Wednesday, February 24, 2010

Industry's Parting Gifts

Announcement: For a limited time, you can get a numbered, autographed copy of a limited edition collection of Dmitry's essays by making a donation to this blog.

We are going to need some widgets made. They do not have to be as sophisticated or as complicated as the widgets we have today. For instance, once it is no longer possible to launch satellites, we will no longer have satellite navigation systems such as the Pentagon-run GPS or the joint Russian/Indian GLONASS. To compensate, we will have to go back to using radio beacons, so that boats can find harbor entrances in the fog. Another example: once laser printer and ink-jet technology no longer exists, we will need to bring back the humble old teletype. Add to that all of the other humble adaptations that will be needed once the electric grid and municipal services first become unaffordable, then cease to exist.

Countless items will have to be manufactured, one way or another, using local means, because imports are also going to first become unaffordable, then cease to exist. These items will have to be far more robust, longer-lasting and maintainable than the consumer products of today. A population reduced to a permanent state of camping out shares certain characteristics with astronauts and deep-sea divers and others who live and work on the edge: their reliance on their equipment is absolute. In such situations, an unreliable or unmaintainable product is worse than no product at all, because it gives a false sense of security. Making such high-quality items is by no means technically impossible; things can be made so well that they will last a lifetime and even become heirlooms. This, then, should be the new main thrust of industrial activity: to manufacture and distribute products with the understanding that this process will run out of resources and stop. These products must be designed to outlive the process by which they are made, by as long as possible.

How would one organize such a production scheme on an industrial scale? Is it even possible? If it is not, then the only recourse is to have this done by garage, basement and backyard tinkerers, using plans shared over the internet. In fact, this seems to be what is happening, and it very well may be all that ever happens. If that is the case, then production volumes will be much lower than what can be attained with mass production techniques, leaving a huge unmet demand, and a far more precipitous drop in living standards than is really necessary. But let us imagine for a moment that we can do better. How would we go about organizing such an effort? Here are some thought experiments—projections, if you will—based on what I've observed over the years. I present three scenarios—not a complete list, I hope, but these are all the scenarios I can think of without straining my imagination. I hope that you can do better.

Suppose you have a company that sets out to make a widget. Let's call it Company A. Its founders are all engineers, of an uncompromising sort, and the widget they design and manufacture is of tremendous longevity, durability and overall quality. Taking full advantage of economies of scale, they design a single, universal model that uses the maximum possible number of interchangeable, off-the-shelf commodity components, optimize it for mass production, and stockpile a gigantic inventory, including all the custom spare parts that they feel would ever be needed. To make sure that their product is sufficiently idiot-proof, they even test it on selected members of their own families. The engineers concentrate on what they feel is important, neglecting questions of marketability and competitive pricing, and the result is that Company A's widget cost double of functionally comparable widgets sold by the competition.

When consumers refuse to pay so much more than they feel they have to, Company A's widget fails in the marketplace, and the company is liquidated. Its remaining stock of widgets is eventually sold at a large discount, while Company A's investors get almost nothing. Those who are lucky and clever enough to buy one of these widgets go on to use them for the rest of their lives, never needing to buy another one, because, being grossly overdesigned and overbuilt, they simply never fail or wear out. In spite of Company A's failure as a business, the reputations of the engineers do not suffer at all, because, after all, their product is a tremendous technical success. Furthermore, since the installed base of their widgets never goes down, the engineers remain in demand as consultants, called in whenever issues do arise. Some of them form a small company that maintains an inventory of spare parts, and uses it to recondition and service their widgets far into the future. Eventually, long after the names of Company A's competitors are all forgotten, its name enters the language as the generic term for the widget it once made.

