of 25-70% (adult white males with just 1 in 4 out of work, racial minority and teenagers 7 out of 10 out of work) had put as much as 10% of the workforce roaming the country as hobos searching for seasonal work like harvesting or construction projects. Thousands of businesses and farms had failed so millions of Americans used to self-employment and management responsibilities were available for the workforce like never before and rarely since (now being another such time as was the late 1970′s-early 1980′s.) The lack of jobs meant about 3 times more students stayed in school and graduated high school than in the 1920′s while many colleges closed or nearly failed with greatly diminished enrollment despite only 2-5% of Americans trying college back then. High schools didn’t assume a college education or trade school was next so directly job-related skills and knowledge dominated the curriculums from extensive shop classes to business courses to applied science leaving their students far better prepared for good jobs than the later focus on college prep and abstract learning would.

There were about 12 million people in the official workforce (measurements were dicey and then as now leaving out large swathes of the population from unemployment estimates helped the current administration stay in office.) By 1943 12.5 million Americans were in the military and jobs opened up, good ones, for the historically left out U.S. adults (blacks, Mexicans, Indians, married women, single women, teenagers to age 14, adults over 52 (the maximum draft age), the maimed and crippled (WWI injuries, rampant polio, industrial and farm accidents), the uneducated, the remote rural residents, Southerners, Westerners, small town residents, farm kids, recent immigrants, urban poor, etc.. And to everyone’s surprise (the Ku Klux Klan had peaked in the 1920′s so tolerance was less common than we think) , they all did very well at work previously considered impossible for them to do. Millions got an opportunity, training, new confidence, cutting-edge skills instead of using a shovel to sling gravel in a WPA/CCC make work project, and earned significant wages they were forced to save (not much to buy) that prepared them for home ownership/mortgage downpayments, buying cars and appliances, starting businesses, buying farms, going to college or sending their kids there, moving to places with better opportunities than where they grew up, etc.. It created a far bigger middle class of eager consumers and a far bigger skilled and motivated workforce (and set the stage for effective civil rights and social justice changes for decades to come.)

Finally and I’ll go into this in another upcoming piece, it probably wasn’t the federally funded college educations, the G.I. Bill, after the war that’s credited (by colleges especially) with the post-war boom. Working for years on workforce training and on campuses disabused me slowly and thoroughly that higher education plays nearly as much of a role in developing people ready for useful work of any kind as it claims. Where Americans learned to be more valuable wasn’t in college lecture halls but in the workplace (vast training had to be undertaken at most plants, formal training which was fairly new and now mostly forgotten in business, as logical as campers forgetting how to make fire) and in the military. Today and I suspect back then, the type and intensity of training provided in the military made the difference. Selected by rational aptitude tests rather than appearance or personal relationships for jobs and then run through general and steadily more specialized training full time, mastering more content and application than many years of leisurely and fragmented civilian learning provided was standard results. Learning advanced mathematics, applied physics, considerable health care, trained in physical fitness with some attention paid to nutrition, taught organizational structures and processes that worked for large ventures compared to a small group that could be managed informally and quite directly like a farm crew or small business, exposed for years to foreign markets/cultures/languages/ geography and the logistics to reach those markets has to have fueled U.S. exporting for decades. And accomplishing the fiendishly difficult if not impossible many times builds considerable self-confidence, hope, and problem-solving flexibility that grows economies just like failure, fear and self-doubt shrink them.

The success of reversing the New Deal made imposing it again only bigger, as Truman tried and LBJ would later succeed in the 1960′s, politically impossible after the war and sustained an economic boom well into the 1960′s. Real wages went up 3-4x, most of the population moved up into middle class suburbs from hard-scrabble farms and tenement slums, and a wide array of new industries grew to vast economic engines…despite a decade trapped in the Great Depression by an administration focused on retaining office rather than fixing the problems.

Separating out what Franklin Roosevelt’s administration and skillful public relations efforts claimed worked, surprisingly much like Hitler and Goebbels’ false spin of “the Nazi economic miracle”, Mussolini’s supposed turnaround of the long-suffering Italian economy “he made the trains run on time”, and Lenin & Stalin’s turnaround of the Soviet economy with 5 year plans and central planning that actually slowed economic growth by half of what had been occurring under the incompetent Czarist regime, we’ve been told about a lot of solutions that exacerbated the Depressions in severity and length. What actually worked was recognized at the time but generally escaped notice of the press and historians who focused on what political leaders announced they themselves were doing. So our toolbox is full of more dynamite than glue. Many solutions were planted and pressed by hostile foreign governments and economic rivals to change the balance of power, an element that gets left out of economic crises because economic history bores reporters and politicians (and is easy to do subtly.) Drawing in an enormous amount of the U.S.’s investment capital and tax proceeds, the dollar equivalent of many years of the entire federal budget at the time, in World War I loans to nearly bankrupt England and France that were not repaid. England and France’s attempts to generate the debt payments to the U.S. mostly out of the German economy depressed it to the point that Hitler’s rise was bizarrely easy) gets overlooked now (not then.) That was a huge loss of both capital in hand ($10-15 billion in a time when the entire federal budget was around $2 billion) and in opportunity costs in infrastructure, education, defense, research, and business growth. It took decades to somewhat recover from, like the Great Chicago Fire of 1872, Galveston’s devastation in the 1900 hurricane that killed 6,000 or Hurricane Katrina’s impact on New Orleans in 2005, you rebuild partially and forget but the loss ends many possibilities rather than just a bump in the road. It’s similar in some ways to the scale of unproductive debt the U.S. has once again quickly accumulated under an administration surprisingly similar to FDR’s New Dealers, it’s a far heavier load than politicians like to acknowledge and that the story stretches for many decades bores the media into ignoring it like children with attention-deficit-disorder.

So what did work?

The infrastructure construction often attributed to solving the Depression, begun under infrastructure-building veteran/international mining engineer Herbert Hoover (FDR did little with infrastructure in his previous government jobs and saw it as political capital with buying votes) left 11 million unemployed after a decade instead of 12 million. As Jim Powell shows in his book on the New Deal, the majority of infrastructure projects were done in swing voting states (could support an FDR rival in the next presidential race) rather than in the most infrastructure-poor states who were already solid supporters of the administration, so the impact was so little that the states with the least new federal infrastructure investment grew their economies about double the rate of the states invested in, in the middle of a Depression! Projects were chosen for political appeal and dramatic scale rather than practicality so their capacity was often wildly out of synchronization with area demand. It took 40+ years for the power generated by the new big dams to be fully utilized except where aluminum smelters/refineries were hastily erected during World War II (aircraft aluminum needs were enormous and 25% of the cost of making aluminum is electricity-the biggest input rather than the bauxite ore.) Thousands of city halls and public buildings that local taxpayers had long refused to fund were built with federal tax dollars to give the “make work” crews from the Works Progress Administration, Civilian Conservation Corps, etc. something to do, but a new City Hall is a puzzling stimulus for a local economy. Once built, the cost of maintaining infrastructure is considerable and eliminates both other uses for those tax dollars and makes new infrastructure projects much harder to get done since the haphazard, political central planning was hardly systematic or practical in what it built, leaving big holes later generations still struggle with.

