Lionel Shriver on why an American or European might oppose immigration on nonfinancial grounds

We’re informed that low-skill migrants make a country rich. If this is true, could there be any rational basis for opposing open borders? From Lionel Shriver’s A Better Life, a conversation between a Honduran and the 27-year-old son in her Brooklyn host family (“Big Apple, Big Heart” program):

“America is rich.”

“America is broke—thirty-three trillion dollars in debt, and a couple trill more every year.”

“Los inmigrantes take small money.”

“Small money adds up.”

“You is crowded? This house, three bedroom with nobody. In Honduras, thirty, forty people live here, no hay problema.”

“Okay, no, I’m not personally crowded.”

“You no pay. You no crowded. Why big feeling?”

“The ‘big feeling’ has to do with home. Home isn’t only a place; home is a big feeling. That you belong. That you can understand the people around you, and they can understand you, because you’re mostly the same.” Nico was struggling for a definition that didn’t stray into the tar pit of race. He resorted to Google’s conversation mode. “It’s about feeling comfortable and welcome and not having to try very hard. It’s a place where people laugh at your jokes, and you laugh at their jokes. You can sing some of the same songs. You watch some of the same TV programs. You know you can trust most people, and you know how to recognize the people you can’t trust. When your home fills up with people from somewhere else. Who speak different languages so you can’t understand each other. Who think different things. Who have no deep connection to your home, no ‘big feelings’ for your home. No history there. Who often . . .” Here he hesitated; this was awkward face-to-face, but he remembered Palermo’s unflattering characterization of her brother as only braving negative sentiments about people behind their backs. “Who often come to your home to take advantage, to see how much they can take. Well, then your home doesn’t seem like a home anymore. It seems like anywhere. It makes you sad.”


Of course, rich people in the U.S. can escape the above by moving, e.g., to an all-white ski town in the winter and an all-white beach town in the summer. The only migrants they’ll encounter are deferential service workers (i.e., servants). It is the middle-class resident of Dearborn, Michigan who might be forced by economics to stay in a neighborhood that has become almost entirely Arab-Muslim. It is the middle-class resident of Elmhurst, Queens who doesn’t have the resources to move away when every other family on the block speaks primarily Mandarin.

(I recently met a reasonably-rich-via-trust-fund older lady who’d moved after decades in Key Biscayne, Florida. It was mostly non-Hispanic white when she moved there. It’s now over 70 percent Latinx. Despite being a lifelong Democrat, she unashamedly said that she’d moved to Florida’s Treasure Coast because she was tired of hearing Spanish spoken all the time and not being able to communicate with everyone she encountered in a shared language (she hadn’t learned significant Spanish). ChatGPT: “Key Biscayne went from almost entirely non-Hispanic in 1960 to a Hispanic-majority community by ~2000, and today is roughly two-thirds Hispanic.”)

Loosely related, a visualization of migration into Europe. It would be interesting to see one for the 70+ million migrants who’ve entered the U.S. since 1976 (Pew).

It is possible to see a visualization of “illegal immigrants” (the undocumented, in other words), but only since 2020. And the people who’ve transformed the U.S. in the most profound ways have been legal immigrants.

Related, legal immigrants admitted by qualified government experts under laws passed by our wisest citizens (Congress):

Full post, including comments

Predicting the effects of AI on labor markets by looking at container shipping (a book about the Box called The Box)

I hope that everyone who celebrates is having a meaningful National Supply Chain Integrity Month.

I recently listened to The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger by Marc Levinson, against whom I was somewhat prejudiced because he has worked as an editor for The Economist, a magazine written and edited by experts who never met a human.

It’s a suprisingly interesting book on an uninteresting subject. The author is an economist so he is expecially weak on the engineering challenges of building ever-larger container ships and cranes. Nonetheless, we do learn about some of the engineering that went into designing the containers themselves, e.g., the corner connectors and figuring out how to support the weight of additional containers piled on top.

Like AI today, container shipping was perceived in its early days (1960s) as potentially saving a huge amount of human labor, especially dockside. Breakbulk shipping required large crews of longshoremen working for days to pack items into cargo holds, thus giving the mariners a relaxed week in port. Because longshoremen were usually unionized and had the power to shut down ports completely, they were able to negotiate the transfer of a massive share of the expected profits from container shipping to their members, either for not working at all or for working part-time. Non-unionized workers in the breakbulk shipping industry were completely out of luck. Future workers were also out of luck. As members of longshoremen unions died, the benefits of the union contract flowed only to those who were still alive and/or working. Crane operators in Los Angeles can make over $300,000 per year, but there aren’t many of them.

Practical advice for young people: Get a union job now and in a union that can shut down something important to the rest of the economy and/or the public. If containerization is any guide, unionized schoolteachers will be able to keep their wages even if Optimus can teach better. It would be ideal if one could think of a union that can shut down all AI data centers, but I am not sure there is one. Maybe the people who handle cooling? Even then, however, the data centers theoretically have the right to hire replacement workers during a strike. (School districts have this right too and it would be trivial to hire some adults to take over teaching/daycare responsibilities, but they don’t do it because, I guess, the union and the people who run the city are part of the same political party.)