Now suppose you have another company, Company B, which makes a similar sort of widget. Its founders are all MBAs who are mainly interested in things like growth strategies, market penetration and continuous profitability. They are superficially interested in the widget itself, as consumers or from a sales and marketing perspective. The internal workings of the widget are, to them, best left up to the engineers. They do hire some smart engineers to start with, but don't give them much of a voice in making strategic decisions, and manage them by doling out bonuses and promotions for things like new features, shorter time to market, and lower production costs. They see to it that the widget they make is competitively priced, fashionably designed, and quickly obsolescent, so that consumers are ready to pay again and again just to get the latest features and designs. Durability and longevity are not a concern, since one or two years of semi-reliable service is all that's needed for Company B to come up with a new, improved version that consumers can be persuaded to buy given a sufficiently generous trade-in offer.

They work to boost revenue by offering an extended warranty or a service plan (made necessary by frequent breakdowns), charging for premium customer service (made necessary by their normal customer service, which consists of a robotic phone maze backed by a few trainees in India who just read aloud from Company B's public web site in a listless, stuttering monotone) and offering numerous enhancements and upgrades (made necessary by annoyances or missing functions within the base product). They also build a profit center out of selling spare parts. They see to it that their product does not contain any commodity parts, and that no parts are interchangeable between model years, so that every replacement part has to be purchased through a dealer. Company B does quite well, becoming profitable, doubling in size several times, and gains a commanding market share.

But then the troubles begin. First, given the short replacement cycle of its widget, it becomes harder and harder for Company B to contain costs while continuing to increase production. Costs of key inputs, such as certain metals, plastics, energy to run the plants, and shipping and distribution costs, all start going up, making their widgets more expensive to produce. At the same time, it becomes increasingly difficult to pass these higher costs on to the consumers. Concerted efforts at cost containment, championed by senior management, burn up more money than they find in savings. Second, turnover among the engineering staff starts to creep up, and after a while employee retention becomes a major problem. An effort is made to boost recruitment, but paradoxically this only increases the turnover rate, until the average tenure of an engineer is shorter than the time it takes to learn the product.

As development timelines slip and defect rates increase, management throws money at the problem by hiring high-priced consultants and engineering methodology snake oil salesmen, all to no avail. Lastly, although Company B manages to hold on to its market share, the overall size of the market starts to shrink as consumers run out of money and curtail their purchases, holding on to their outdated widgets until they fail, then learning to live without them. Eventually Company B is acquired by a foreign company, which crates up and ships off the few pieces of the operation it finds useful and auctions off the rest. As Company B's customers try to eke out a bit more life out of their half-broken widgets, the average resale price of Company A's widget soars well above its initial list price, and its proud owners go around looking insufferably smug.

Company C is not really a company but a consortium organized by a group of activists who correctly perceive the great need for this widget and decide to tackle the issue head-on through tireless community organizing. Their initial concept includes plans for the widget to carry a "100% Sustainable" label. A group of retired community college professors takes several months to define the technology selection criteria that would allow the project to meet the 100% sustainability requirement. In the end, they decide that the widget could be made out of hand-worked clay baked in a solar oven, but only if the oven itself is exempted from the 100% sustainability requirement. It could also be hand-woven out of wicker and bamboo, provided that these were subsequently composted and the compost returned to the soil where the wicker and bamboo were grown. However, the widget can't be made to work without the use of Nylon, Vinyl, Neoprene, epoxies and other fossil fuel-based synthetics, nor can it operate without components made with mined, increasingly scarce elements such as tantalum, gallium and lithium.

The organizers then move to drop the "100% sustainable" requirement and to shift their focus to "Serving community at every level." Production of the widget is to include hands-on job training programs at community colleges and vocational training centers, assembly tasks would be done by groups of mentally and/or physically challenged individuals, while testing, kitting-out and packing would be performed by religious groups (in conservative states) and groups of people with alternative sexual orientations (in liberal ones). From the outset, the consortium is plagued by scandal. The "Made with Pride in the USA" decals turn out to be made in China. The Visual Installation Guide is never printed in Braille. Worst of all, due to communication difficulties caused by static and noise on the line during conference calls, the lesbians (who were to lovingly pack completed widgets in wicker baskets hand-woven by Haitian orphans and filled with organically grown straw) turn out to be not lesbians at all, but eager out-of-work Thespians (of both genders, and barely half of them gay) and Fezbians (perfectly conventional males with convincing falsettos united by their predilection for wearing a fez). The consortium collapses in acrimony and mutual recriminations without shipping a single completed widget. Out of sheer frustration, one of the organizers, laboring alone, succeeds in assembling a single working widget, and donates it to the Smithsonian.

