Tag Archives: Economics

Burning Toast: American Health System Style

Democrats and Republicans have created a health care system in the USA over the last 40 years that “burns toast” at an alarming rate. As the symptoms of their health care system are displayed they call in people to blame for burning toast.

Their participation in the “you burn, I’ll scrape” system is even worse than the normal burning then scraping process. They create a bad system over decades and ignore the burnt toast just telling people to put up with it. And when some burnt toast can’t be ignored any longer they then blame individuals for each piece of burnt toast.

They demand that those they bring before them to blame, scrape off the burnt toast. And they act shocked that the “toaster” burns toast. It is the same “toaster” they designed and maintain at the behest of those benefiting from burnt toast and of course it burns toast (those results are the natural outcome of the system they designed and maintain).

We need to fix the decades old broken toaster that the Democrats and Republicans built and have maintained. Dr. Deming called excessive healthcare costs a deadly disease decades ago yet Democrats and Republicans allowed it to continue harming us year after year and decade after decade.

We don’t need distractions blaming a few individual for what the two parties have created and maintained for decades. We need leaders to address the real issues and stop the distraction that those benefiting from the current system want to continue to see from those in Washington.

You don’t fix the system if all you do is blame individuals for each piece of burnt toast. Fixing blame on each piece of burnt toast is exactly what those that have continued to make sure the system is designed to continually burn toast love to see. It is a good way to make sure the fixes needed to the design of the toaster are not addressed. Both political parties have done well by those they receive payments from to ensure that the current toaster isn’t changed.

For decades the data shows the USA health care system costs are nearly double that of other rich countries with no better results. And we are not comparing to some perfect ideal, those efforts we compare to need much improvement themselves. So how bad much the USA health care system be to cost nearly twice as much as those systems that have plenty of room for improvement themselves?

Related: EpiPen Maker Also Hiked Prices on a Slew of Other MedicationsUSA Health-Care System Ranks 50th out of 55 CountriesDrug Prices in the USA, a system continually burning toast (2005)USA Heath Care System Needs Reform (2009)2015 Health Care Price Report – Costs in the USA and Elsewhere

Decades Later The USA Health Care System is Still a Deadly Disease for Our Economy

Decades ago W. Edwards Deming named 7 deadly diseases of western management. One of those was excessive health care costs. Sadly that deadly disease has become much worse in the last several decades.

Americans pay 300% more for this prostate cancer drug than much of the rest of the world

Xtandi, a prostate cancer drug co-licenced by Japan’s Astellas Pharma and Medivation Inc. was developed at a U.S. university with grants funded by taxpayer dollars. That gives the federal government the right to revoke the patent if the terms are unreasonable, said the letter, dated Monday.

“We do not think that charging U.S. residents more than anyone else in the world meets the obligation to make the invention available to U.S. residents on reasonable terms,” said the letter, which had Sen. and presidential candidate Bernie Sanders, Sen. Elizabeth Warren and Rep. Elijah Cummings among its signatories.

This specific example also highlights what I classified as a new deadly disease in 2007 – the broken patent and trademark system.

Both of these deadly diseases greatly damage the USA economy and the economic condition of USA citizens. It is disgraceful that the Democratic and Repulbican parties have allowed these deadly diseases to ravage the USA economy for decades.

The drug price situation in the USA is greatly exsaserbated by the corrupt political process. Drug companies give large amounts of cash to those we elect and then those we elect create system that damage the USA economy and provide drug companies huge extra profits inside the USA (those profits then allow the companies to charge other countries even less and still make a great return on their investment). I wrote about this in 2005: Excessive Drug Prices in the USA (and several times since then, Drug Price Crisis [2008] – it is a long term, huge economic problem for the USA).

Health care is extremely expensive everywhere. But in the USA the health care system is twice as costly as other rich countries. This is an enormous burden on the USA economy. Nothing else comes close to being as costly in terms of direct spending. And there a a great deal of other damage done that can’t be seen in just the 100% more the USA spends on health care than other rich countries spend. And the health outcomes are no better for the extra hundres of billions of dollars spent every year for health care in the USA.