Container shipping caused a massive shift in employment. Docks and their associated jobs in Manhattan and Brooklyn disappeared. So did factories that had been close to the docks in order to faciliate shipping to Europe. The replacement was Port Elizabeth in New Jersey, set up in 1963 to handle containers for Malcom McLean‘s Sea-Land. The factories moved to Upstate New York, Pennsylvania, Connecticut because with container shipping they just needed to be able to put a box on a railroad car headed for Port Elizabeth.

The advent of container shipping did not highlight the merits of technocratic government or credentialed experts. Governments, armed with expert advice and forecasts, were investing huge quantities of tax dollars in wharves for breakbulk ships just as the container boom was becoming established. Experts predicted minimal savings and disruption from containerization, perhaps partly due to government regulations that stifled the growth of the industry. Until President Gerald Ford kicked off the deregulation trend in the U.S., rates for shipping via rail and truck were set by a central planning agency (the ICC). International shipping rates over water were similarly regulated by a combination of bilateral agreements, cartels among shipping lines, etc. The rate to ship a load of refrigerators, for example, might not be different whether they were in a container or not. It wasn’t until the 1980s that the full benefits of containerization began to be experienced by shippers and consumers. In other words, government intervention in the market delayed the benefits of the technology by 15-20 years.

As with AI, which has made receptionists at NVIDIA richer than 99% of the people who live in Michigan (Detroit was once the richest city in the US and maybe the world!), the benefits of container shipping haven’t been equally distributed. A privately-owned non-union (at the time) port in Felixstowe took away thousands of jobs from unionized government-owned ports in other parts of the UK. Intelligent and efficient countries got dramatically richer, e.g., Singapore and the Netherlands, while countries that couldn’t get organized were left much farther behind than in the breakbulk days, where everyone was inefficient. It’s almost free to ship cargo among the world’s leading container ports and expensive/slow to ship cargo to places that aren’t regularly visited by big ships. The cycle tends to be a virtuous one. Because Panama has a busy container port that’s also the logical place to put factories that divide up and repackage pharmaceuticals for re-export to other Latin American countries. Being a landlocked country was already bad, but the penalty increased with containerization. (Our family experienced this with roofing tile. We got $30,000 of clay tiles from Spain, including container shipping and a truck ride up from Miami. It was going to cost $16,000 for tiles from Ohio…. just for the shipping.)

Consider Haiti, one of the world’s most violent and dysfunctional societies (which is why the U.S. is eager to import as many people from this society as possible?). It also has a violent and dysfunctional container port. UNICEF:

Armed groups breached the city’s main port a week ago, severing one of the capital’s last remaining lifelines for food and supplies as the country edges closer to collapse. Currently, over 260 humanitarian-owned containers are controlled by armed groups at the port.

Even if the rest of Haiti weren’t violent and dysfunctional, no factory could be set up profitably given the violent and dysfunctional nature of the port.

Moving over to the most functional country in Sub-Saharan Africa… “South African ports still rank among worst in the world” (BusinessTech 2025):

State-owned Transnet Port Terminals is pouring investment into cranes and new equipment after years of corruption and mismanagement that eroded the quality of its operations. The Container Port Performance Index from 2020 to 2024 took note of the upgrades and measures, including better weather forecasting at two local facilities. … Still, Cape Town was 400th in the survey, with Coega and Durban the penultimate and last of the 403 ports ranked.

The countries with high-ranked container ports are likely to be more advantageous spots for factories, at least the parts of those countries connected by good rail links to the efficient ports. Note that even today it can cost more to ship a container a few hundred miles by rail than thousands of miles by ship.

Also interesting from the above-cited report, what happens when you compare the best that Americans can do, considering all union and cultural factors, to our brothers, sisters, and binary-resisters in Asia?

(Note that some of this inferior performance might be robot vs. human. American unions have had a lot of success in obstructing the installation of automation at our ports.)

So… if the AI revolution turns out to have dramatic economic effects, as predicted, the benefits will be radically unequal. Maybe Californians won’t complain so much about inequality if it turns out that nearly all of the wealth of the U.S. ends up in California as a result of the AI economy? Will they be eager for federal tax policy that plucks wealth from California AI Achievers and pays it out to Left-Behind Mainers and Michiganders?

Can we predict the people and places that the AI boom will enrich the most? I hope that SE Florida will be fine, even if money is earned elsewhere in the U.S., thanks to the spectacular mismanagement and consequent high taxes of a lot of other parts of the U.S. (Maybe Jensen Huang will eventually retire and bring his personal $trillions to tax-free Florida?) California is an obvious candidate for a place where a lot of individuals will keep getting richer, but mostly the rich AI nerds will leave the other 40 million Californians in the dust.