Based on the foregoing, it would appear that the choice is between failing at something and failing at everything. Company A makes excellent widgets but fails to pay back its investors. Company B makes money but its widgets quickly become useless trash. Company C entertains us with its feckless shenanigans but fails to produce any widgets. I really do hope that I am missing something. Is there a Company D out there? If so, please tell me, because I would really like to know.

Sunday, February 14, 2010

Hold Your Applause!

[Update 3/30: All books have been shipped out, either 1st class mail (in the US) or international air mail. I still have a few copies left, so if you really really want one, please donate appropriate sum via PayPal to natasha dot same last name as me at and we will mail you a copy.]

[Update 3/12: There have been some delays with the printing, and now the books are going to ship from the printer to me next Friday, March 19. They will arrive some time during the following week, and I will get them out to people as quickly as I can. Once again, thank you for your patience.]

[Update 3/7: The books are due from the printer in another week, and there is a big pile of addressed envelopes waiting for them, with first-class postage applied and customs forms filled out. Once the books are finally here, it should take me another week or so for me to sign them all and carry them down to the post office. Thank you for your patience.]

[Update 2/26: the cover thumbnail is now shown as it is printed, not the placeholder that was there up until now.]

Two years and just under a million unique visitors later it is time for this blog to ask for something back. But instead of an endless beg-a-thon, I've decided to give my readers something valuable in return for their donations: anyone who donates in excess of $20 will receive a numbered, autographed copy of a limited edition book which contains five of the most significant (and longest) essays I have published between 2005 and 2009. The meaning of the title should be obvious: since 2005 I have been predicting that the USA will go the way of the USSR, and although many of my detailed predictions of how collapse will unfold have already been reported in the press as facts, and any number of knowledgeable people will tell you that the collapse scenario is a perfectly plausible one, as of this writing the actual, sudden, unmistakable collapse hasn't occurred yet, so don't clap just yet. Nobody can tell you with any certainty exactly when this will occur, or how much longer the various web sites on which my articles have been published will stay up, but obtaining a copy of this book (which I had designed, typeset and printed at my own expense) will put in your hands an odd sort of history book: one written before the historical events it describes take place. Donating to this blog is the only way you can obtain this book, because it is strictly a promotional item and is not designed to be offered for sale. I will send out copies of this limited edition on a first-come-first-serve basis, while supplies last. Please click on the "Donate" button and donate any amount you want, provided it's above $20, to reserve your copy. Please add a little extra for international shipping if you are outside US.  Thank you!

Friday, February 12, 2010

Products and Services for the Permanently Unemployed Consumer

Developing and marketing products for a shrinking market poses an interesting set of challenges. Even if a company does an outstanding job and is able to steadily grow its market share, these gains are negated if the market itself continually shrinks by an ever larger amount. For instance, a company might have an outstanding electric vehicle design, but it is destined to fall by the wayside during a time when the number of consumers that qualify for a car loan is trending downward, the used car market is glutted by repossessions, and federal, state and municipal governments are unable to upgrade their car fleets because their budgets are far in the red.

Consumer product development caters to individuals who live in houses or condos, have jobs to which they commute by car, and generate a steady stream of disposable income. This is the group to which the business press often refers collectively as "the consumer": one often reads that the consumer is retrenching, that the consumer's credit is tapped out, that the consumer's disposable income is shrinking and so on. The consumer is not growing. What is there left to do except design and manufacture fewer and fewer products?

The answer is as simple as it is surprising. The consumer is not melting away; the consumer is mutating and evolving. In the United States alone, half a million people a month (in round numbers) are being shed from the workforce. Although this is often portrayed as a temporary condition, job creation is not expected to pick up pace any time soon, and few people are willing to forecast when it will again exceed population growth. Even a rose-tinted economic scenario has to admit that there is a high probability of new energy price spikes triggering new recessionary periods, which would drive unemployment higher.

