Marina Gorbis's Blog, page 1548

Are You Among the "Effort Averse"?

Results of an experiment suggest that more than one-fifth of participants preferred the boring but easy task of watching visitors in an art gallery to the more engaging but demanding tasks of escorting performers and cleaning up at a cultural festival, even though they had predicted that they would enjoy the engaging tasks more. These participants' willingness to accept lower wages to work at the gallery job reveals a phenomenon the researchers, David A. Comerford and Peter Ubel of Duke University, call "effort aversion." The reasons for it aren't clear; the researchers speculate that because attention is a scarce resource, people may reject effortful tasks without thinking about how enjoyable they might be.

You're Probably Wrong About Millennials

Managers routinely complain about their Gen Y employees as entitled, disloyal, and lazy — and as a result, conflicts arise. In a study in partnership with American Express for my new book, we found that while managers have a negative view of Gen Y, employees from this generation generally have a positive view of their managers. Employees feel that their managers have experience (59%), wisdom (41%) and are willing to mentor them (33%). On the other hand, managers feel that Gen Y employees have unrealistic salary/compensation expectations (51%), a poor work ethic (47%), and are easily distracted (46%). While there is a tendency to blame their employees for generational conflicts, managers in today's companies may need to rethink their own management styles.

The first step is to drop generational stereotypes and give Gen Y employees a chance to prove themselves. "The standard Gen Y stereotypes are pretty well accepted in the workplace," says Carrie Hirst, a Regional Marketing Coordinator at Allstate. "Once people have gotten to know me, they will say that the stereotypes don't apply."

One of those misconceptions is that millennials are "entitled," a word that has become synonymous with Gen Y in the management ranks. "I believe that they expect many things to come easy before the work has been put in," says Dean Lawyer, Regional Director of Business Sales for T-Mobile. Contrary to what managers say, Gen Y's are work horses and have a persistent hunger to discover new experiences, take advantage of opportunities and push the boundaries. The recession has forced millennials to develop this work ethic, with 44% of students who are working to help finance their education, reports Rutgers University. Through our research, we've discovered that millennials are the most optimistic generation despite economic setbacks. Furthermore, the Center for Women and Business at Bentley University reports that 84% of millennials view making a positive difference in the world as more important than professional recognition.

Managers view them as having a sense of entitlement because they fail to realize that they want to make a big impact, get connected with executives and engage in professional development opportunities. "Just because someone is younger doesn't mean they can't complete at a high level," says Ryan Brown, a Twitter employee. This isn't entitlement — it's being personally accountable for your own career.

Another Gen Y stereotype is that they lack the company loyalty held by their older colleagues, and this is at least partly true: The average tenure at a firm for Gen Y is two years (compared to five years for Gen X and seven years for Boomers). But those numbers don't tell the whole story. The real issue here is that managers fail at setting expectations with their Gen Y employees, and often don't inform them on criteria for promotions or suggest a path to upward mobility. In our study, we found that 20% of managers don't give annual performance reviews and only 12% give quarterly reviews. Millennials need regular feedback and a set of expectations in order to improve and feel engaged. For the same reason a manager may also get frustrated with a "lazy" Gen Y employee who isn't performing at the expected level — but most of the time it's because the supervisor is not dictating what that level is. When managers don't invest in their Gen Y workers and help them create a path within the company, they look elsewhere — and that costs firms $24,000 per employee on average. Companies simply can't afford to lose Gen Y talent because in the next ten years, they will become the majority of the global workforce.

The real opportunity to bring both generations together is mentoring programs that connect Gen Y talent to senior leaders. PepsiCo is one example of a company that has accomplished this with a mentoring program called Conn3ct, a global network of young professionals within the company. Through the program, Gen Y voices are heard, their ideas are implemented and they received executive exposure and sponsorship. "This young talent pool continues to support recruiting events for new young professionals to enter the company, helps in product development and marketing initiatives, and contributes to improving the overall work-life balance of employees," says Paul Marchand, SVP of Field HR at PepsiCo. Gen Y employees benefit from networking, training and development and their careers are accelerated in the process. Managers benefit from learning about new trends and how to leverage the latest technology from Gen Y, who doesn't know a world without computers.

By understanding how to work with Gen Y employees and creating programs that allow them to network, learn and feel part of the company, you will retain them and they will become your next leaders. If you don't, then you will lose them to your competitors.

Should MBAs Learn to Code?

This post was originally published on the author's blog. It has been edited slightly.

"Should I learn to code?"

MBAs who lack programming skills often ask this question when they pursue careers in technology companies.

Bloggers like Yipit co-founder Vin Vacanti have shared views on the payoff from learning to code, as have several students at Harvard Business School, including Dana Hork, Matt Boys, and Matt Thurmond.

I thought it'd be helpful to supplement bloggers' perspectives with some survey data. I received responses from 24 of the 41 HBS students who enrolled over the past two years in CS50, the introductory computer science course at Harvard College.

My survey didn't ask for comments on the quality of CS50 itself. The course is widely acclaimed; my colleague David Malan has grown its enrollment five-fold to 715 students over the six years he has served as lead instructor. Rather, my goal with the survey was to learn whether MBAs saw this well designed and rigorous course as a good investment of their time, given their career objectives and other course options. The tradeoffs are tricky: survey respondents reported spending an average of 16.3 hours per week on CS50 — perhaps 2-3x more time than they would spend on an MBA elective that yielded equivalent academic credit.