We’ve been told the Smoot-Hawley Tariff Act by two Republican Senators in the early 1930′s triggered an international trade war, closed foreign markets to U.S. exporters, and probably caused the Great Depression to last about 3 times as long as in other countries. Ha Joon Chang in his book “Bad Samaritans” on trade policy points out it was a tiny change in existing rates and there was no significant impact in exporting or importing. Europe’s ability to produce and export had recovered significantly (world trade had peaked just prior to World War I, to a scale it wouldn’t reach again until the 1990′s) in rebuilding it’s cargo ships after German U-Boats had devastated commercial transport capacity (it took the U.S. many years to do that too), restore financial capital to fund foreign trade, stabilize the many new governments and new nations (Iraq, Czechoslovakia, Austria, Hungary, Turkey, Soviet Union, Latvia, Lithuania, Estonia, Poland, Yugoslavia…) and the British Empire’s internal trading bloc included 25% of the Earth’s population. Germany became both more dependent on U.S. capital and imports under Hitler (1933-) while adopting an official economic strategy of screwing the U.S. as a principal foe from 1934 forward, see Adam Tooze’s “Wages of Destruction”. The Soviet Union drew on the U.S. heavily to build it’s electrical grid (GE), railroads, mines, oil fields/refining (Swedish Nobel, Standard Oil, Occidental Petroleum), mechanized farming (Campbell Farming Corp, Henry Wallace), military (see Walter Christie’s contribution to their tank development) etc. while infiltrating the U.S. government to a stunning degree to both divert resources to the Soviets (i.e. Soviet Lend-Lease during the war was also the equivalent of 4-5 years of the entire peacetime U.S. federal budget, never of course repaid) and undermining the U.S. economy in endless ways from key administration jobs as principal economic advisor to the President Dr. Lauchlin Currie, Undersecretary of the Treasury Harry Dexter White, Undersecretary of State Sumner Welles, possibly top advisor Harry Hopkins (“Agent 19″) were paid Soviet agents throughout the 30′s and 40′s. Much of the U.S.’s exports in those days were agricultural, food and fiber, along with oil (world’s biggest producer then), metals, coal, and manufactured items. Wartime disrupted those suppliers and ships while peacetime allowed trading partners to both develop/restore internal sources and choose among many sellers rather than just a military ally with the ability to get it to them. The English Pound Sterling was the world reserve currency at the time and considerably more stable than the U.S. dollar which makes a huge difference in a country’s foreign trade. The U.S. dollar was gold-backed at the time, could be converted to gold, but FDR seized all consumer-owned gold and then would randomly peg the price of gold on changing daily basis based on little information and no understanding (he’d selected his Secretary of the Treasury Henry Morgenthau because he was a neighbor in Hyde Park, NY and seemed knowledgable about stuff in chats over the fence once in a while-and Henry being Jewish must of course be expert in finance FDR confided to some.) Agriculture production had grown dramatically during WWI and the 1920′s with homesteading and federal irrigation projects turning the Western states’ millions of acres from marginal pasture to marginal farmland for the last big wave of immigration for a half century. Converting farmland from horsefeed to humanfeed as cars overtook horses around 1915 opened up a third of U.S. farmland for humanfeed growing, much of it extremely productive farmland, and far in excess of the actual growth in food demand (greatly expanding the grain available for feeding livestock and putting a lot more cheap meat on U.S. tables, something politicians took credit for.) The sudden availability of cheap, useful small, medium, and large farm implements from John Deere, International Harvester, Caterpillar, Ford (tractors), and many others dramatically improved productivity and cut labor costs (which helped fuel the Depression’s unemployment by throwing millions of farm laborers and farm kids into the general employment market far from where the new jobs were.)

So what worked if it wasn’t building infrastructure, creating make-work programs, centrally-planning the U.S economy to a new extent, vast deficit spending as John Maynard Keynes though would work, trade policy, currency manipulation, deflation, hydroelectric and irrigation expansion, or the looming World War?

It was Industry Week’s annual list of top manufacturing influencers that got me thinking about how most such lists are overwhelmingly folks in the news at the moment, that’s year or decade’s widely admired and reported companies, sexy products that consumers buy (non-consumer goods rarely make such lists although Industry Week is better than most and always well worth reading) and too often a recent arrival CEO given credit for other people’s work over decades in the company.

So here’s some other folks I’ve run across among literally thousands of manufacturing heroes we could and should learn useful lessons from (and most made the world a better place for most of it’s population which seems more important than starring in a few hit movies, recording some catchy songs, getting a home sex video viral on the Internet, etc.that determine so much celebrity-status these days.)

John Hall who did perhaps the greatest chunk of the work in figuring out standard parts/interchangeability at the Harper’s Ferry Arsenal over several decades, contributing greatly to “the American System of Manufacturing” that was the equivalent of the Toyota Lean Production System in worldwide impact and for over a century. Eli Whitney’s generally credited with this but gamed the demonstration that he’d figured out how to do what France’s St. Etienne Arsenal had been pursuing since the 1770′s and shown Thomas Jefferson on a tour there (so he assumed Whitney’d copied the French.) One of Hall’s protege’s Christian Sharps (of the rifle and derringer fame) used Hall’s machine tools concepts/designs, gages & jigs/fixture design, and approaches to help substantially develop Cincinnati’s machine tool industry.   Hall worked on solving interchangeability for almost 30 years in the malaria-ridden backwater community far from other manufacturers at Harper’s Ferry (a third of the workforce was down with malaria or other illness on an average workday as the complex was in a swampy area between two rivers to get the waterpower for the machine tools’ powering. )   The goal of rifles that didn’t require gunsmiths in every company of infantry or cavalry to hand-repair the rifles after every battle and long march drew the federal support for the project, longer than civilian efforts could have sustained,  and it was Hall who got and secured the funding despite considerable resistance from the old-style craftsmen at Harper’s Ferry as well as the cheap Congress and Army Ordnance Dept. The entire U.S. Army was only a few thousand regulars at this point, scattered across frontier posts in units of a few dozen mostly, so Hall’s 1819 breechloading rifle (yeah, the Army had a breechloader 40+ years before it’s generally credited and used these into the Civil War era despite mostly relying on much cheaper muzzle-loading muskets for militia and new recruits) gave a firepower advantage unmatched in the world at the time and drove the continued, frustrating investment in manufacturing excellence.)