Maybe the answer is that AI is most useful to the smartest humans and, therefore, the big winners from AI will be the smartest humans and places where smart humans cluster. This was the core point of the book The Bell Curve, improperly characterized as a book about IQ as a function of race. In fact, the main point is that, unlike in medieval times, the modern industrial economy delivers enormous rewards to the smartest people. A potato-picking peasant in 1500 who happened to have an IQ of 130 wasn’t going to earn a lot more than his counterpart with an IQ of 100. If AI accelerates the trend identified by The Bell Curve then maybe Korea, China, Japan, Singapore, and Taiwan will be the ultimate winners. (Average IQ in the U.S. started to fall shortly after our post-1965 opening of our borders to immigrants from countries with lower-than-100 IQs.)

Containerization was invented by an American. The first purpose-built container ships were built in U.S. shipyards. All of the early leaders in container shipping were American companies. One of the biggest early adopters of container shipping was the U.S. military (to support our ultimately futile efforts in South Vietnam). Today, however, the U.S. is insignificant in building and operating container ships. Merely because the world’s current AI leaders are in the U.S. we shouldn’t be complacent!

Readers: Who wants to make some predictions?

Fresh on X today, from the Financial Times, about how AI makes the cognitive elite more elite (i.e., another reason why the majority of Americans will eventually vote for everything that Bernie Sanders, Elizabeth Warren, and AOC propose):

(Photos from Panama, 2023)

Full post, including comments

Lionel Shriver on elite college admissions

You might remember Deplorable Lionel Shriver from these pages, e.g.,

She has a new book: A Better Life. It’s about a NYC progressive who lives her principles by taking in a migrant (with a $3,300/month rent from taxpayers under the “Big Apple, Big Heart” program) and the effect that this has on her adult children, one of whom is a failure-to-launch-after-coronapanic boy.

“I don’t know how long the program is budgeted for. Who knows, our first experiment could be short-lived. Most migrants are anxious to find work and establish their own home.” “In the most expensive city in the country.” “Yes, even here. As a rule, migrants are resourceful. Resilient. They’re natural problem solvers. Our creaming off the most aspirational people in other countries is a kind of stealing. A porous border would be a policy of fiendish demographic genius, if only it were intentional.”

(the mom’s principles were somewhat flexible: “She got alimony, which before the divorce she’d claimed she didn’t believe in,”)

The relevant section for today’s post is on the near-impossibility of getting into elite colleges when applying from the Northeast:

Furthermore, confirming he was way dumber than his parents and teachers had alleged, he’d bought wholesale into his country’s glib formula for winning the college admissions game: earnest study + fanatical test prep + an overkill of extracurriculars both broad and a little quirky + savvy reading up on tips for making your essay stand out from the pack (when the rest of that pack was acting on the same tips). But imagining that anyone named Nico Bonaventura had a crack at the Ivies in the 2010s was hilariously naive.

He wasn’t a legacy candidate; his father went to Bennington, his mother to Smith. Whatever its in-august status in 1992, Ditmas Park no longer qualified as deprived. All the top schools had an excess of applications from New York. His parents were too wealthy for him to qualify for scholarships but not wealthy enough to seem like potential big donors down the line. He didn’t have a sob story (truly determined to gain admission to the rarefied ranks of higher education, he’d have run out in front of a bus). His test scores were near the top, but not, like those of his high school’s Asian math whizzes, perfect. The coup de grâce: he was white.

His parents might have spared him that blizzard of form-filling: “Honey? You haven’t a prayer. You fit the profile of exactly the candidates every selective admissions office in this country is bending over backwards to reject. Remember that Borough of Manhattan Community College accepts anybody.” Because not only were all his first choices nonstarters, but so were the second-tier “safety schools”—Carnegie Mellon, University of Michigan, Vanderbilt, Rensselaer. He was left with third-tier, or no-tier. Meanwhile, word spread at his high school that certain students, who everyone knew full well were academic mediocrities at best but who also displayed the, ah, qualities that these fastidious admissions officers were looking for, got into Brown (irony alert), to Yale, and to Cornell. The whole college scramble was a con, and having jumped all those hoops like a performing seal—joining the chess club, studying the oboe, taking that AP course in International Relations—left him feeling humiliated.

Anecdotes from friends’ white male kids this year:

  • applied from New Jersey with 1590 on the SATs (test taken in 10th grade for the first and only time) and perfect grades at a public high school in a rich town: rejected at every Ivy League; waitlisted at a “near-Ivy”; accepted at Rutgers.
  • self-starter with a passion for engineering who applied from an expensive formerly-mostly-Jewish suburb of Boston with 1540 on the SATs and $240,000 of elite private high school tuition expended: rejected at every Ivy League and quasi-Ivy science/engineering schools (MIT and CalTech)

Let’s assume that Ivy League colleges still hate accepting Jews and Asians as much as they did before Students for Fair Admissions v. Harvard (in which the Supreme Court officially found that the colleges that claimed to be anti-racism experts were racist to an extent that violated the U.S. Constitution). Because of the Supreme Court they can’t simply hang out a “no Jews/Asians wanted” sign anymore. What if they simply cut way back on accepting applicants from the Northeast? That gets rid of half the Jews/Asians who apply in a manner that can’t be attacked in court.