Therefore, more often than not a job loss will set a person on a new career path, one that comes with a new set of challenges and options. Most significantly, these formerly employed people often no longer have sufficient income to afford the two items that dominate most household budgets — the house and the car, and all of the expenses that are associated with them. Medical expenses form a third category, and are highly variable, depending on a person's age and medical condition, and range from zero (for the healthy uninsured) to arbitrarily large (medical expenses being the largest single cause of personal bankruptcy).

Does permanent job loss mean that someone is no longer a consumer? In some cases the answer is yes: some people continue to spend as if they still had a job, and the inevitable result is eventual destitution. Once they run out of unemployment benefits, savings and credit, their purchasing ability decreases to the barest minimum provided by food stamps. I don't mean to sound harsh, but this makes them rather uninteresting from a new product marketing perspective.

But other people may be quick to shed their biggest categories of expense, walking away from their mortgage and their car loan, allowing their medical insurance to lapse, and developing a new lifestyle that is well within their new budgetary constraints. They may couch-surf, take advantage of house-sitting opportunities or rent a spot at a campground by the season. For the cold part of the year, they may head south and, again, camp out. They may look for seasonal employment, do odd jobs for cash, or use their skills to repair or make and sell items for cash.

With their largest expenses gone, their disposable income may actually be higher. However, their needs and requirements are quite different, and since most product offerings target the settled, fully employed consumer, they are in some ways under-served. This is an area where new product development opportunities abound, and companies that gain a share of this growing market segment and build brand loyalty among this fast-growing consumer underclass will lock in a decade or more of profits and rapid growth. As a marketing strategy, it is not just recession-proof but actually recession-enhanced.

In saying that the unemployed consumers are currently under-served, I do not mean to belittle the huge positive effect on their lifestyles that resulted from the recent major advances in mobile computing and communications. Laptops with wireless Internet access have made it possible for a homeless person to run an Internet business or a software company, manage an investment portfolio, or contribute to an international scientific collaboration. Any of these things can now be done from an Internet cafe or a public library, or, in fine weather, even a bench in a city park or a tent at a campground. Cell phones make it possible to give radio interviews and participate in teleconferences from just about anywhere that is within sight of a cell phone tower. Hand-held GPS units allow people to find their way around and to retrieve items stashed in the woods using their coordinates.

But even here there is plenty of room for specific improvements: the umbilical cord of the laptop power supply and the cell phone charger hampers mobility. It would not be difficult to add small solar panels to the backs of cell phones and the lids of laptops, making it possible to recharge them simply by leaving them in the sun for an hour or two. Many people would be willing to trade off certain features, such a high-powered microprocessor or a brilliant display, against reduced power consumption and a reduced need to use the power cord.

In addition to such incremental improvements, certain completely new types of devices can be designed to serve some of the unique needs of the permanently unemployed. For example, it is not uncommon for them to be living in places that lack public utilities such as running water, making it impossible to use flush toilets. A commonsense adaptation is to put together a composting toilet, using a 5-gallon drum and a toilet seat, and a length of dryer hose for the exhaust duct. A key component of this solution is the exhaust fan, which can be quite tiny and low-powered, but has to run continuously. A small computer fan connected to a lantern battery is adequate and lasts for many months, but an even better solution is a battery-backed exhaust fan powered by a solar panel that is designed to be installed in a partially opened window. Another example: a portable device that can detect the many environmental hazards that are likely to be present in such a less-than-ideal living environment: a combined smoke/carbon dioxide/carbon monoxide detector that can also detect toxic fumes from burning synthetic materials would be perfect. A device for testing the safety of drinking water would also be very useful.

In addition to such new products, the permanently unemployed would also benefit from certain services designed to fit their unique needs. For example, a campground at which campsites are paired up with garden plots, allowing people to spend the summer months growing their own food, would suit people who have plenty of time, little money, and nowhere to live. In the cities, low-priced dormitories styled after Japanese capsule hotels, and shower and locker facilities would make their lives much easier while also helping to improve sanitation and public health and to preserve public order.