Robert Lawrence (Robbins & Lawrence Factory in Vermont is already a National Monument) is a major player in Design for Manufacturability, Machine Tool development, as well as Q/C & interchangeable parts practices. Along with inventing what’s probably the first universal milling machine, that was adopted and built for others at the least, and impacting lathe design as well, Lawrence and men he trained and coached figured out to turn marginally functional inventors’ prototypes into superbly working mass production products incorporating many new technologies: Smith & Wesson revolvers, the .22 Rimfire Cartridge, Metallic Cartridges, the Winchester Lever Action Rifle, and the Sharps Breechloading Rifle.   The British industrial commission that toured America in the late 1850′s trying to figure out how the Americans were making such good stuff in quantity, naming the set of methods and technologies “The American System of Manufacturing”, met with and studied Robbins & Lawrence’s operations extensively…and immediately applied them to the Royal Enfield Arsenal and gradually to the English Industrial Revolution clusters at Manchester, Birmingham, Edinburgh, etc..   Precision parts for steam engine operation (locomotives, onsite power, ship’s turbines, lathes, steam hammers, hydraulics, etc. made higher pressure, higher revolutions per minute, longer performance, greater motive power, etc. all feasible, otherwise a steam engine’s usefulness is pretty limited.

Philip Armour, Armour Meat Packing, and his crew and competitors developed the moving assembly line that Ford’s credited with (Ford credited them and plant tours in Chicago as inspiring him.) Turning meatpacking from a very high skill, multi-year learning job to one that novices could pick up in hours by the dumbing down of the work to single function on an assembly line revolutionized the meatpacking industry and has for well over a century. Working out new supply chain methods for a highly perishable product through pioneering refrigerated boxcars and refrigerated warehouses to suddenly make many states’ pasturage support Chicago’s input needs and markets in the dense East able to buy beef and pork raised a thousand miles away.   That innovative arch rivals Oscar Mayer, John Morrell, Louis Swift, and other meatpackers growing from small local operations to dominant brands (even today a 150 years later which is rare in any industry) were also based in Chicago indicates that learning from each other, hiring away each other’s skilled managers and crew, drawing on the same equipment manufacturers for innovative designs, and learning from each other’s layouts and processes was incredibly critical.  But it’s always far easier to credit one individual in an industry with everything hundreds worked out in that industry.

Don’t recall his name but the fellow who invented the shipping container is hugely important, an article in American Heritage’s short-lived business history magazine “Audacity” profiled him and explained how that cut freight costs by over 50% and radically changed the viability and scale of international trade.   Before the shipping container it was routine to order 200-300% more goods than you really needed as that much of the load would be pilfered, destroyed, damaged, or lost enroute.   A sturdy container that was never opened between factory shipping dock and final customer made a huge difference that ports and warehouses long dependent on pilferage revenues among it’s crews could admit publicly to.   It also made it much harder for customs officials and border guards to help themselves as well, saving perhaps 15-30%.   Moving cargo from one transportation mode to another, i.e. ship to wagons/trucks or railroad to river/canal barge adds considerably labor cost but also exposes the cargo to the rain, snow, external temperatures, etc. that added both protective packaging costs (and for packages small enough for a man to handle himself) and considerable damage opportunities.

Frank Gilbreth, the motion studies pioneer, is especially unsung and heavily stolen from.   Frederick Taylor got many of his best ideas stealing from Gilbreth and getting them wrong, a legacy we still struggle with.  Gilbreth was a commercial building contractor who was applying “lean thinking” in the 1890′s with the result of being a third faster than his competitors in getting a quality, brick building up and in retaining the best skilled workmen by designing their work ergonomically based on photography and early motion picture camera work meticulously tracking and refining their movements, strains, injuries, tiring, quality lapses, etc.-and then designing equipment and worksites to fit his workmen…getting 300-500% higher output per day from them and absolute loyalty (with pay based on productivity too.) Gilbreth’s friend Frank Gantt (Gantt Charts) was greatly influenced by how Gilbreth kept complex construction projects on precise timetables. Gilbreth consulted with companies on productivity internationally for some decades, his wife Lillian was one of the first women to earn a PhD in the U.S., in Psychology, and her work in their consulting firm resulted in her being the first woman inducted into the Industrial Engineers Society.  If you’ve ever read the book or seen the 1948 movie with Clifton Webb, “Cheaper by the Dozen”, it’s a lively memoir written by Frank and LiIlian Gilbreth’s children and knowing the parents’ backgrounds (unclear in the book and movie) explains a lot as they were international management consultants by that point.  Gilbreth’s work with Edison and before that Eadward Muybridg’s high speed photography considerably influenced early motion picture technology and initiates the industrial training film and using video/film for field and lab research.

Herman Hollerith for taking punch cards from a production machine control technology of the late 1770′s (loom’s weaving patterns) to crunching data in the Hollerith machines he built first for the U.S. Census with his little company becoming the core of IBM. So an impact on computing, handling large workforces-payroll processing was the first commercial application, and also on numerically-controlled production tools. We talk about Steve Jobs way too much and real computing pioneers far too little.

Vannevar Bush built MIT’s engineering school into a world leader, oversaw most of the U.S.’s science and engineering work during World War II, handbuilt in his basement the two computers in the 1930′s for the Navy to crack the Japanese codes, cofounded Raytheon, directly fathered the Internet, DARPA, Boston’s Route 128 Tech Corridor, National Science Foundation, and the Federal Labs system, oversaw the Manhattan Project, and impacted many fields. His first grad student, Fred Terman, built Stanford’s engineering rep and Silicon Valley.

Tom Edison for the industrial research lab along with creating more industries than anyone I can think of? Industries, not companies although the direct companies became giants such as General Electric, ConEd, RCA, etc.

Pratt & Whitney? As machine tool makers and significant innovators they underlie so much of what can be manufactured since the 1850′s days as suppliers to Sam Colt, even before you get into the impacts of their turbines, engines, etc. on so many other products and industries. People forget they were inventors rather than later financiers slapping their name on a company.

Charles Kettering? Along with founding AC Delco, just about all automobile electrical and electronic components trace back to his pioneering work (and why General Motors bought him and built a whole division for that literally backyard workshop guy from Ohio.) Those early systems for vehicles translated quickly to aircraft avionics (think about planes without lights, radios, instrumentation, radar, GIS, heat, pressurized cabins, etc.), locomotives, portable consumer electronics, etc. and helped make American cars the world standard in technology for decades.   Kettering solved how to start the car’s engine from inside the car, the electric self-starting ignition, instead of manually turning a crank at the front of the car which revolutionized driving, particularly meaning women could start their own cars.   He developed electric headlights (instead of carbide or oil lamps like a horse carriage used) and the first radios in cars but these power demands forced him to work on the less glamorous components endlessly to generate sufficient electrical power to run them.   Famous then, now we mostly just hear of the Sloan-Kettering Institute in medical research (Sloan was head of GM when Kettering was found and recruited) but for many years he was among America’s most famous inventors.