The costs of decades of failure are extrodinary. We shouldn’t allow the political parties to continue to fail to sensibly address these problems. Even if we can just get to the point of costing 50% more than other rich countries our economy will be greatly enhanced, but we have not even been able to reduce the health care tax the USA health care system puts on us to just 50% more than other countries. That is a pretty sad state of affairs especially when you consider that other countries are not doing a great job – so we are twice as costly, not as some extremely wonderful amazing system but twice as costly as mediocre comparisons.

Extremely inflatted drug prices in the USA are a significant part of the problem but still only a portion of a system that has been costly the USA economy and citizens hundreds of billions of dollars a year (and untold soffuering in many other ways) for decades. We have to do better.

Related: USA Health Care Spending 2013: $2.9 trillion $9,255 per person and 17.4% of GDPThe Growing Market for International Travel for Medical CareCEOs Want Health-Care Reform (2009)Can We Expect the Health Care System in the USA to Become Less Damaging to the Economy? (2011)

Out of Touch Executives Damage Companies: Go to the Gemba

When your customer service organization is universally recognized as horrible adding sales requirements to customer service representatives jobs is a really bad practice. Sadly it isn’t at all surprising to learn of management doing just that at our largest companies. Within a system where cash and corruption buys freedom from market forces (see below for more details) such practices can continue.

Such customer hostile practices shouldn’t continue. They shouldn’t be allowed to continue. And even though the company’s cash has bought politically corrupt parties to allow such a system to survive it isn’t even in the selfish interest of the business. They could use the cover provided by bought-and-paid-for-politicians-and-parties to maintain monopolistic pricing (which is wrong ethically and economically but could be seen as in the self interest of a business). But still provide good service (even while you take monopolistic profits allowed with corrupt, though legal, cash payments).

Of course, Adam Smith knew the likely path to corruption of markets made up of people; and he specifically cautioned that a capitalist economic system has to prevent powerful entities efforts to distort markets for individual gain (perfect competition = capitalism, non-competitive markets = what business want, as Adam Smith well knew, but this is precisely not capitalism). Sadly few people taking about the free-market or capitalism understand that their support of cronyist policies are not capitalist (I suppose some people mouthing those words are just preaching false ideas to people known to be idiots, but really most don’t seem to understand capitalism).

Anyway, this class of protected businesses supported by a corrupt political and government (regulators in government) sector is a significant part of the system that allows the customer hostility of those politically connected large businesses to get away with a business model based on customer hostility, but wasn’t really what I meant to write about here.

Comcast executives have to know they are running a company either rated the worst company in the country or close to it year after year. They, along with several others in their industry, as well as the cell phone service providers and too-big-to-fail-banks routinely are the leaders of companies most reviled by customers. Airlines are also up their for treating customer horribly but they are a bit different than the others (political corruption is much less of the reason for their ability to abuse customers for decades than is for the others listed above).

Leaked Comcast employee metrics show what we figured: Sell or perish [Updated]
Training materials explicitly require a “sell” phase, even in support calls.

The company’s choice to transform what is traditionally a non-revenue-generating area—customer service—into a revenue-generating one is playing out with almost hilariously Kafkaesque consequences. It is the nature of large corporations like Comcast to have dozens of layers of management through which leadership instructions and directives are filtered. The bigger the company, the more likely that members of senior leadership (like Tom Karinshak) typically make broad policy and leave specific implementations to lower levels.

Here, what was likely praised in the boardroom as an “innovative” strategy to raise revenue is instead doing much to alienate customers and employees alike. Karinshak’s assurances that he doesn’t want employees to feel pressured to sell in spite of hard evidence that Comcast demands just that are hard to square with the content of the document.

So what is going on here? Most people can easily see this is likely a horrible practice. It is a practice that a well run company theoretically could pull off without harming customers too much. But for a company like Comcast to do this it is obviously going to be horrible for customers (same for all those too-big to fail banks, cell phone service providers and other ISPs and cable TV providers).