So, was it worth it? Of the 18 survey respondents who founded a startup, joined an existing startup, or went to work for a big tech company upon graduation, 83% answered "yes" to the question, "On reflection, was taking CS50 worth it for you?" and 17% said "not sure." Of these 18 respondents, none said that taking CS50 was not worth it. By contrast, of the six respondents who pursued jobs outside of the tech sector — say, in consulting or private equity — only two said CS50 was a worthwhile investment; three said it was not; and one was not sure.

Benefits

Respondents cited several benefits from taking CS50.

Writing Software. Respondents differed in their assessments of their current ability to contribute working code on the job, based on their CS50 learning. Several said they regularly do so, for example:

Kyle Watkins, who joined an existing startup, said he has "used CS50 skills to create a half dozen VBA programs that will likely save the startup I'm working for tens of thousands of dollars."

Michael Belkin, who founded his own startup, said, "After taking CS50, I was able to build an MVP that would have cost at least $40K to outsource. And it was better, because I understood all the small details that drive a user's experience. After HBS, I became one of the lead developers at my startup, which has saved the company several hundred thousand dollars."

Communicating with Developers. Other respondents, especially those employed in large tech companies, said they couldn't really write production software, but felt more confident in their ability to discuss technical issues with developers as a result of taking CS50. For example:

Jon Einkauf, a product manager for Amazon AWS, said, "I work with developers on my team every day to define and build new features. In addition, the users of my product are developers and data scientists. Taking CS50 gave me a glimpse of what it's like to be a developer — to get excited about complex computer science problems, to get frustrated when you hit a bug. It taught me enough about software development that I don't feel lost in my current job. I can ask intelligent questions, I can push back on the developers when necessary, and I am confident that I could teach myself anything else I need to learn."

Luke Langford, who joined Zynga as a product manager upon graduation, said that CS50 "gave me a working knowledge and confidence to be able to review code. Product managers at Zynga don't often work in code, but there were several times when I was able to diagnose issues and help the engineers identify why certain algorithms that calculated scores were wrong. Pre-CS50, I wouldn't have been able to do that."

Recruiting. Several respondents mentioned that their CS50 experience had helped persuade recruiters that they were committed to a career in technology. As one anonymous respondent reported, "I wanted to get a job at a tech startup and ended up as a product manager at one of NYC's hottest tech startups. The founder, who is a CS PhD, was really impressed that I'd learned to code. I think it made a difference in getting the offer."

Costs

The benefits from CS50 came at a considerable cost, however, in terms of workload. In addition to lectures and section meetings, the course has weekly problem sets, two mid-terms exams, and a final project that requires students to design and build an application.

Beyond the heavy workload, respondents who were less sanguine about the payoff from CS50 often cited its use of C to teach fundamentals such as functions, loops and arrays, rather than a more modern programming language. While acknowledging that C is well suited for this purpose, these students would have preferred more focus on languages used in web development (e.g., JavaScript, HTML, and PHP), which are covered in the last one-third of CS50's syllabus. Likewise, some students said they understood why certain "academic" concepts (e.g., algorithm run times, security) were covered in an introductory CS course, but they did not view such concepts as salient to their "just learn to code" personal priorities.

Many respondents acknowledged that there are online options for learning to code that would not require as big a time commitment as CS50. However, they saw a graded course for academic credit as good way to ensure they would actually get the work done. An anonymous respondent said, "I knew that I would never learn programming if I didn't have something — a problem set or test — to keep me accountable every week. I don't want to generalize, but I highly doubt that most HBS people after doing their cases/travel/socializing are going to set aside time to consistently do Codecademy or Treehouse every week."

Justin Ekins added, "You can learn everything in this course online, but, let's face it, you're not going to force yourself to do that. And you won't get the depth of knowledge that CS50 will provide. It's an outstanding course, and it's incredibly well taught. I'd recommend taking it and then spending J term [three weeks in January when regular HBS classes do not meet] with Stanford's online CS193P, which will get you to the point of building iPhone apps."

Why Emerging Markets Don't Need Elon Musk

Elon Musk, the South Africa-born entrepreneur, recently unveiled his proposals for the Hyperloop, a groundbreaking high-speed transportation system. The technology community has become accustomed to Musk pushing the boundaries. His name is also attached to Paypal, SpaceX, Tesla and Solar City, and he is very rightly celebrated.



At the same time, South Africa is currently considering its own transport future and many African countries are much farther behind in transport infrastructure. The gap between Hyperloop and the state of infrastructure in the vast majority of developing countries is a demonstration of what economist William Janeway calls the Two Innovation Economies.



On one side is the frontier economy, populated by highly skilled engineers pushing the boundaries of technology, and investors making highly risky bets on which new fields will take off. On the other side, where most of the world's billions reside, is the follower economy which is characterized by solving problems that have already been solved elsewhere, but have not been adopted due to institutional or structural reasons. Here, investors often do not make bets on technology risk; they are more worried about political and implementation risk.