Henry Leland? Viable automobile and truck engines probably trace more to this guy who was trained in gunmaking and measuring instrumentation manufacturing and brought quality control/precision machining to the automaking industry starting with a contract to make engines for Ransom Olds that was cancelled for the much higher quality Leland engines shaking apart Olds’ chassises with the increased torque compared to Old’s much sloppier engine supplier’s torque. Leland founds Cadillac and turns it into the world’s largest car maker for a few years, before he’s bought out by General Motors to teach quality control to rest of the company.   Unhappy with how GM geared up for WWI production he went to his original contract engineer/freelancer on the first Cadillac, Henry Ford, and started Lincoln Motor Car Company with Henry who’d learned a lot from Leland and done rather well himself.   While Leland was running Cadillac before World War One, it’s reputation for world-class quality led Daimler Benz (Mercedes) to send it’s production experts to Leland’s Cadillac factory for weeks of study and benchmarking that they implemented on Mercedes Benz production.    The Cadillacs’ manufacturing excellence led to their touring cars being what the Army used in both the Mexican Expedition in 1916 and in France 1917-1919 as the equivalent of “jeeps” or “Hummers” and using their engines for the experimental American tanks, a pair of V-8′s, was well along by 1918 under the young Army Lt. assigned to tank development, Dwight Eisenhower.

William Knudsen, who I hadn’t heard of before Arthur Herman’s new book “Freedom’s Forge,” worked out much of both Ford and General Motors’ mass production methods and then was tasked with figuring out and putting together the production capacity and new technologies implementation to gear up for and then win World War II.   Overseeing over a thousand new factories, tens of millions of novices trained in high tech manufacturing for completely new products and materials in brand new facilities in communities without a manufacturing base, and fixing everything from design problems in tanks to materials shortages.   The more you know about the abysmal job America did in gearing up for World War I, the more impressive Knudsen is (and how much credit he should get for ending the Great Depression instead of the politicians or the war itself.)    Knudsen helped get over a thousand new factories built, endless new technologies and materials implemented in mass production in less time than a routine, minor product change typically takes to implement, and got quality up to where it needed to be.   The Germans’ overly complex tanks (designed mostly by Volkswagen’s Ferdinand Porsche, now mostly known for sports cars a buddy who was a Porsche service manager said still had lots of troubles) hindered them enormously (blitzing France was made possible with the large number of better quality tanks they’d captured in Czechoslovakia and French tanks were more reliable as well.)  The Russian’s vaunted T-34 tank had such poor manufacturing quality it has an average of 40 hours of useful life before needing to be scrapped or substantially rebuilt (same for the Soviet-built fighters and bombers, 40 hours of functional life or flight-time.)

People who make many and seminal changes in manufacturing rarely get much media coverage, because it’s so “boring”, and takes many years to figure out and implement. Too often it’s whoever happens to be the most visible CEO at the time when success is noticed and often with the best-oiled publicity machine to take credit for it.

Henry Ford and Steve Jobs would be examples who are credited for many accomplishments of other companies, other key team members, and other’s ideas. Learning from the wrong guys really confuses us about how new ideas are developed and implemented on the factory floor, engineering, and the head office. I read a lot of business histories because they almost always conflict considerably with what I’d been told about the company and industry as well as contradict a lot of the management dogma of the moment. James Worthy’s history of Sears under Robert E. Wood, who developed his manufacturing suppliers into more robust independent companies (unlike some current models of extracting price concessions until the supplier is destroyed) is especially intriguing-his purchasing agents were required to learn the suppliers’ businesses and be active partners, like Deming recommends but very few PA’s do.

Jon Gertner’s new book on AT&T’s Bell Labs, “The Idea Factory”, is certainly overhauling and changing what I thought about where much of the electronics and communications industry have come from along with quality control practices of their Deming & Juran (looks like it was figuring out how to make vacuum tubes that really advanced QC.)

The heroic challenges our best doers and thinkers in manufacturing truly dwarf what entertainers and athletes have to overcome and master so it’s frustrating the more you learn how much young people’s attention is pointed to the most trivial accomplishments and shortest career paths for the lucky few.   In some states still 40% of the workforce is in manufacturing while less than 1% of college athletes turn professional and that’s for an average of 3 years while the percentage who make it in the performing arts makes the pro athlete route look likely.

Al can be reached at aljonesrdo@bresnan.net.   Still sorting through 8,000 comments-most of them spam.

 

Since the current mess of 2007-2018 became broadly visible, economic stimulus of vast new public infrastructure has been endlessly agreed on as a key to getting out of the hole.

Whenever there’s immediate broad agreement, especially in the media commentators, it’s usually ill-considered and just plain wrong (history shows the consensus opinion is manipulated and shallow more than the “wisdom of crowds.”)

Generally the assumptions draw on little understood examples like 1930′s U.S. New Deal programs or a vaguer “golden era” when big schemes got done (