Full post, including comments

Iran war listening from Audible

Audible last month was promoting “Islamic Heritage” even ahead of “Black Creators”:

What does Audible feature in this category? Ayatollah Ruhollah Khomeini’s extensive and popular writings? Gemini’s summary:

  • Marriage and Puberty: Khomeini maintained that the appropriate age for marriage was puberty, which his legal framework defined as nine lunar years for girls.
  • Sexual Contact Rulings: In his work Tahrir al-Wasilah (Volume 3, Page 229), Khomeini outlined that sexual intercourse with a wife is not allowed until she reaches the age of nine. However, the text states there is “no objection” to other forms of sexual enjoyment, such as “touching lasciviously, hugging and rubbing the thighs,” even with a suckling infant.
  • Legal Framework: Following the 1979 Islamic Revolution, these teachings became the basis for Iranian civil law, which permitted the marriage of girls as young as nine with the consent of their fathers or a court permit.
  • Reproductive Age: In the same text, Khomeini mentioned that intercourse is permissible once the girl reaches the age of nine, regardless of whether the marriage is permanent or temporary

How about the Hadiths?

Sahih al-Bukhari 5134 (Book 67, Hadith 70): Narrated by Aisha: “The Prophet (ﷺ) married her when she was six years old and he consummated his marriage when she was nine years old”.

Audible does have Sahih al-Bukhari, but it isn’t featured. Neither is the Qur’an. The choices concentrate on support for Hamas, pointing out that Muslim societies are the true repositories of feminism, and that Islamophobia is irrational (there were four domestic jihads in the first two weeks of March 2026, shortly before I captured these screens, including the Austin jihad of Ndiaga Diagne (3 infidels dead; 15 wounded) and the Old Dominion University jihad of Mohamed Bailor Jalloh (1 infidel dead; 2 wounded)):

My personal recommendation for Iran war reading: Pre-Mamdani Election Reading: King of Kings

Full post, including comments

False Dawn: FDR and the Great Depression

False Dawn: The New Deal and the Promise of Recovery, 1933–1947 is an academic economist’s look at all of the academic economists’ explanations for the Great Depression and how, with muscular government intervention led by a now-revered FDR, it could have lasted so much longer than economic downturns that happened in the U.S.’s free market period (1630-1930). (I introduced this book a few months ago with Philip’s Book Club: False Dawn.)

One popular theory is that World War II brought the U.S. out of the Depression after about a decade of failed federal government interventions. The book points out that calculating GNP during World War II is somewhat arbitrary:

But there is a deeper sense in which the wartime recovery, however and whenever it started, was no recovery at all. “In the crucial respect of waste of economic resources,” Broadus Mitchell (1947, 396) observes, “the war was, particularly for the United States, a deepening of the depression.” Tens of millions who had been either unemployed or employed in peacetime activities now took part in activities that, however crucial, continued to reduce instead of enhancing their own and the world’s living standards. To label such a state of affairs “full employment” was, Mitchell says, but “a flattering unction”: the employment thus generated was “for purposes which, by very definition, could have no place in a normal economy.” In short, the war was but a temporary solution to the problem of economic depression, and the more temporary the better. The point may seem trite. But it’s a necessary response to those—and there are many—who declare that World War II ended the Depression and just leave it at that.

… the most serious shortcoming of wartime output measures, namely, their tendency to overstate, perhaps dramatically, both the nominal value of war matériel and the extent to which it should be considered part of national output at all. As Higgs (1992, 45–47) reports, Kuznets, whose wartime and postwar deflators are among those that have been called into question by Friedman and Schwartz and others, had his own grave misgivings about the Commerce Department’s valuation of wartime output. “A major war,” he observed, “magnifies” the usual challenges involved in estimating national income, because war matériel isn’t sold at anything resembling “market” prices and also because wars blur “the distinction between intermediate and final products” (45).

Such considerations persuaded Kuznets to come up with several alternative measures of wartime and postwar GNP, all of which imply a less impressive wartime boom, or no boom at all, and no postwar slump. For example, according to Higgs (1992, 46), “whereas the Commerce Department’s latest estimate of real GNP drops precipitously in 1946 and remains at that low level for the rest of the decade,” Kuznets’s “wartime” estimate “increases in 1946 by about 8 percent, then rises slightly higher during the next three years.” Another Kuznets GNP estimate—what he called “peacetime” GNP—revises the record still further by valuing goods produced for military use at their nonmilitary surplus values only. According to that estimate, between 1945 and 1947 real output rose by almost 18 percent!

The above quote illustrates the principal flaw of the book for a non-academic reader. The author spends most of his ink summarizing and referencing the work of other academics. He’ll lay out four or five theories and deal with each one in turn, forcing the reader to tease out the author’s personal point of view. The book is more accurately characterized as a survey of 100 years of academic thought regarding the Great Depression than as an explanation of the Great Depression and subsequent recovery.