Lets just pretend Comcast’s current leadership executives were all replaced with readers of the Curious Cat Management Improvement blog. And lets say that for now you are suppose to focus on improving the policies in place (while thinking about policy changes for later but not making them yet).

Continue reading

Business 901 Podcast: Two New Deadly Diseases for Business

I continue to record podcasts as I promote my new book – Management Matters: Building Enterprise Capability. In this podcast I discuss the 2 new deadly diseases facing companies. The second part of the Business 901 podcast will be posted soon.

Links to more information on items discussed in the podcast: Dr. Deming’s 7 Deadly Diseases + 2

Executive pay:

Copyright and Patents

I have created a new subreddit for posting links to interesting items about the new deadly diseases for business.

Related: Interviews for Management Matters: Building Enterprise Capabilityprevious business 901 podcastLeanPub podcast on Management Matters

Using Incentives to Guide Social System Improvements

When confronted with the challenge of managing a social system (or market) I like to find ways to use a few simple rules that will guide the system to find improvements. I favor allowing participants in complex social system to determine how to adapt. So I support, for example, a carbon taxes where the market can decide where it is most effective to invest to reduce carbon use (both to reduce our depletion of the resource and to reduce pollution leading to climate change).

I like to try and keep prescription rules as limited as possible and instead set simple rules that will allow people to make choices. These rules will often allow for people to judge when they need to temper the extremes (in management examples) and in economic situations they often can have costs that escalate as the system is strained (so low pricing if the road is currently not heavily used and increasing the cost to users as congestion increases). The more prescriptive the rules the less ability people have to find creative solutions.

Traffic congestion is a perennial problem with high very costs to society. I very much like congestion pricing. You set a rule that puts increasing costs on those creating an overload on the system (which has costly negative externalities). Then allow people to figure out how to adapt.

The video also provides a very good example of why leadership is important. In Stockholm people were against congestion pricing (70% to 30%). This isn’t surprising they see a new tax that only is a cost. They don’t understand that the system performance is going to improve – the cost will provide a benefit. Leadership is required to push forward when the benefits are not obvious to everyone. Once people saw that congestion was greatly decreased 70% supported congestion pricing.

Jonas Eliasson: “Don’t tell people how to adapt. Nudge them. If you do it correctly – they’ll embrace the change”

Related: The Case for Physically Separated Bike LanesUrban Planning in Northern VirginiaDisregard for People by FedEX and UPS – Systems thinking allowed the engineers to design a solution that wasn’t about enforcing the existing rules more but changing the system so that the causes of the most serious problems are eliminated. – Using Outcome Measures for Prison Management

Long Term Thinking with Respect for People

Toyota nearly went bankrupt near 1950 and had to lay off a third of their employees. A huge focus of the Toyota Production System as envisioned by Taiichi Ohno was to secure the long term success of the company. The priority of doing so is easier to see when you respect people and are in danger of witnessing the destruction of their careers.

photo of John Hunter with a walking stick

I can’t find the quote (maybe Jon Miller, or someone else, can provide one), but I recall one along the lines of the first priority of management is providing long term viability of the company (my sense is this is first due to the respect of the workers and also for all the other stakeholders). The respect for people principle requires executive put the long term success of employees at the top of their thinking when making decisions for the company. I don’t believe it is a ranked list I believe there are several things right at the top that can’t be compromised (respect for people, safety of society, support for customers…).

This means innovating (Toyota Management System, Toyota Prius, Toyota Robots, Lexus brand, etc.) and seeking growth and profit with long term safety that does not risk the failure of the company. And it means planning for the worst case and making sure survivability (without layoffs etc.) is nearly assured. Only when that requirement is met are risks allowed. You do not leverage your company to put it at risk of failure in dire economic conditions even if that would allow you to be more profitable by various measures today. And you certainly don’t leverage just to take out big paychecks for a few short term thinkers.