  • The remaking of Paris and it’s sewer systems/roads etc. under Napoleon III,
  • New York City under Robert Moses as Robert Caro’s biography delineated,
  • The Panama and Suez Canals, the Erie Canal connecting New York with the Great Lakes,
  • Roman road systems across Europe, Asia Minor, and North Africa  and it’s water distribution aqueducts and port facilities  (or the Inca and Mayan paved road systems and water management systems involving vast canals, reservoirs, and complex irrigation systems.)
  • Major bridges across bays/harbors or great rivers, probably the most photographed infrastructure despite it’s relative rarity.
  • Oil and gas pipelines (crude oil, gasoline, natural gas, liquified natural gas, carbon dioxide, water, coal slurry, effluent, sewage, stormwater, etc.)  are extremely critical but generally overlooked given how often they’re underground or in remote places.
  • Electrical transmission grids and their central power plant networks are where the term “strategic planning” comes from (General Electric in the 1920′s directly gave Lenin the idea for 5 year industrialization plans during their work in electrifying Russia.)   You have to make 50-100 year bets on where and how much power will be needed and if you’re right and demand grows around it, upgrading or changing it now that it’s hemmed in by other buildings and absolutely essentail (so can’t be turned off for years to build a new one somewhere better) calcifies those old choices in unexpected ways.   Hydropower dams are the most classic stranded power as where you’ve got lots of water falling at least 50′ (the drop is very important turning old power turbines’ spinning magnets to make the power) and while only a third of the feasible hydropower sites in the world are actually developed, you’d think we’d exhausted this potential from the way new hydropower is talked about.
  • Satellite networks for GPS and international media real-time, television and radio networks.  It’s odd they’re assumed to all be put up by defense and national governments/space agencies when the first private communications satellite, “Telstar”, went into orbit nearly 50 years ago.  Putting that infrastructure in place, satellite launches, and then maintaining them has been the primary mission of most space programs (U.S., Russian, Chinese, French, British, Brazilian, Japanese, etc.)  and while hugely costly in infrastructure investment, it’s also pays the programs’ bills to a greater extent than taxpayers realize.    The end of the U.S. Space Shuttle Program for now and the budget crunch of Russia’s program since 1989  has apparently left a very aging satellite inventory up there that will drive either smaller programs like Japan’s and Brazil’s to fill it or be the next big commercial infrastructure driver like the space port being built in New Mexico right now by that state government.
  • The Internet and broadband distribution gets enormous attention because it’s perceived as new, just 50 years after it’s invention in 1962-3, and heavily used by journalists.   It follows a lot of the patterns of railroad development and booms/busts from overbuilding or guessing wrong with figuring out how to extend cellular telephone, voice over internet protocol telephony, and broadband internet connection to extremely dispersed and poorer rural areas as well as how to upgrade it in the densest markets as the South Koreans have to become world leaders.
  • interstate highway systems to facilitate trucking in the U.S. 1950′s design , Fritz Todt’s German Autobahn system in the 1930′s, the past 10 years build out of China’s,  and the huge gaps that India, Africa, Brazil, etc. still have in their truck movement capacity.   For that matter 75% of Canada’s roads are unpaved.
  • Railroads from the Trans-Siberian Railroad or U.S.’s Union Pacific or the Ottoman Turks’ “Orient Express” opened up whole continents and radically changed the possibilities for the land between the two connected major cities/ports.   Projects that scale remain to be done in Africa and South America while in the older systems, replacing the trackbeds, rails, switching, etc. to accomodate ever higher speed trains or very different needs like magnetic levitation trains (now a 40-50 year old technology)  remain the maddening hurdle that so far just throwing vast but still inadequate sums of money (and ignoring actual utilization rates) seems to be the popular approach.

Clearly sometimes infrastructure makes world-changing differences but not always as proponents like to pretend.

1. Low usage roads. Much of the existing road system was built to connect small farms to local markets, in other words a 1920′s-1950′s truck could get a load of hogs, calves, hay, vegetables, grain, fruit, etc. either to the processing plant/storage in a nearby community or get inputs like seed, fertilizer, equipment, animal feed etc. back to the farm. Consolidation of working farms into far vaster holdings, 10-30 of these family farms becoming a single operation with a small crew clearly affects road use but maintaining millions of miles of such roads becomes a trap sucking up disproportionate infrastructure dollars with little actual return that only gets worse.

2. Overbuilding infrastructure when public financing and support is relatively easy is an extremely common trap, if the first project works out well let’s build a dozen more in less economically compelling sites. Happens with ports, roads, railroads, canals, schools, higher education, parks, community recreation facilities, etc.. Weirdly airports are the only infrastructure sites I keep seeing where demand and use always seem to fill it up, suggesting considerably unmet, pent-up demand in these highly subsidized facilities tenanted by companies with more often rickety finances than rich. Envy over what another community has and the often unwarranted assumption that a community’s success is built upon it’s developed infrastructure (the infrastructure is more often a lagging indicator of the community’s relative success-where it put it’s surplus investment capital rather than economic drivers as almost always assumed.) The U.S. and before that Europe used to lead in this overinvestment in infrastructure, now it would be China building infrastructure far in advance of actual demand for hundreds of millions of people while playing catch-up for 200 years of low investment in a country that led the world in public infrastructure for many centuries.

3. Public infrastructure projects are enormously political except to a lesser extent in wartime or other major visible crisis like an earthquake, tsunami, etc. that focuses people on what’s needed rather than what pork-barrel projects they can visibly reward their supporters with. Hidden agendas by many parties to make a profit from the project, typically concealed under civic virtue and vague statements like “it’s economic stimulus, it’s building our future, we must have this for our community.” Where infrastructure goes usually drives up not only the adjacent land’s prices and development possibilities, it means the other locations that aren’t getting the infrastructure investment will deteriorate or stagnate-costing those landowners, businesses, residents a great deal in the many years until they might get another chance at such investment. Big infrastructure is weirdly erratic, often generations pass between waves of infrastructure investment, so losing out on it for your place for 10-100 years feels more like a death sentence than a “better luck next time” moment…and of course greatly increases the resistance to making any infrastructure decisions with so many more vocal losers than winners in every project prioritizing.

4. Politicians responding to pressures from key constituents determining priorities and relative funding amounts makes for weird decisions.   Narrowly listening to a handful or just one real estate developer, construction firm, transportation firms, utilities, growth industries, entertainment venues (building entertainment and cultural venues has drifted back into being major public infrastructure spending with over $11 billion spent on U.S. professional sports stadiums in the past 15 years, let alone the vast investment cities hosting a few months of Olympics Games activities go through with little heralded bankruptcies afterwards on many venues.)   Contractors looking for projects to build that happen to fit their available capacities and current political clout have defined our infrastructure to a surprising extent (see Laton McCarthy’s “Friends in High Places” history of Bechtel,  Robert Caro’s look at Kellogg, Brown, & Root in his biographic series on Lyndon Johnson, John Perkins’ “Confessions of an Economic Hit Man” on electrical infrastructure building, or the U.S. Army Corps of Engineers.)

5. Far more infrastructure gets planned, designed, and built by private firms for business purposes than is generally recognized as it bores the media and politicians while drawing public attention to the projects is almost always an expensive and sometimes fatal input, whether it’s the assumption what’s proposed will destroy the environment locally or globally or be an eyesore, inconvenience, drive down property values, etc. the resistance to change takes on many often bizarre cloaks. Examples of private infrastructure are railroad lines, power plants, oil refineries, food processing and storage plants, oil and gas pipelines, industrial and business parks, apartment complexes/workforce housing, private campuses, toll roads, theaters, private schools, churches, hospitals, mines, and research labs.

In the old days in the U.S., building all of the infrastructure to make a business site work, i.e. a remote mine or factory, was common but now forgotten despite it’s survival in most of the rest of the world as it’s simpler and faster than trying to get the host government and adjacent communities to provide it.

As with all things, more infrastructure investment depends quite specifically on exactly where and exactly why, with guessing future demand almost always wrong by huge degrees and overestimating follow-on capital availability and interest to complete the project, develop the adjacent demand drivers around it. In other words, it’ll break you more often than it’ll make you.

It being election season it’s a common vague claim by candidates that they will or want to or think it’d be just swell to create a copy of Silicon Valley amidst their voters’ cow pastures, vacant shopping malls, shuttered factories, 60 year old suburbs, mediocre schools and campuses, and mostly broke government.