Another popular theory is that the New Deal was an example of Macro Economics 101 Keynesian deficit spending during a downturn. Two chapters are devoted to “The Keynesian Myth”. The author points out that Roosevelt was committed to a balanced budget and that Keynes himself wrote critically of American economic policy. The New Deal was a project to increase the power of the federal government in regulating business, not a deficit spending plan. Some of this project was abandoned when the federal government needed private industry to be its partner for World War II weapons production, but the effect was to stifle business investment and reduce personal consumption.

“Conventional wisdom has it,” Gary Best (1991, 222) observes, “that the massive government spending of World War II finally brought a Keynesian recovery from the depression.” However, Best continues, the fact that the government was no longer at war with business, as it had been during the original New Deal, deserves more credit. “That,” Best says, “and not the emphasis on spending alone, is the lesson that needs to be learned.”

On the extent to which there was any Keynesian borrowing:

New Deal deficits were less impressive than New Deal spending because the Roosevelt administration went to considerable lengths to boost tax revenues and did so even when it meant relying heavily on taxes that mostly burdened low-income Americans. For that reason, the administration chose not only to retain and then repeatedly extend most of the excise taxes imposed as part of Hoover’s 1932 budget—taxes Herbert Stein (1966, 210) considers “the purest act of pre-revolutionary fiscal policy”—but also to increase taxes on gasoline and tobacco, revive the liquor tax upon the repeal of Prohibition, and introduce its AAA tax on food processors. Because they fell on consumers, either directly or indirectly, excise taxes, which eventually funded 60 percent of the government’s “ordinary” revenues (Leff 1984, 147), tended to be deflationary even when fully offset by government spending. Such taxes therefore had little to recommend them from a countercyclical fiscal policy perspective (Brown 1956, 868; Leff 1984, 39). But because excise taxes were revenue workhorses, to an administration not much less determined to limit deficits than Hoover’s had been, they made perfect sense. At the height of the New Deal, Mark Leff (1984, 38) points out, the tax on food processors alone “accounted for one-eighth of total tax revenues,” which was more than the yield from either the personal income tax or the corporate income tax. For this reason, after the tax on food processors was struck down, Roosevelt “continued to suggest processing taxes to balance the budget and to fund farm subsidies” (Leff 1984, 44). What was true of excise taxes was truer still of the Social Security payroll tax that the government began collecting in January 1937. According to Leff (1984, 45), when Roosevelt first came up with his plan for funding Social Security, his advisers warned that because it would draw purchasing power from consumers for the purpose of establishing a $47 billion reserve fund without making any like disbursements from that fund for many years, the plan would be dangerously deflationary. Still, Roosevelt insisted on it, saying that it would assist in balancing the budget while projecting “an image of fiscal responsibility” (47). According to Sherwood Fine (1944, 114), the regressive Social Security tax diverted “more than a billion dollars of purchasing power . . . away from an industrial establishment sensitively attuned to consumer demand” in the midst of a severe economic downturn. “Running along, as we are, on a low level,” Alvin Hansen (1939b, 283) wrote afterward, when various amendments to the Social Security Act were under consideration, “we cannot afford . . . the luxury of a Social Security Program which turns out in effect to be essentially a compulsory savings program, and which thereby seriously curtails the volume of consumption expenditures.”

France was the only significant (imagine that there was a time when France was significant!) foreign nation inspired to follow our example:

France was one of the few countries and the only major one to take longer to recover from the Great Depression than the United States. France was also the only country that resorted to policies closely resembling—indeed inspired by—the New Deal, including NRA-style codes. And it was the only country that did not experience a substantial improvement in output after devaluing its currency. As Barry Eichengreen (1992a, 349) observes, France’s example shows, even more clearly than that of the United States, that “devaluation was necessary but not sufficient for economic recovery.” France’s first stab at New Deal–style industrial planning consisted of the so-called Flandrin experiment, an attempt by the conservative ministry of Pierre-Etienne Flandrin (November 1934–May 1935), directly inspired by the NRA, to cartelize French industries and reduce workers’ working hours. Flandrin’s experiment went no further, and his government fell after six months. But several weeks after decisively winning France’s May 3, 1936, parliamentary election, the Popular Front—an alliance of French radicals, socialists, and communists—implemented an NRA-inspired plan of its own. That plan was so aggressive that recent scholars have dubbed it “a sort of NIRA on steroids” (Cohen-Setton, Hausman, and Wieland 2017). As Barry Eichengreen (1992a, 375–76) explains, “Employers were compelled to sign the Accord de Matignon granting trade union recognition, collective bargaining privileges, and wage increases. . . . [T]he work week was shortened again, but this time without any corresponding reduction in pay. The government legislated an annual paid vacation and a 40-hour week. Wages were raised by 7 percent for high-paid workers and by up to 15 percent for the lower paid. . . . Other elements of the French ‘New Deal’ raised the school-leaving age and nationalized the armaments industry.” The Matignon Agreements’ mandatory wage rate increases went into effect at once, raising nominal labor costs by between 7 and 15 percent (Cohen-Setton, Hausman, and Wieland 2017, 279). The rest of the Popular Front’s plan, including its forty-hour week provision, was phased in industry by industry between then and the end of the year.