The frontier economy has unimaginable appeal to the skilled engineers and savvy entrepreneurs. It is sexy to work on the world's most technically difficult problems at the bleeding edge. Top talent in the follower economy has to deal with messier problems, like poverty, lack of healthcare, lack of education, and unemployment. Instead of cutting-edge science, they have to spend time worrying about things like politics and economics (the dismal science).



As a result, many top-tier students in developing markets graduating from the best Western institutions are motivated to stay abroad. Even when they come "back home", they often seek ways to replicate the frontier economy in their local markets. Companies like Rocket Internet (which is bringing consumer web technologies to low income countries), for example, have been very successful in recruiting diaspora talent. In South America, programs like Startup Chile are attempting to recreate Silicon Valley.



The problem is that these paths are often "low-leverage". They make a small dent in the problems of many follower economies, and often do not build the country's capabilities. There are exceptions, of course, like mobile technology. But even such "leapfrog" innovations sometimes feel like patchwork solutions to much more foundational problems. One cannot use them to their full potential until roads, electricity and other infrastructure are in place.

In reality, most of the significant progress made in the world's follower economies over the past 50 years has been through adopting old technologies. Paragons of international development like Korea, Taiwan and Hong Kong relied heavily on basic manufacturing copied from the West in order to find a firm footing on the development ladder. China's adoption of Western and Japanese technologies was a key step in its upheaval of hundreds of millions over the poverty line. Japan itself used to be labeled a copycat with low quality products. Time and time again, the rise of from follower to frontier status has depended on technology transfers, across nearly all the sectors of the economy.



Technology transfer. It sounds like a dirty, anti-Musk word. It lacks the magic and creativity of inventive thinking and Ivy League teams. Yet it has increased the incomes of hundreds of millions, and, crucially, it has done this in a sustainable way. Because when low-income earners learn how to make cheap copies, this is often a first step in the process to making more sophisticated products.



Governments and corporations in developing markets should be paying more attention to technology transfer. It makes economic sense and it is probably the lowest hanging fruit in accelerating the catch-up process. It happens across many channels: government institutions (e.g. Korea's Electronics and Telecommunications Research Institute), cross-border corporate activity (e.g. JVs, M&A, licensing, outsourcing), and human capital (e.g. university partnerships, exchange programs, diaspora programs).

International students and foreign graduates should also be paying attention to technology transfer. The problems Elon Musk is solving are no more important than the problems that need to be solved in the follower economies of the world. Musk is celebrated worldwide, and deservedly so. But what we really need is new Elon Musks for follower economies.

Why Giving People an Option to Be Charitable May Hurt Your Business

After a store chain introduced new recycling machines that allowed consumers to donate their returned bottle-and-can deposits to charity, people started avoiding the machines, says a team led by Mikael Knutsson of the University of Gothenburg in Sweden. Whereas the amount of deposits returned by the old machines had been up to 3,026 Swedish krona higher per month than in the previous year, indicating a rising level of recycling, the amount returned by the new machines was up to 12,303 krona lower per month year-over-year. The results show that in the absence of pressure to donate, many people are reluctant to give to charity.

Please Stop Complaining About How Busy You Are

We're all just so "busy" these days. "Slammed" in fact. "Buried." Desperately "trying to keep our heads above water." While these common responses to "How are you?" seem like they're lifted from the Worst Case Scenario Handbook, there seems to be a constant exchange, even a a one-upping, of just how much we have on our plates when we communicate about our work.



My favorite "busy" humble-brag was that of a potential client who apologized for lack of communication due to a "week-long fire drill." What does that even mean? Does this mean there were fake fires, but not real ones, all week? Does calling it a "drill" mean that everything is okay? Is your business in flames? Should I call someone?



Then there was the date I had with a fellow who was so busy "crashing on deadlines" that he asked me to "just make a reservation somewhere" for him. I was floored.



So much of this is about out-doing each other. To say that "I'm busier than you are" means I'm more important, or that my time is more valuable, or that I am "winning" at some never-finished rat race to Inbox Zero. (Inbox Zero is another absurd contest to tackle at another time.) What you're trying to say with these responses is: I'm busier, more in-demand, more successful.



Here's the thing: it's harming how we communicate, connect, and interact. Everyone is busy, in different sorts of ways. Maybe you have lots of clients, or are starting a new business, or are taking care of a newborn. The point is this: with limited time and unlimited demands on that time, it's easy to fill your plate with activities constantly. But this doesn't mean that you should.



To assume that being "busy" (at this point it has totally lost its meaning) is cool, or brag-worthy, or tweetable, is ridiculous. By lobbing these brags, endlessly puffing our shoulders about how "up to my neck" we are, we're missing out on important connections with family and friends, as well as personal time. In addition to having entire conversations about how busy we are, we fail to share feelings with friends and family, ask about important matters, and realize that the "busy" is something that can be put on hold for a little while.



I am not trying to belittle anyone's work-load in the slightest. But in using it as a one-upping mechanism, we're failing to connect in a very substantial way. And we're making the problem worse: When everyone around us is "slammed," it's easy to feel guilty if we're not slaving away on a never-ending treadmill of toil. By trying to compete about it, we're only adding to that pool of water everyone seems to be constantly "treading" in. And all this complaining is having serious effects on our mental health.