It’s a fairy tale and when you press these pseudo-visionaries (same folks who talked about adding value to local crops, getting the railroad or interstate highway to come through town, landing a military base or war factory, or drawing the county seat of government to town…if you substitute the words “win a big lottery” or “inherit millions from an unknown relative” you have the same plan and extremely shallow thinking behind it. Far more daydream and delusion than divine inspiration and always presented as though this is the first candidate/politician to ever notice how nice that might be for the folks hereabouts.

I’ve been reading Silicon Valley history and talking with veterans for over 25 years now and like an onion, there’s all kinds of layers below the surface. A lot of key building blocks happened there, sometimes linked, often relatively independent. It’s a series of technology clusters rather than one with the importance of electrical engineering/electronics design and gradually software creation and systems thinking and capital formation that take it ever further through one tech bubble after another. Calling the wreckage of failed companies, short-lived careers, billions invested and lost, suppliers struggling or failing after their accounts receivable became substantially uncollectable, unused costly capacity, talent squandered or burned out or betrayed, luck mistaken for genius or skill and universal business lessons drawn from that confusion, diversion of investment capital from more productive uses…it’s a lot more than the vague cost of Schumpeter’s “Creative Destruction” of an entrepreneurial economy (much like using Darwinism to justify slavery and conquering other “races” as it was in the 19th century.)

Silicon Valley probably starts in Stanford University’s electrical engineering dept. back in the 1920′s, a very new field originally focused on figuring out how to distribute power over communities and states from central electrical generating stations, transmission studies. A young engineering professor laid up for months in a hospital bed studied radio, the hot new technology, and was so disappointed with the quality of “how-to-do-radio” books, he wrote his own version (he’d write many more electronics textbooks as a gifted explainer). It became the best-selling book on radio worldwide in short order, selling more than half a million copies (a professor who sells more than 1,500-3,000 books is considered a publishing superstar even today so this is more like the English Professor writing the equivalent of the Harry Potter series of books.) This made Stanford look like a center of radio engineering research and it was doing some work for local radio mfrs and broadcasters as well as Federal Telegraph a telephone component company there locally. That drew research contracts from industry which funded more than the handful of hard-scrabble students and patched together little lab the professor, Fred Terman, had put together in just a corner of the electrical engineering lab (actual university support and investment always comes in far, far later than how the universities tell their story of hotbeds of innovation…skeptical, oblivious cheapskates seems more the judgement of history over and over.  The biography by an electrical engineer , “Fred Terman at Stanford” is a deep (and the only book version) of Terman’s  impacts as the father of Silicon Valley, quite illuminating and never read by folks grandly talking about creating a new Silicon Valley (they’ve typically never heard of Fred or any ot the key players there and assume it’s just a matter of luring some venture capital funds to open up branch offices in their town next to the local campus.)

Much of the electronics research and development of components, controls, manufacturing methods, and key theoretical breakthroughs was actually happening in suburban New Jersey at the American Telephone & Telegraph monopoly’s vast research and development lab, Bell Labs, and it’s integrated manufacturing operation, Western Electric, and it’s actual use throughout AT&T’s system (so design, fabricaton, and customer all as one company with tremendous reasons to share what they learned and come up with lasting solutions that made sense from the customer perspective.) See Jon Gertner’s new book on Bell Labs, “The Idea Factory.”

People fleeing New Jersey’s Bell Labs, generally an ideal technology incubator and the most successful at it the world has seen since the Library of Alexandria or London’s Royal Society of Science, moved to their alma mater, Stanford, and it’s orange groves, cheap land, and booming towns (oil refining, wine making during the Prohibition, fruit and vegetable farming, fish canning, Asian trade, moviemaking, etc.).

Terman drew two of his students into business, William Hewlett and David Packard, and their collegial management style would set the very effective tone for Silicon Valley management in an era when modeling management after the rigid systems of the military or family farm improvisations were standard.

Terman helped steer contracts, investors, talented engineers, suppliers, etc. to this and other ventures that became the defense electronics industry throughout much of California (employing 50,000 people even 50 years later through Terman’s work on World War II & Cold War R&D and new technollgies that also drew the Jet Propulsion Lab and Lawrence Livermore Lab to the Silicon Valley Region (CalTech) and put U Cal/Berkeley in charge of running and considerably staffing, i.e. Robert Oppenheimer, the Los Alamos, NM lab of another 30-50,000 people (see “Manhattan Project”, atomic bomb development.)

This cluster of federal labs and defense work is where the functional Internet is born (conceptualized in the 1940′s by computer pioneer/Raytheon cofounder/Fred Terman’s graduate advisor at MIT Dr. Vannevar Bush) in 1962-1963 connecting 3 California campus labs during the Kennedy Adminstration while Al Gore was in grade school.  Having the Internet based there and evolving in it’s engineering schools, labs, etc. 30 years before most of the world knew it existed is a head start in a market that’s generally ignored in the tales of Silicon Valley and the DotCom boom.

Bush’s creation, the Dept. of Defense’s Defense Advanced Research Projects Agency funded the Internet research for decades from inception to now along with the development of much of the electronics technologies people now assume were magically funded by a combination of venture capitalists, local banks, and early sales to businesses and consumers.   Without decades of DoD purchases of the manufactured components (and pushing for durability and reliability needed for space, the oceans, deserts, polar temperatures, etc. making the designs steadily far more robust than civilian consumers would have expected) , both the research and production capacity probably wouldn’t have gone nearly as advanced as we now take for granted and teach the rest of the world through outsourcing since the Japanese recognized consumer applications for the transistor and video recording back in the 1950′s when we did not.

Part of the Bell Labs/Stanford alumni pull brought Nobel Winner/wunderkind/highly disagreeable Robert Shockley to locate his spinoff lab/company developing the transistor to the Silicon Valley in the late 1940′s. From that along with further Bell Labs research came the integrated circuit, solid state electronics, and semiconductors with Silicon Valley benefitting from the engineers quitting the smaller, weirder start up manufacturers to form their own firms (Fairchild Semiconductor, National Semiconductor, Intel, AMD, etc.) .

This combination drew aerospace engineering to Santa Clara, San Jose, Sunnydale, etc. in the 1950′s-1970′s (Lockheed, Douglas, Consolidated, North American Aviation, Hughes Missiles, General Atomics, etc.) and those engineers’ sons became the first visible wave of Silicon Valley computer talent in the 1970s-1990′s.