Noting how after 1936 France’s industrial output was persistently 30 percent below its long-run trend, Paul Beaudry and Franck Portier (2002) consider various possible explanations, including technological stagnation, only to conclude that the best is the simplest: French output fell 30 percent because between them the Blum government’s labor market legislation and strikes caused total hours worked to fall 25 percent. A decline in the ratio of investment to output, itself traceable to France’s New Deal legislation, accounts for the remaining five percentage points by which output fell.

What did cause the early-1930s collapse, then? The author points to an agriculture boom during World War I that led inevitably to a bust after WWI that dragged down most of America’s banks.

Bank lending to farmers itself doubled between the start of the war and 1920. After the war, both crop prices and US farm exports fell as sharply as they’d risen during it, triggering a farm crisis that was to ruin many farmers over the course of the next decade, often bringing their banks down with them (Belongia and Gilbert 1985). In 1921 alone more than 500 banks failed, topping the previous record established during the Panic of 1893. The 1921 failures coincided with the general economic depression of that year. But while most other industries recovered quickly from the downturn, and did so with little help from either the Federal Reserve or the Treasury, agriculture and banking didn’t. Instead, bank failures mounted.

Although thousands of US banks managed to survive the 1920s, many were in no condition to withstand any further shocks. So when commodity and security prices sagged after the onset of the Depression, bank failures became even more frequent. Rural banks were still the main casualties, although now instead of being concentrated in the western grain-growing states, bank failures were especially frequent in the South and the Midwest, where collapsing cotton, tobacco, and livestock prices combined with reduced cotton and wheat yields—a result of what the Weather Bureau described as “the most severe drought in the climatological history of the United States”—proved to be the last straw (Hamilton 1985, 602).

How much can we rely on expert analysis and wisdom? The author points out that all of the best minds of economics were in agreement that there would be a depression following World War II due to soldiers returning and finding themselves unemployed and the government ceasing purchases of weapons. Business

Full post, including comments

Book about the Edmund Fitzgerald

It’s Friday the 13th, a notorious day for bad luck. Speaking of bad luck, let’s look at the 29 men who died on the Edmund Fitzgerald on November 10, 1975. They’re the subject of an interesting new book: Gales of November by John Bacon. Not exactly a spoiler: everyone dies, just as Gordon Lightfoot explained in his enduring hit song (from the book I learned that Lightfoot was an experienced recreational Great Lakes sailor).

Some things that I didn’t know:

  • it was the last trip of what was going to be the retirement year for the captain and many of his long-time partners amongst the crew
  • the captain was considered the best on the Great Lakes and had 45 years of experience
  • the weather was a 50-year event, perhaps, and not merely an ordinary “gale of November”

Perspective on the suffering of Jeffrey Epstein’s victims

Since almost everything in the news these days must be referenced to the Epstein Files…

The sinking was preventable, as we’ll see below, and quite a few mistakes were made.

Columbia offered some of the families the victims’ last paycheck ($568.25 for a deckhand) and $750 for the victim’s lost personal effects, an amount determined by their labor contract, but other families didn’t receive even those checks. When Columbia offered nothing else, the families had little recourse but to file wrongful death lawsuits, for which Columbia paid whatever the families’ individual attorneys could negotiate. Some families received about $35,000, or a little more than a year’s wages for a deckhand making overtime, and others marginally more.

The typical woman who alleged that she suffered by receiving cash, Gulfstream rides, free rent in Manhattan, luxury vacations, etc., in exchange for sex 10, 20, or 30 years earlier, was paid about $3.5 million from Epstein’s estate, a JP Morgan settlement fund, and a Deutsche Bank settlement fund. That’s 100X what an Edmund Fitzgerald crewmember’s survivors were paid. Thus, we can conclude that having sex on Jeffrey Epstein’s island was 100X worse than riding through 30-50′ waves for hours and ultimately being drowned in 42-degree water.

The bargain all the crewmen on the Fitzgerald had signed up for was a hard one, but straightforward: The work will be taxing, and you will miss most of your family’s best moments, but you will retire relatively young, with a good pension and nothing to do but hunt, fish, and play cards, pool, and golf. Best of all, you’ll have plenty of time and energy to spend with your grandchildren. The Fitzgerald’s twenty-nine crewmen and their families had all paid their deposits up front, but never got to enjoy the sweet side of the deal.

The Special Hazards of the Great Lakes

The Great Lakes can be more treacherous than the oceans. One reason is the distinct structure and frequency of the Great Lakes’ freshwater waves. In the oceans, salt weighs down the water, squashing the waves and spreading them out, so they typically form larger but smoother swells, similar to a roller coaster. On the Great Lakes there’s no salt to hold down the waves, so they rise more sharply and travel closer together, like jagged mountains of water coming at you in rapid succession. These waves don’t roll; they peak, crest, then crash down on whatever is unlucky enough to lie below them.

That’s another reason why Great Lakes waves are so steep and ragged and travel so fast. On the ocean the waves are usually about ten to sixteen seconds apart, so even a large container ship can fit between them. On Lake Superior the waves run four to eight seconds apart, which means that a seven-hundred-foot lake freighter can be riding atop two waves at once.