And yet we continue to use long hours as a sort of macho badge of honor.



We need to work smart, not (just) hard.



Just because you clocked 15 hours at your office, with likely dry eyeballs and a complete lack of focus, doesn't mean you've accomplished things in a smart way. Many people have written or spoken about this. Typically, you have 90-120 minutes before you devolve into internet fodder or social media. If you're putting in 15 straight hours at your desk, without breaks, how good is your output? How much time are you wasting?



The distinction between working hard versus smart has hit me as an entrepreneur. In high school and college I was always that girl who read all the assigned reading (and no, I was not giving you my study guide). I created outlines, outlines of outlines, and then flashcards. One of my greatest lessons as a businessperson has been to throw out that skill set. This isn't to say you shouldn't be diligent or that you should half-heartedly execute, but rather, that it's crucial to know what you have to do as opposed to everything you could do. It's about being strategic.



For once, I'd like to hear someone brag about their excellent time management skills, rather than complain about how much they can't get done. Maybe we could learn something from each other.



In fact, I'll start — here are three tactics I've been using to work smarter:



Constrain the time. The more I constrain my time, the more focused and productive I feel, and the less I waste time on low-priority work. If you can only afford to spend 45 minutes on a certain project, then only spend 45 minutes on it — and move on, even if it isn't perfect.



Use a scheduler. If you're really up to your neck, it's very easy to find a scheduler, virtual or otherwise, to help put things on your calendar. Sometimes it's a matter of freeing up that time used for coordinating plans to actually doing them. Zirtual is a great answer to this. As is the DIY scheduler Doodle.



Cut the fat. Once I cut out superfluous meetings that were not: fun, productive, leading to new business, or really had something wonderful in it for me professional or otherwise, that plate emptied a little bit. (Here's a tool for figuring out what to cut.)



Yes, we all have some strange need to out-misery each other. Acknowledging that is a first step. But next time you speak to a friend and want to lament about how busy you are, ask yourself why. Try steering the conversation away from a complain-off. With some practice you might find yourself actually feeling less "buried" (or at least feeling less of a need to say it all the time).



And maybe that's something worth bragging about.

Research: Underdog Businesses Are More Likely to Post Fake Yelp Reviews

The rise of online review platforms like Yelp has empowered consumers by reducing the informational asymmetry surrounding unfamiliar products and services. But some businesses face strong incentives to post fake reviews, which compromises the trustworthiness of such review sites.

How prevalent are such fake reviews, and what firms are mostly likely to post them? New research reveals that independent businesses, those without many existing reviews on Yelp, and those that face intense competition are more likely engage in review fraud on Yelp.

I reached out to authors Michael Luca, Professor at Harvard Business School, and Georgios Zervas, Assistant Professor of Marketing at Boston University School of Management, to discuss their findings. Here's an edited transcript of our conversation.

How did the two of you become interested in this line of research?

Michael Luca: We've both done extensive work on consumer review websites in the past, and I've seen in prior research that Yelp reviews are incredibly influential on sales. Because of this influence and because these types of platforms have proliferated over the last decade - think of Yelp, TripAdvisor, Angie's List, and scores of others - it's important to understand the pros and cons of this type of system relative to other information sources.

Georgios Zervas: I was working on reviews as well but from a different perspective. I was trying to see what actually shapes reviews, so I was looking at online promotions like Groupon and LivingSocial and trying to explain why these coupons tended to result in negative reviews on Yelp. So we had both done work on reviews, and we joined forces to work on fake reviews.

According to your research, what leads businesses to post fake reviews on Yelp?

Georgios: The incentives are economic. The system is set up in such a way that businesses can benefit a lot from soliciting fake reviews. So businesses will respond to incentives such as a bad recent reputation, or having few reviews, or generally being unknown.

You've shown that some new businesses post fake positive reviews when they have very few existing reviews. Conversely, established businesses (including chains) are less likely to post fake reviews. Is it possible that high-quality firms might use fake reviews as a form of free but fraudulent advertising, from which they "graduate" as their reputation builds?

Georgios: Yes, I think that makes a lot of sense. For example, restaurants may be very resource-constrained, so when a new restaurant is starting out, they may not have enough resources for advertising, and of course, fake reviews are seen by a lot of people to have a very low production cost. Once these restaurants become established, potentially they'll have more resources to invest in advertising so it's very logical that they would graduate to more legitimate forms of advertising.

Besides misleading consumers, are there any other economic costs or inefficiencies that fake reviews cause?

Michael: Just the mere presence of fake reviews has led to an arms race in the review industry. These review sites dump resources into solving the fake review problem by making it more difficult for someone to leave a review, or by forcing a reviewer to jump through more hoops to make sure he or she is real, or by filtering some reviews off of the site, as Yelp does. Every barrier that you construct on these types of platforms will help reduce the number of fake reviews, but also actually reduces the number of real reviews on the site.

Michael, you mentioned earlier that Yelp reviews can significantly affect sales. How can we quantify that effect?

Michael: The way to think about returns to reviews is in the value of the rating. Say the user goes onto Yelp and sees a business with 3.5 stars and 10 reviews next to it. And the estimates we saw in prior work is that a one-star increase in rating leads to more than a 5% increase in sales for independent businesses, which is a really huge effect. If you think about your ability to influence this at the margin, especially when you don't have many reviews, you have a very high-powered incentive to leave fake reviews.