That Terman got Stanford to start using a portion of it’s endowment and pension funds for venture capital financing of Silicon Valley ventures made a huge difference. While the VC’s there originally were usually engineers who’d built a successful manufacturing business purchased by a larger one who then took their buyout and now free time and invested in niche technology companies for markets they knew exceptionally well and could add a lot of expert value into building, see Vinod Khosla’s interviews with them in the book “Done Deals.” Very quickly they found the source of additional money to invest in came from pension funds, like the California state pension funds, university endowments, etc. although few admit this and make it sound like it’s all doughty individual investors fueling this rather than institutional investors seeking outsized returns on investment to balance other portfolio losses. Now VC funds are generally steered and deals assessed by people with some finance training, like an MBA, but often little or no operating experience in the kinds of companies they’re trying to assess and invest in…so the success rate declines considerably and the search for high return/low risk businesses in the hottest industries (hot air, overblown market valuations) of information technology, life sciences (the two hoard 70-80% of all venture capital investments of the past 20 years) and more recently alternative energy.

While the networking aspects of the University of California/Berkeley’s informal gatherings of home beer brewers that played a significant role in the 1970′s personal computer revolution with many key players including the Apple guys among it’s members, the Xerox Palo Alto Research Center is mostly overlooked.   Established by Xerox as an R&D facility employing a third of the world’s best computer scientists (hired on a talent hunt so from many backgrounds and mindsets) and run by a former NASA Administrator (from the days when NASA was hypercompetent in the Apollo Program days) in 1970 or so, XEROX’s PARC center invented the laser printer (1972), useful computer mouse from the 1969 invention, local area networking-Ethernet, the graphic user interface that would be stolen first by Apple’s MacIntosh team (most of whom were hired away from PARC) and then by Microsoft’s Windows development team, spreadsheets, desktop publishing, GUI word processing, some computer drawing and had it all tested by hundreds of other Xerox employees by the late 1970′s (so roughly 1985-6 computer system ready in 1979 two years before IBM entered the personal computer market.)   The book “Fumbling the Future” is a fascinating recap of PARC and how it went awry at the point of glory.   People who left PARC after that (it’s still around) founded Adobe, other computer graphics and desktop publishing companies, and became key members of big firms in the PC revolution of the 1980′s-1990′s.

Another Northern California guy Gary Kildahl invented a very functional operatng system for the early personal computers know as CP/M and briefly it dominated the PC market before Microsoft licensed a programmer’s “mostly borrowed” CP/M tweaked and renamed  Microsoft Disk Operating System in a few weeks to meet IBM’s deadline for an operating system.   Harold Evans has the best account of this in “They Made America” and while Microsoft protested the account, they never refuted it.  Kildahl died in a plane accident about that time so the issue wasn’t pressed like it would have been.   But CP/M in Silicon Valley several years before it became the core of the dominant  large scale PC system is quite an advantage in learning how to write software for it and build hardware for it, another substantial advantage for Silicon Valley, just the like the Bell Labs’s UNIX operating system developed in the early 1960′s gave a real advantage to nearby firms in Armonk, NY (IBM) and in Greater Boston (Digital Equipment Corporation, DataGeneral, Wang, etc.)

 

Like any boomtown, the series of tech booms and greatly heralded successes like a gold miner finding the mother lode have drawn so many desperate, ambitious, smart people there (turning Santa Clara from a bucolic suburb/small city into a surprisingly large city in just a generation’s time, often with the highest home prices in America). That kind of talent breeds innovation and entrepreneurship while working horrendous hours either for far less than they’re worth or far more, the same sort of crazy talent pool that has sustained New York City, San Francisco, Seattle, Chicago, London, Paris, Vienna, Moscow, Hong Kong, Taipei, Singapore, etc. far more than their formal policies or strategies.

As you can see, it’s a weird mix and many waves that built Silicon Valley and to a greater extent than other technology clusters like Boston’s Route 128, Pittsburgh’s, etc., more like New York’s Broadway or Los Angele’s film and porn industries, but hardly an easily replicable model that a politician can build in even a generation’s time, much less an election cycle.

All communities used to grow most of what they ate in the immediately surrounding countryside as the economics of moving it by animal-pulled carts and wagons (how much animal feed you have to carry along is a huge limiting factor). The Romans built a tremendous road network and bridge system more to move food around the empire and encourage taxable trade between communities as did the comparable road system of the Incas and eventually the U.S. road system where most roads are originally justified as “farm to market roads” even today when few farms still exist along many of those roads. Railroads in the 1860′s with fast-moving boxcars (before the food rotted) and early versions of refrigeration storage (sealed boxcars with thick, sawdust packed insulated walls and blocks of river ice in the ceiling) made the Midwest a viable source of corn, wheat, oats, etc., Chicago became a meatpacking center being able to cut regional beef up (about 30-40% of a cow’s total weight and mass is salable meat so shipping savings are considerable) , and St. Louis and Milwaukee (Anheuser Busch, Pabst, Strohs, Schlitz, )became beer brewing hubs by seizing on refrigerated rail cars for regional beer markets long ahead of their local competitors.

Communities are generally located in a river valley given how essential water is for everything from drinking to most processing of everything and a power source (turning a waterwheel or driving a steam turbine in a coal/natural gas/nuclear/biogas power plant.) That meant they had fertile soil and could readily irrigate, two especially essential factors for growing fruits and vegetables, grains being more forgiving (since they started as wild grasses) but yields on grains go up dramatically with plenty of water and riverbottom soils. So originally the quarter acre to acre of fertile garden soil needed per inhabitant and within walking commute range of their home wasn’t a big constraint, but now with vast rings of suburbs around even pretty small towns, most of the population isn’t convenient to places for more than fairly token gardening even at high intensity (although some suburban yards can be quite productive with extremely smart and aggressive cropping or heavy use of greenhouses and New England boxes/min-greenhouses.) Converting fertile ground to purely ornamental and contemplative space instead of plant calories production has been going on since the 1700′s at least if not the Romans and Greeks or Etruscans and Minoans, but that’s been a gradual conversion from fruit and nut trees to softwood “purty” trees since there isn’t much overlap between landscape architects and orchard growers.

The return to organic and local farming, perhaps triggered by Alice Waters’ organic restaurant in the San Francisco Bay area in the 1970′s, perhaps by the hippie communes, probably by the health food stores that became increasingly visible before those movements, or back to diet fads as far back as 19th Century pundit and quack Dr. John Harvey Kellogg of Battlecreek, Michigan’s health spa for the elite (his brother William stole John’s recipe for Corn Flakes and launched Kellogg’s Cereal Company after a patient stole the Grape Nuts recipe and founded Post Cereals.) This is generally held up as the new goal since local food does taste better, noticeably, and have more nutrients and fewer issues (like long-banned chemicals and pesticides used in Mexican, Chilean, etc. farm fields where much of our produce comes from now.) The magazine “Mother Earth News” and other publications are full of how-to articles for both plant and meat production at home, beekeeping, home aquaculture, composting, etc. and have grown from small niche publications to bigger circulations than far better-known magazines like TIME in recent years.