The economic situation today is extremely uncertain. The whole eurozone financial situation is very questionable. The government debt burden in the USA and Japan is far too high (and of course Europe). China is still far from being a strong economy (they are huge, fast growing and powerful but it is still fairly fragile and risky).

The failures in the current financial system have not been addressed. Band-aids were applied to provide welfare to the largest 30 financial institutions in the form of hundreds of billions or trillions in aid. The system was left largely untouched. It is hard to imagine a more textbook example of failing to fix the causes and just treating the symptoms. This leaves a huge financial risk poised to cause havoc.

Continue reading

Marketplace Looks at the Apple Economy

Marketplace looks at the Apple economy in China. Marketplace is an excellent source of actual journalism; rare in the post Bill Moyers days, sadly.

A look inside a Foxconn factory

The first misconception I had about Foxconn’s Longhua facility in the city of Shenzhen was that I’ve always called it a ‘factory’ — technically, it is. But after you enter the gates and walk around, you quickly realize that it’s also a city — 240,000 people work here. Nearly 50,000 of them live on campus in shared dorm rooms. There’s a main drag lined on both sides with fast-food restaurants, banks, cafes, grocery stores, a wedding photo shop, and an automated library. There are basketball courts, tennis courts, a gym, two enormous swimming pools, and a bright green astroturf soccer stadium smack-dab in the middle of campus. There’s a radio station — Voice of Foxconn — and a television news station. Longhua even has its own fire department, located right on main street. This is not what comes to mind when you think “Chinese factory.”

Yet it is: as you walk beyond the civic center of Longhua, the buildings begin to change.

From a management perspective there is a great deal to be desired in Apple’s manufacturing practices. The economic perspective however, for me, provides a much different picture than those in rich countries (USA, Europe, Singapore, Japan…) often feel.

The jobs provide workers a chance to earn what for them is a great deal of money. Yes the conditions are harsh – I wouldn’t want to have to work there. But I am pretty sure I would not be happier, if I lived in China, and everything else remained the same in China except now all the Apple products were made in Singapore, USA and Spain.

Continue reading

USA Spent $2.6 Trillion, $8,402 per person,17.9% of GDP on Medical Expenses in 2010

Total health expenditures in the USA in 2010 reached $2.6 trillion, $8,402 per person or 17.9% percent of GDP. All these are all time highs. Every year, for decades, health care costs have taken a larger and larger portion of the economic value created in the USA.

In 2009 the USA Spent Record $2.5 Trillion, $8,086 per person 17.6% of GDP on Medical Care.

USA health care spending grew 3.9% in 2010 following an increase of 3.8% in 2009. While those are the two slowest rates of growth in the 51 year history of the National Health Expenditure Accounts, they still outpaced both inflation and GDP growth. So yet again the health system expenses are taking a bigger portion of overall spending. This has been going on so long that the USA spends double what many other rich countries do on healthcare with no better results.

As a result of failing to address this issue for decades the problem is huge and will likely take decades to bring back just to a level where the burden on those in the USA, due to their broken health care system, is equal to the burden of other rich countries. Over 2 decades ago the failure in the health care system reached epidemic proportions but little has been done to deal with the systemic failures. Dr. Deming pointed to excessive health care cost, back then, as one of 7 deadly diseases facing American business. The fact that every year costs have increased more than GDP growth and outcome measures are no better than other rich countries shows the performance has been very poor. The disease is doing even more harm today.

Some good things have been done over the years, most notably by Don Berwick while at the Institute for Healthcare Improvement. He was effectively thrown out of office by the politicians recently. The same politicians that have through decades of such foolish acts contributed more than any other group to the broken health care system that burdens the USA today. In the last 10 years a significant amount of good work has also been done in “lean healthcare”: applying lean thinking to healthcare. But it is similar to the quote that a “bad system will beat a good person.” With all the bad systemic issues the efforts, good as they are, in lean healthcare are mainly improving around the edges. Of course, “around the edges” of a $2.6 Trillion dollar system can still be extremely valuable and important.