In future work, what are some other independent variables about a business (like social media engagement, which you've mentioned) that you want to correlate with propensity to commit Yelp fraud?

Michael: One thing that we think would be exciting is the relationship between fraud and advertising. We see that people who are committing fraud have just had a negative reputational shock, are facing intense competition, or are early on in their business life cycle. On the other hand, we have work that suggests that firms using advertising have established reputations, have had positive reputational shocks. So our plan for our follow-up paper is actually to look through and think about the relationship between review fraud and advertising decisions. The question is, do firms face a substitution decision between advertising and review fraud?

How can a content aggregator like Yelp use this paper to improve its ability to detect fake reviews?

Georgios: The detection algorithms for sites like Yelp work by going through a set of reviews and carefully classifying them into real and fake reviews. Then they try to figure out some distinguishing characteristics of fake reviews. For example, fake reviews might come from users that have only written one or two reviews on Yelp ever. Then they use that indicator as a positive signal of a review being suspicious for new reviews that arrive on the site. We suggest that all these features we've identified - a business being new, or a business having recently received bad reviews, or a business facing increased competition - could be incorporated with those prior features into existing algorithms to predict whether a review is fake or not.

How might a small business with a Yelp presence use this research to improve its own sales?

Michael: One simple example is to engage with the system in an ethical way: claim your business on Yelp, make sure the information and hours are correct. This kind of persona can generate more legitimate reviews without gaming the system. Small businesses can also understand how exactly the Yelp system works. If you ask 10 small businesses how Yelp decides to aggregate reviews, you might get 10 different answers. Spending a couple of hours to understand the system and what exactly is being displayed on the other end could reduce the anxiety of somebody who otherwise views Yelp's algorithm as a black box.

What should customers who use Yelp know?

Michael: The customer should realize that some reviews might be illegitimate, and our work gives a sense of the situations in which you're most likely to see a fraudulent review.

Georgios: Most users may just look at the rating itself. Our work tells the consumer that he actually needs to read the reviews, inspect the business, ask about their advertising, ask whether it's a chain, see if it's in a highly competitive area, and then make up his mind.

To wrap up, many of your empirical results are consistent with and thus powerfully supported by theoretical predictions. Did any of your results instead surprise you by going against prediction?

Georgios: One thing that surprised us both was our very first finding - that approximately 16% of all reviews are filtered by Yelp. Nobody had measured that before. So while you could see the number of filtered reviews for an individual business, nobody had done an extensive site-wide measurement of how many reviews were suspicious.

Michael: We've found that the "bad apple theory" isn't quite valid. In our research, we both talked to a lot of small businesses, and we don't have the sense that there are these small businesses going around trying to cheat the system. Something we didn't see fully beforehand is that there's simply a lot of pressure for a small business starting out without an established reputation to go and do something that doesn't necessarily seem unethical at the time. But taking a step back, these businesses will often recognize the ethical implications of what they're trying to do.

When Work Is Challenging, Economies Thrive

"In economics, consumption is the sole end of production," the late, great Swedish economist, politician, and social commentator Gunnar Myrdal wrote in 1930. "This is a stock phrase of all the textbooks since Adam Smith: Man works in order to live." Myrdal, though, didn't think that was right:

[T]here are many people who live in order to work, who consume in order to produce, if we like to use those terms. Most people who are reasonably well off derive more satisfaction in their capacity as producers than as consumers. Indeed, many would define the social ideal as a state in which as many people as possible can live in this way.

It's fair to say that Myrdal's argument hasn't really won out. In economics, work is still mostly portrayed as just a prelude to consumption. But Edmund Phelps, the Columbia University economist who won a Nobel in 2006 "for his analysis of intertemporal tradeoffs in macroeconomic policy," has been doing his best to change that. "The passage by Myrdal and a similar one by Marshall I have been using over and over again for years now," he says, "and it always comes to people as something completely surprising."

In Phelps's telling, work is "an integral part of life itself." It's certainly an integral part of his life: At age 80, he's a professor of political economy and director of the Center for Capitalism and Society at Columbia, and for the past three years he's been dean of the New Huadu Business School at Minjiang University in southern China. He's also just written a book, Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change.

In Mass Flourishing, Phelps argues that the productivity revolution that began in the early 1800s in Great Britain and the U.S., and subsequently swept the world, was the result of a change in values and attitudes that led people to seek out novel products and challenging, uncertain work. And he makes the case that the productivity slowdown that subsequently hit Western nations at various times in the 20th century was the result of a backlash against this modernist ethos in the form of socialist and corporatist attempts to bring back stability, hierarchy, and stasis.

I talked to Phelps at his Columbia office just before a Labor Day weekend that he was planning to spend, in large part, getting to his other job in China. What follows are edited excerpts of our conversation:

In your book, you make a link between whether people feel like they're achieving something at work and overall economic growth.

Well that throws me for a bit of loop. I sometimes say there are two kinds of prosperity, one is material prosperity and the other is a non-material part of prosperity — that's the experiential benefits of having the stimulus, the challenge, the gratification of solving problems, surmounting obstacles and also the having the thrill of creating something new. Figuring out a new way to do something. Or, an even more rare thing, dreaming up a new product to produce.