The big constraints along with access to land are:
A. It’s very labor intensive but on an erratic schedule that doesn’t lend itself well to paid help. Backbreaking, knee-straining, weather-wearing, and hard on hands it’s traditionally been work for one’s grumbling children (small, low to the ground, flexible, fast-healers, and already on-site but hardly free labor), mothers, and seniors. This sort of hand-based agriculture is very labor intensive, previous eras had lots of available labor with nothing better to do and little say in their working conditions or pay. Even today, migrant farm workers in the U.S. have abysmal working and housing conditions with a significant number held as virtual slaves (“60 Minutes” did a piece on that many years ago and figured several hundred thousand in the U.S. could be classified as slaves.) So when you look at local food whether it’s the intriguing model of self-sufficient homesteads, community-supported agriculture, community gardens or greenhouses, backyard farming, etc. the sheer demands of periodic hard work with few dollars resulting, usually just quality food calories, is a brutal constraint. On the reverse side, communities had to build up considerable food surpluses to free up enough people to do non-farming tasks like mining, manufacturing, civil service, military, etc. and the U.S.’s 50 people fed by a single farmer is huge and generally now overlooked aspect of our higher productivity and incomes.
2. Soils are often exhausted or been smothered with buildings, paving, gravel, chemicals, etc. and restoring them has been underway since the 1930′s (or thousands of years in China, the Amazon, etc.) and it’s tricky work. The original inputs of lots of animal manure conveniently there (and boy does it take vast amounts of manure to fully restore soil and keep it productive, at least one analysis says you can’t get there on manure alone. Compost, Wood charcoal/ashes/biochar, peat moss, sand, lime, gypsum, bonemeal, bloodmeal, etc. all have their own costs and relatively low availability and it turns out typical tilling practices killed many of the beneficial insects, worms, bacteria etc. that make up healthy, living soil (see desert soil which often just lacks enough regular water to sustain rich life in the soil). Balancing that with high cost fertilizers (ammonia/nitrogen, sulphur, etc.) has been getting us there in large-scale production agriculture and boxes of Miracle Gro for home, and the recent drop in natural gas prices thanks to fracking natural gas results is very encouraging since it’s the key ingredient in many fertilizers and the power source for extracting fertilizer nitrogen out of the air itself (that process, Haber-Bosch, sustains as much as 6 billion of the Earth’s inhabitants now and uses 25% of the world’ electricity, I worked on one of those plants and it’s amazing-they had to invent the discipline of chemical engineering to create these in the first place around 1914.
3. Food storage becomes an issue as any successful gardener can tell you and home-canning, home-drying, home storage bins, root cellars, etc. works to a certain scale (and has learning curves and aptitudes of it’s own). When you get to significant food production instead of supplementing the family meals for a few months each summer, all sorts of specialized structures common to a farm or ranch become necessary while ill-fitting most residential yards even with friendly neighbors .

Local food as the whole source presumes a vastly smaller population and one that spends much or most of their time working the crops or the nearly ubiquitous garden/lawn tractors and 4-wheelers with attachments turn small operations into mirrors of the far more mechanized large operations (probably what we’ll see happen and are seeing now) and greenhouses are vastly more efficient and ergonomic (putting the plants on a table means not working on your knees) just as fish-farming is far more productive than roaming the waters with a net or a fishing pole. How far we can return to local food is really determined by who’s doing the work.

Take away the red-dyed corn syrup fake blood and make-up of the movie zombie and you get back to the truth of dispossessed, angry mobs and vague herds of desperate people that have long been a reality in all places and times since even during an overall booming economy there are always places and whole regions in great suffering or outright collapse while broader depressions exhaust the resources and the thin blue line against chaos. I wonder how a German Jew who’d experienced the terror, fire, and mob-violence of Hitler’s SA Brownshirts during KristalNacht and the ensuing decade would view the fakery of a zombie movie after the real thing? Calling the Soviet government’s practices from the Russian Civil War through the 1989-90 collapse a zombie government would be more descriptive than hyperbolic. The most astute writer about zombie behavior is probably George Orwell rather than George Romero (“Dawn of the Dead” director/writer from whom most of the current fiction conceits come from.) The 3 million Americans dispossessed from Midwestern farms by the combination of droughts as severe or more so than this summer’s and falling ag prices that roamed the West to California looking for work and a new start might make John Steinbeck’s “The Grapes of Wrath” the seminal American zombie movie. The tide of relentless frontier settlers fleeing Europe and depressed or too costly of areas of the U.S. certainly appeared like a zombie invasion to the local tribes, unstoppable, all-consuming, unreasoning, untrustworthy, and randomly violent (much like their own invasions of earlier tribes’ territories so it was familiar too just as everywhere humans live…violent invasions by primitive, distant neighbors is a steady thread in human history.
The Zombie Invasions are building since 2007 with the Rwandan Genocide, the Bosnian Genocide, North Korea, Afghanistan, etc. presaging it’s constant risk. While cannibalistic mobs like the movies are relatively rare (although historians rarely look at the logistics of vast groups traveling without any source of local food supply beyond a narrow foraging range), people who’ve been forced by months or years of clear despair/endless evidence that they have to abandon their homes and roam as far as they can get to escape the local or regional economic collapse is what I’m talking about. Mortgage foreclosures, the closing of major employers who local economies are more often unable to replace than claimed (I’ve worked directly on many of those unlike the economists who refer to “creative destruction” ala Joseph Schumpeter”), even loss of faith in their local schools and local government (California has had a net emigration of 2-3 million people in the past decade, mostly those who had the means to leave while the rise of the home-schooling and private schools to a stunning degree, and increasing tide of municipal bankruptcies are a factor in driving people out that we don’t like to talk about in the U.S. but readily acknowledge in most other countries.) Will it be a dispersed experience like the American Dust Bowl and Great Depression hobo movement that put as many as 1 in 8 American workers roaming far from home for work when 1 in 4 or more were unemployed (a similar rate to today’s when the spinning of unemployment rates is unraveled)? You can see some of that with the flow of people to the booming regions but that’s constrained by lack of available/affordable housing in the boom areas and the ties to unsalable/highly mortgaged homes in the collapsed areas (in the past when most of the population had month to month rent, few and mostly readily replaced possessions, and no safety net at all there was a much simpler movement to where there was work.
But highly civilized places can fall into zombie armies chaos and often have. The 100 years and 30 years Wars in Europe, World War I, World War II, the Napoleonic Wars, the Chinese civil wars most recently from 1926-1949, the Russian Civil War from 1917-1926, the American Civil War from the 1850′s (Missouri-Kansas) to the 1880′s (Reconstruction South & West), the Mexican Civil Wars 1910-1923, the Metis Rebellion in Canada across the 1870′s, the English Civil War of Oliver Cromwell, the Irish chaos of 3 centuries, etc.. Things only appear tidy and neat with quick resolutions when history is badly taught and journalists buy the spin from politicians trying to make things look better than they actually are.