That problem produces more problems. On the Great Lakes a ship that long can impale its bow in one wave, which can lift it up thirty feet or more, while the ship’s stern can be simultaneously stuck in the wave coming right behind it, raising the ship’s back end in the air another thirty feet. That leaves its midsection, which could be loaded with 58 million pounds of iron ore—the equivalent of 4,200 adult elephants—suspended between the two waves, with nothing supporting it. That creates a phenomenon naval architects call “sagging,” in which the unsupported middle of the ship sags toward the water below it, exerting a tremendous strain on the hull.

After sagging between two waves, just seconds later the ship might face another threat: riding over the peak of a single colossal wave. This creates a condition known as “hogging,” the opposite of sagging, where the vessel drapes over the wave’s crest, with both the bow and stern drooping downward, again placing immense pressure on the center of the ship’s hull.

[Michigan Tech’s Guy] Meadows’s research shows that Lake Superior’s biggest storms occur every thirty years or so, but even in milder storms the waves on the Great Lakes can be alarming. In a pretty unremarkable 2020 storm, for example, two of their buoys anchored off Lake Superior’s southern shore, far from the path of Superior’s biggest waves, measured waves reaching 28.5 feet, almost as high as a three-story building.

If the biggest waves within a few minutes are at 30′, according to Guy Meadows, and they stay there for 24 hours, a ship should experience at least one 60′ wave (1 in 10,000).

Another bad feature of the Great Lakes is that it is easier for freshwater to freeze above the waterline on a ship than it is for saltwater to freeze, thus adding weight to a ship that is already in peril. A typical modern iron boat’s cargo of taconite also creates a hazard:

Because it’s two-thirds clay, a porous material, it can absorb up to 7 percent of its weight in water, and four times that can get trapped between the pellets when it’s piled high.

(i.e., the cargo hold can hold a lot of water weight that isn’t possible to pump out; separately, if you thought that math professors were useless, the book notes that U. Minnesota math prof Edward W. Davis is the person who figured out how to work with taconite, a low-grade iron ore)

Overloading as a Factor

Prior to the wreck of the Fitz, Great Lakes captains prided themselves on moving maximum tonnage per trip and per season. Everyone loaded up the ships to the painted Plimsoll line at which point the freeboard is the minimum required for safety. The Fitz was operated with far less freeboard than her original designers had intended:

Given how such incredibly small margins on the Plimsoll line could produce such prodigious gains, especially when multiplied by forty to fifty round trips each shipping season, the executives at Columbia Transportation must have been thrilled when the American Bureau of Shipping (ABS), working with the Coast Guard, reduced everyone’s required freeboard in 1969, and again in 1971, and again in 1973. For the Fitzgerald, that meant the original requirement of 14 feet, 9.25 inches of freeboard when sailing in November had been reduced to 11 feet, 6 inches—a total drop of 39.25 inches, or more than a yard, in just a few years.

Captains would then use various techniques to add a few inches of cargo beyond even this reduced freeboard, described in a chapter titled “Cheating the Plimsoll Line”.

The Edmund Fitzgerald was loaded to the absolute maximum, and a little beyond, on what was supposed to be her last voyage of the season:

The loading speed was all the more impressive because the dockworkers had filled the Fitzgerald’s belly with 26,112 long tons of taconite—far from the staggering amounts the new thousand—footers were carrying, but a fitting finale to McSorley’s celebrated career. The load that day was almost 4,000 long tons more than the 22,509 the Fitzgerald needed to set the Great Lakes record on its very first run just seventeen years earlier, a testament to the extra 39.25 inches the Coast Guard had allowed the Fitzgerald to sink in the water since 1973—plus the crew’s ability to cheat a few more inches on the Plimsoll line. This was such a common practice it would have been more remarkable if the crew had not cheated on the Plimsoll Line. Even the crew’s families knew about it. “They were overweight because they wanted to break their own record,” says Blaine Wilhelm’s daughter, Heidi Brabon. “So they cheated.” But what was unusual, according to former Fitzgerald deckhand Terry Sullivan, was that she was carrying a full load so late in the season, when even the USCG rules start scaling back the limits. While the Fitzgerald might not have been cheating by much, on the grand scale, when you combine those extra inches, plus the 39.25 inches the Coast Guard had already granted the Fitzgerald two years earlier, and the fact that all ships were supposed to scale back their loads for the rougher fall weather, any reasonable analysis can draw only one conclusion: The Fitzgerald had loaded thousands of tons more than what her architects had designed her to carry.

Primitive weather forecasts and distributions of forecasts

One of the blessings of the semiconductor revolution kicked off by William Shockley and carried forward by Jack Kilby is that computers have gotten vastly more powerful, thus enabling weather forecasts to become more reliable even without any advances in our understanding of meteorology. The National Weather Service was consistently late and consistently underestimating the strength of the storm that would sink the Fitz.