I think economic growth is important, but it's not why I wrote the book. I wrote the book on the conviction that innovation is important for having a healthy economy, for having an economy that will deliver prosperity.

In your telling, the novelty-seeking ethos arrived in our world in the early 1800s, initially in Great Britain.

Yes, that's right. Everybody we know always thinks that these good things started with the Enlightenment, Sir William Harvey to David Hume. But as I was starting the book and beginning to look in earnest at some data from Angus Maddison which I didn't remember looking at much before, I saw that wages actually went down in Britain between 1750 and 1800.

Yes there was a breakout in textiles in the second half of the 18th century, but in the aggregate data you just don't see much happening. And then when the Napoleonic wars finally came to a halt [in 1815], it was just like the curtain was opened, and suddenly they had this amazing takeoff of productivity and wages.

So in your argument it's this constellation of attitudes that suddenly came together to allow for a place where people were experimenting, taking risks, trying to sell new things, buying new things.

Voyaging into uncertainty, and embarking on new projects.

Yet a lot of people's sense of the mid-19th century in England is not of this barrel-of-laughs place to be.

I just find it unbelievable, that this fabulous period of romanticism has been sort of taken away from us. We only find these dreary accounts of how tough it was to be poor in the 1830s. There's such a naïvete about how things were before the 19th century. I mean, can you imagine if you had to spend all day tending sheep all by yourself? Nobody to talk to, no change going on. I mean, my God, it's almost like a prison sentence. And then when people got to cities they could talk to people and have conversations and get involved in things.

What does the kind of workplace that delivers both non-material and material benefits look like?



It would probably be in a city where there are related businesses. You need some entrepreneurial people who get things done, but you also need some more cerebral, more dreamy types. You want a diversity of people in your company.

Just as the book was almost being snatched from my hands, the thing with Yahoo and Marissa Mayer came up.

She was worried about exactly what you're talking about, plus there were issues where people who were never there weren't as engaged.

Good for her that she had the guts to act on that. It'll be interesting to see what happens. Maybe the people who were brought back to the office were hopeless cases to begin with, and their minds are never going to be engaged by the work.

When I think about the story of the productivity revolution, the narrative I'm most familiar with, from Robert Gordon and others, is of waves of technological changes driving big productivity gains. In your telling, these technological changes are secondary to ...

Yankee ingenuity?

Yeah, basically. The attitude of the society.

The great driver for me is the prevailing individual values in the society. I don't believe that every change in values is of momentous importance, but by golly, the arrival of what Jacques Barzun called the modern era in 1500 right through to Kierkegaard and Nietsche and William James and Henri Bergson, that's not unimportant, for Pete's sake. What people think of as the normal way to conduct their lives is pretty powerful.

I had a little meeting with journalists yesterday afternoon. I thought it was a total disaster but everybody said it was fine. And the tendency was to talk about tax rates, and there was a ritual reference to regulation of course. I concluded the conversation by saying, Look, I think it took a momentous change in thinking, in attitudes and beliefs, to bring about the marvel of the productivity explosion in the 19th century. Likewise I don't think you can find the roots of slowdown in what happened to tax rates or economic policy more generally, or globalization. I think that suspect No. 1 has got to be that there was another gradual change in the balance between modern values and traditional values, and the power that traditional values gained in politics.

When you talk about modern vs. traditional values in this context, it seems to be mostly it's openness to risk and innovation vs. desire for security.

I would put it almost that way, but I wouldn't use quite those words. It's not as if people used to be afraid of those horrible risks and then they decided to gulp, like taking Castor oil, and swallow these risks and go ahead with their lives as best they could, these poor things. In my view they were drawn to it like a moth to fire. They were exhilarated by it, intrigued by it.

It's not right to think about it in terms of risk. It's exploration, it's discovery, it's voyaging into the unknown. And maybe that's perishable. Maybe that's part of the problem. Society can maintain this enthusiasm, maybe it can maintain it for a long time, but there's simply no guarantee that that enthusiasm will last. We certainly don't understand very well the dynamics of these attitudes and beliefs.

As somebody who spends a lot of time reading HBR and hbr.org, I see a lot of excitement about the new. And obviously out in Silicon Valley the enthusiasm for the new is pretty extreme right now.

They're great, and they're the best part of us. Unfortunately, they're practically pushed out to the ocean. I certainly hope that there's going to be a rebirth of this enthusiasm for the new, and I understand that it's very much present on the West Coast. But I don't think I see signs of a rebirth in the heartland of the country and in most parts of business. The way businesspeople talk, they talk about adaptation as if it were innovation.

[This led to a long discussion of the less-than-innovative ways in which economists have portrayed innovation through the years, and whether their depictions influenced business practice.]

The uncertainty that exists in an economy of dynamism got suppressed. If businesspeople needed a license to talk that way, they had it with the way economics was being discussed. I don't have a very good sense of what it was like to be at Harvard Business School as a student in the 1950s or 1960s.

It feels like the focus at the time was very much on managing something that was there.