Related: USA Heath Care System Needs ReformUSA Spends Record $2.3 trillion ($7,681 Per Person) on Health Care in 2008Systemic Health Care Failure: Small Business CoverageMeasuring the Health of NationsHow to improve the health care system performanceManagement Improvement in HealthcareUSA Spent $2.2 Trillion, 16.2% of GDP, on Health Care in 2007

Continue reading

Worth Does Not Equal Wealth

Warren Buffet often says he happens to be very good at something that is very financially rewarding – effectively allocating capital. He says this while making the point that plenty of other people are exceptionally gifted in ways that are not as financially rewarding (teachers, grandparents, nurses, Peace Corps assignment…) but are important to society. He understands that his worth as a person is not tied to this bank account. It might be one reason he and Bill Gates have so generously used their wealth to help others. They understand those actions are related to the their worth.

People should not tie their feeling of their own worth to their income. We don’t talk about it much directly but I see it far too often in the way we discuss things. Most people agree we shouldn’t judge people by their bank account or their earning power but we still do it. Hey we have flaws. We also judge people based on how attractive they are and how tall they are and other far from sensible things. Study after study shows we do this even if we want to pretend we don’t.

At least in the USA far too often people mistake financial success for worthiness. Financial success is great (I am not one of those that sees wealth as a bad thing – even if the correlation to bad behavior can seem high, at times). Even in companies this is often done where those with higher salaries are seen as more worthy – not everywhere, not all the time, but still more than we should. And when the economy is bad more and more people face not only financial struggles but the added pressure of feeling less worthy as they struggle financially.

I think it is good that we feel a desire to contribute and play our part in making our communities successful. But we shouldn’t be overly critical when we are making real efforts to contribute but for example, the job market is very bad and we can’t be as financially successful as we were before. Or feel we have to judge our success versus our siblings, friends, childhood friends, co-workers, children… based on our material wealth.

Related: Narcissistic Cadre of Senior ExecutivesMillennium Development GoalsYou Can Help Reduce Extreme PovertyHigh School Inventor Teams @ MIT

Warren Buffett quotes:

“I happen to have a talent for allocating capital. But my ability to use that talent is completely dependent on the society I was born into. If I’d been born into a tribe of hunters, this talent of mine would be pretty worthless. I can’t run very fast. I’m not particularly strong. I’d probably end up as some wild animal’s dinner.” – quoted in The Audacity of Hope, page 191.

Work and Life

I believe in efficiency a great deal (it is a big part of the reason I took to Deming and lean manufacturing – I find waste annoying). Vacation sure can seem inefficient. All these people that could be working, not working. But people are not the same as machines. Time away from work can reinvigorate people. Time away from the day to day work can lead to better performance when people are actually at work. Time to enjoy life is valuable in itself.

The USA has enormous financial wealth. But vacation time in the USA is much less than most other rich countries. I think, by and large, this is a mistake in the USA. It is true part of the reason for the financial wealth in the USA is we chose to work longer hours so we can purchase more material goods. And as a principle I believe in limiting constraints on the market – so that the market can find solutions that people chose.

There are some difficulties with a free market approach to leave. First, in truth there is not much of a free market. Granted the government isn’t saying you have to offer only 2 or 3 or 4 weeks or leave. But try to negotiate with most employers in the USA for additional leave. You will find many have policies that they say won’t let them negotiate. So employees often have little choice about the amount of leave they can take with a job (even if they are willing to trade off salary).

There are several reasons for the lack of vacation time in the USA. One of the big reasons is the broken health care system. Health care costs are so huge, that the per hour costs of health care are very high. Companies don’t want fewer productive hours when the high health care costs are going to be the same for the year no matter if the work year is 1,600; 2,000; or 2,200 hours. Having 15% fewer employees for the same number of work hours that is a huge savings so companies have a big incentive to make hours worked per employee as high as possible.

Related: Vacation: Systems ThinkingMedieval Peasants had More Vacation TimeDream More, Work LessToo much stuffphotos from some of my time off
Continue reading