We live in a time of steadily rising unemployment, and, consequently, much emphasis is being placed on stimulating job creation. To this end, the federal government has already spent a lot of economic stimulus money on a variety of infrastructure projects. An obvious question to ask is whether any of these projects have directly benefited the unemployed, beyond creating a few temporary jobs. It is a no-brainer that the jobs to create first are the ones in industries with the highest growth potential, where job creation can quickly become self-sustaining. As a matter of public policy, it would make perfect sense to provide seed money for what is bound to become a new high-growth industry segment: serving the needs of the permanently unemployed.

Thursday, February 04, 2010

Collapse Gap Revisited

Richard Heinberg has done something that sorely needed doing: he has performed a Collapse Gap analysis for USA and China. In a lengthy and detailed article he argues that, just as the USA is less prepared for collapse than the USSR was, the USA is less prepared for collapse than China. This is perhaps unsurprising (few countries are less prepared than the USA). Collapse-preparedness affects how many people will be able to survive the collapse, and how bad a time they are likely to have in doing so.

But there is much more to it than that. Richard makes several excellent new points that should be taken on board. Here, I will mention just three (perhaps adding a slight personal twist to each). For the full details, please go and read the full article.
  •  The governments of both USA and China are not trying to avert collapse but simply to delay it. Averting collapse would involve overcoming problems caused by fossil fuel depletion, ecosystem limits such as soil and fresh water, climate disruption due to global warming, and an economic system predicated on exponential growth. Neither government is up to the task of solving any of these, and so the obvious choice for them is to stall for time, hoping that the other one collapses first.
  • Although whichever country collapses first will immediately find itself at an obvious disadvantage vis à vis the other, that advantage is likely to be short-lived. Unlike the collapse of the USSR, the collapse of either USA or China will devastate the other, with major repercussions for the other major economies. There will be no country left standing that will be capable of effecting an economic rescue. The collapse of either USA or China will trigger the collapse of the other, marking a permanent, global transition to a new state.
  • Since collapse is unavoidable, the obvious fall-back strategy would be to invest in local resiliency and self-sufficiency. Since neither government appears the least bit interested in such matters, it is time for us to recognize them for what they are to us: utterly irrelevant. Paying attention to national politics can only distract us from doing whatever we can as individuals and local communities.
In the past Richard has done his best to nudge governments in the right direction, especially with regard to adjusting to fossil fuel depletion, whereas I have always felt that they can go and nudge themselves. You see, from my point of view, only a fool would want to go a-nudging the Central Committee of the Politburo toward adopting better policies. Here, perhaps once there was hope; and now it's gone. Unfortunately, many people continue to believe in the miraculous properties of national politics and policy. However, Richard is no longer one of them, and this makes me a bit more hopeful for the rest of us.

Monday, February 01, 2010

Recognizable Characters in Predictable Circumstances

Act I of James Kunstler's new play "Big Slide" is now available as a staged reading via KunstlerCast, with Acts II and III to follow, and the entire text also available as an e-book.

The play is set in the not-too-distant future, after West Los Angeles has been obliterated by a bomb, Chicagoland's drinking water has been laced with Botox, the President has been suicided, gas is at $10 a gallon and mostly not for sale, stores have been looted, electricity is off for good and armed gangs in police uniforms man checkpoints and confiscate anything edible. Other than that, everything is fine. It is a story of three generations of the prosperous and privileged Freeman family, who flee the growing mayhem in New York and Boston and hole up at Big Slide, which is their family compound in the Adirondacs.

Big Slide comes complete with a stalwart and competent caretaker, a large collection of guns and fishing tackle, a nearby lake stocked with trout, a forest full of deer, rabbit and seasoned timber felled by a winter storm, a greenhouse and an ample garden plot. If only the Freemans had prepared... but then their varied needs include morphine, a replacement hip joint, a strict vegan diet and plenty of booze—all inaccessible or in short supply, now that even venturing into the nearby town has been deemed inadvisable. Also, with family tensions worthy of Anton Chekhov, can they avoid shooting each other?