Yes, how do you manage the company so it will be a little more efficient than the other guys? And now of course the whole takeover business, private equity, they too are perceived as going in to eradicate the inefficiencies that became encrusted around the management. There's nothing about innovation there.

So what are the policy recommendations? Can you conceive of any particular things that could be done to turn back what you see as this dangerous turn away from modernity?

We've got to do something about corporate governance in this country so that we don't have CEOs with expected tenures of four or five years or something like that. That just is so disastrous, it creates such a tilt toward short termism. And maybe somebody can figure out a way to remove the financial pressures on CEOs to hit quarterly earnings targets.

And then at the policy level, I got really interested in, well, Nancy Pelosi. She was on television advocating something or other, and I was sort of waiting for her to give at least a hint of what her thinking was of why this would be good for the country. What she said was her constituents wanted it. That was kind of the last straw. I began to think that, my God, the whole country seems to be fixated on getting benefits, from state governments, local governments, the federal government. It's not as if we're spending a huge percentage of GDP on it, it's not that. I think it's just that it seems so enervating. We want young people to grow up and come back and give us the world. We don't want them to think now life is going to be how much more in retirement benefits you can get from the city.

Has Maximizing Shareholder Value Gone Too Far?

By the People, Not for the People


In 1963, IBM CEO Thomas J. Watson published A Business and Its Beliefs: The Ideas That Helped Build IBM. The text listed the company's values in the following order: respect for the employee; a commitment to customer service; and achieving excellence. By 1994, when Louis V. Gerstner Jr. headed the company, he orchestrated an epic turnaround, putting shareholder value and customer satisfaction at the top of the list. Employees and community were at the bottom. The most recent two CEOs placed investor returns at the top of their priority lists.



So how did the company go from extolling and supporting employees to slashing jobs in order to make money for its shareholders? Jia Lynn Yang explores this trajectory, focusing on the 1970s explosion of free-market scholarly thought that has become the baseline for running a company in the twenty-first century. This, of course, has led to the implicit notion that CEOs work for the short-term benefit of their investors, not their employees, and will be rewarded with piles of cash and stock options in the process.



But is it actually working? Many people are concerned that we've adopted a mantra as fact without considering its long-term consequences for the health of the American workforce. "We don't build companies to serve Wall Street," Vanderbilt law professor Margaret Blair told Yang. "We build corporations to provide goods and services to a society and jobs for the people." Isn't that enough?

Alternate Title: Those Who Got Left Behind

The Truth About Marissa Mayer: An Unauthorized Biography Business Insider

You've no doubt seen this 22,000-word piece meandering about the internet, promising, per the scintillating title, revelations about Yahoo's CEO. True, there's a fascinating back story about Mayer's childhood, education, and career that provides important insight into how she's running Yahoo. But perhaps more interesting is the behind-the-scenes battle over the CEO-ship that pitted board member against board member in a fight to define the company’s future. Should the company prioritize media and content, competing with the likes of Disney and News Corp.? Or should it compete with Google and Microsoft on products? Obviously, the company went with the latter. But the near-soap-opera narrative of how that decision was made, and who got left in the dust, is engrossing — right down to the limo rides to a secret interview location. The photo Business Insider uses to identify said location, of course, is sourced from Google Street View (I can't be the only person who finds this hilarious).

It's All About Well-Being

Is College Worth It? Gallup

President Obama’s plan to rate colleges by data such as student debt and graduates’ earnings has stirred up talk about collegiate “outcomes” and what the purpose of higher education is or should be. But Gallup isn’t the least bit confused about the purpose of a university education. The point of those four years should be to get you a job you actually like doing. A job where you do what you’re best at, every single day. If you have that, you’re more likely to experience “career well-being,” which is the most important of the five elements of total well-being, the others being social, financial, physical, and community (you’re engaged with the area where you live). Brandon Busteed writes for Gallup that an analysis of graduates’ well-being would be a “real and meaningful measuring stick” for colleges. —Andy O'Connell

.mineallmine

The Great Internet Land Grab The New Yorker

When a 2011 decision from the Internet Corporation for Assigned Names and Numbers (ICANN) came down, widening the market for domain names, it seemed like step in the right direction. After all, simple, intuitive domains are almost impossible to find, unless you're interested in a prolonged battle with whatever weird entity owns the name you want. So are the new possibilities — like .cnn or .book — going to democratize things? Maybe. While "domain-name speculators" have been applying like crazy for every name under the sun — even Google and Amazon are in on the game, with applications for 101 and 78 names, respectively — there's a new system for deciding who gets what name.



Meet Innovative Auctions, a firm that holds private auctions to settle incidences of multiple entities’ wanting the same domains. It's basically eBay for dot coms, but with a twist: "Bid money is divided evenly among those who drop out along the way." This puts money in the pockets of those who bid often, regardless of whether they win. And the more money you have, the more likely you can buy the domains that matter.

Darn

Your Boss Won't Stop Spying on You (Because It Works) Bloomberg Businessweek

Sure, it seems creepy. But a new study from researchers Lamar Pierce, Daniel Snow, and Andrew McAfee "paints ubiquitous surveillance in a pretty bright light." Studying 392 restaurants that are part of five chains, the trio compared rates of theft and revenue at eateries with and without a software system that monitors the data from cash registers and other money-making devices. Those with the system experienced a 22% drop in theft and a revenue increase of 7%. Productivity also increased, to boot. So should this type of surveillance happen on a larger scale? Maybe not: A recent research roundup found that "indiscriminate monitoring fosters distrust, conformity, and mediocrity." What that says about the ethos of the restaurant industry, well… no comment.

BONUS BITS:

Mall Madness

Asia's Mega-Mall Boom Is Headed Toward Bust (Quartz)
The Ruthless Global Battle for Your Back-to-School Shopping Dollars (The Atlantic)
The Amazing and Ridiculous Tech from a 30-Year-Old Sears Catalog (Wired)

Will the Internet Destroy the Stock Market?

Last week, the NASDAQ exchange froze for three hours due to a faulty connection. On Monday, Europe's largest derivatives market shut down for an hour because of a glitch. Last month, 14,000 people in rural Iowa lost internet access after a minor car crash crushed a cable. In 2011, the entire country of Egypt had a total internet blackout after officials ordered the country's ISPs to flip a few switches; the Syrian government is now doing the same. In late 2006, most of Asia had the same experience after a minor earthquake cut a transatlantic cable.

In our era of smartphones, iPads, and Wi-Fi, it is easy to forget that the internet is bound by physical infrastructure. Massive servers housed in high rise buildings, transoceanic fiber-optic cables, and myriad routers and switches crisscrossing the globe have transformed not just how we communicate, but almost every aspect of modern society. Generally, this is a good thing. But our increasing reliance on the benefits of this vast network means we must also acknowledge the internet's limits and the potential consequences of exceeding those limits.

All networks grow until reaching a breakpoint, a point at which the carrying capacity of the system is exceeded. The result is a crash. We see this in nature (ant colonies, for example, only grow to a certain point before retreating), in the brain (neurons multiply exponentially in a child's brain but shrink down to a fraction of their maximum level by adulthood), and in technological networks (remember MySpace?). Now that the world is dependent on the internet, economies and markets are bound by these limits as well. Pushed past the breakpoint, all systems risk collapse.

The stock market in particular is at risk of hitting a major breakpoint. The stock market was intended to be a long-term vehicle for companies to raise money and for investors to reap the rewards after their money was utilized to grow those companies. Investors periodically assessed the health of their portfolios and made decisions to buy or sell certain stocks based on past success and an educated guess of future performance. Over the long term, markets are efficient and generally increase in value. In the short term, however, there are market inefficiencies and fluctuations, which traders speculate on for short term gains and losses.

This type of short-term trading is tantamount to legalized gambling. While it has been around since the beginning of the stock market system, in the 21st century, it has been taken over by internet technologies and accelerated beyond recognition. High frequency traders use complex algorithms to exploit micro differences in trading prices over time — not years, months, or days... but seconds and milliseconds. Admittedly, fund managers cannot even explain the algorithms because the networks learn as they go and change algorithms accordingly. The computers far exceed human ability to compute, calculate, and predict, and they pick up on and exploit tiny factors that no human brain can recognize. I would go as far as saying that there is actually an artificial intelligence at work here, which none of us fully understand.

Increasingly, winners at this new stock market game are determined not just by the fanciest algorithms but also by the speed of the hardware that provides access to the information needed to plug into the algorithms. The process is already fast — news of an event goes from the wire to a trader's computer network in milliseconds. But the difference between recognizing and reacting to that data nanoseconds faster can mean billions lost or gained. These tiny fractions of a second (much, much faster than a blink of an eye) are so important that some traders have gone to great lengths to improve their speeds. Many have purchased dedicated internet cabling, some have gone so far as to move their computer networks to be in close physical proximity to the data centers of the stock exchange and news outlets, paying hundreds of millions of dollars for direct access.

Untold fortunes have been made as a result. But problems have surfaced. In June, Thomson Reuters came under fire for allowing its elite clients to see consumer confidence data 5 minutes and 2 seconds before the general public gained access. On one day — May 17, 2013 — over $100 million changed hands before the rest of the public even knew an event had occurred. This event didn't lead to a crash, but it could have. That is what happened a few years prior when high frequency trading contributed to the May 6, 2010 "Flash Crash" in which the Dow dropped 1000 points in minutes, only to recover a few minutes later. Computer networks are working faster and more efficiently than the markets can bear. Is this a foreshadowing of what is to come?

The stock market was meant to work as a long-term system. Applying these short-range game tactics — and make no mistake, anytime you're trading stocks on a short timescale, you're playing a game — is risky, especially at the speed at which we're now moving. A rational solution would be to limit the amount of trades any individual or group could do on a single stock. But there is very little appetite for that. Yet without slowing down the network, we are allowing it to move towards a cataclysmic breakpoint, perhaps leading to an implosion of the whole stock market structure or the global economy itself.

Anytime a network goes through a breakpoint, there are two possible outcomes. More often than not, the network implodes and dies. 90% of all animal species never make it through a breakpoint; the survival rate is even worse for new businesses and technologies. But systems leveraging a network, those relying on existing network infrastructure, usually fare better. The stock market is such a system. So long as we do not allow it to be abused, our markets will grow stronger and become more efficient. To do so, however, we must paradoxically slow down the system to allow for maximum efficiency.