That afternoon [Sunday, November 9, 1975] the National Weather Service had posted a “gale warning,” a level of caution the NWS had created after the 1913 Storm of the Century showed it needed intermediary warnings, not just hurricane alerts. A gale warning predicts winds blowing thirty-nine to fifty-four miles per hour. But the NWS projected the wind would barely reach the gale range, which meant about forty miles per hour.

By 7 p.m. the National Weather Service noticed the storm system that started out of California had reached Iowa, and was gaining speed. It issued a gale warning for all of Lake Superior, correcting its earlier prediction that the storm would slip just below the big lake. Now, the NWS meteorologists said, the storm would cut diagonally across Lake Superior, producing waves from five to ten feet. That might not sound like much, but because the Fitzgerald had only 11.5 feet of freeboard, ten-foot waves wouldn’t give the ship much margin for error.

Late Sunday night the National Weather Service revised its forecast again, now predicting that waves Monday morning would reach ten to fifteen feet high. At 2 a.m. the NWS escalated its gale warning to a storm warning, reserved for winds expected to reach fifty-five to seventy-three miles per hour—strong enough to tear off roofs, uproot large trees, and knock over people attempting to walk outside. But the reality on the water was already starting to outpace the NWS’s forecasts. Winds on Lake Superior had already surged past fifty-eight miles per hour, and were still accelerating. The storm was gaining power like a boulder thundering down a steep hill.

[at 4 pm on Monday, November 10] Captain Cooper, now running an hour behind the Fitzgerald, later reported waves “up to twenty-five feet” when the Anderson neared Caribou Island. Since the Fitzgerald was now about twenty-five miles and an hour and forty minutes beyond the coordinates whence the Anderson had made that report—that much closer to the safety of Whitefish Bay, but also the storm’s epicenter—the waves the Fitzgerald was now experiencing were probably worse than the twenty-five-footers the Anderson had reported. Because the Fitzgerald had only 11.5 feet of freeboard, and probably less by the hour due to its compounding problems, those waves would be more than enough to wash green water—entire waves, not just the spray—over the Fitzgerald’s deck.

The Fitz sank at about 7:10 pm.

Get-there-itis

Some captains put in at Thunder Bay after realizing that the storm was

Full post, including comments

Wartime reading: The Last Days of Budapest

I recently finished listening to The Last Days of Budapest: The Destruction of Europe’s Most Cosmopolitan Capital in World War II by Adam LeBor. It covers the history of Hungary starting after World War I. From Wikipedia:

The Communist Party of Hungary, led by Béla Kun was a newly formed party aligned with the Bolsheviks of Soviet Russia. The Social Democrats were split in their relation to them, but on 21 March [1919], the radical faction won out, and the two parties officially merged. They declared the Hungarian Soviet Republic, and the dictatorship of the proletariat.

In terms of domestic policy, the communist government nationalized industrial and commercial enterprises, socialized housing, transport, banking, medicine, cultural institutions, and all large landholdings. Land was collectivized, which alienated most of the peasantry who still demanded redistribution. The Communists also introduced prohibition of alcohol, which was very unpopular.

That last sentence saddens me because, of course, I think that if COVID-19 justified lockdowns and school closures then alcohol prohibition is trivial to justify under the banner of public health. (See Use testing and tracing infrastructure to enforce alcohol Prohibition? and The CDC supports my neo-prohibitionist philosophy)

Eventually a right-wing government takes over and unifies Hungarian under the ideas of (1) regaining territory lost after a post-WWI Treaty of Trianon, (2) restricting the influence of Jewish Hungarians (about 5 percent of the population), e.g., with race-based university admissions programs. Hungary ended up as an ally of Germany in WWII primarily because it wanted to regain territories lost in WWI. The majority of the population supported various anti-Jewish laws, but not necessarily the killing of all their Jewish neighbors. A minority of Hungarians did work with the Germans to kill Jews while the majority, including the police and the army, much more powerful than the militias, stood by watching (in most other European countries, the Jews were first moved out of public sight and killed in more private settings).

Zionists, with the assistance of foreign diplomats such as Raoul Wallenberg, worked to create papers that would ultimately protect about half of Budapest’s Jews, many of whom ultimately made it to the British mandatory Palestine and fought against the invading Arab armies in 1948 to establish the modern State of Israel that is currently in the news for her role in attacking entirely peaceful Iranians who enjoy building nuclear weapons and ballistic missiles while chanting “Death to America”. (The New York Times says that Trump and Netanyahu had no reason to attack because it would be “it would be a decade before Iran could get past the technological and production hurdles to produce a significant arsenal [of nuclear bombs mounted on ballistic missiles capable of reaching the U.S.]” (maybe a good reason to move from NYC to West Palm Beach, Florida? If they have only a dozen nuclear bombs to deploy, the Iranians might not bother targeting Florida!).)

The tenacity of the Germans and Hungarians was impressive. They knew that they couldn’t hold out against a Russian siege, but fought almost to the last man (killing about 80,000 Russians in the process, but the Russians weren’t discouraged by casualties). Unfortunately for the Jews, the Hungarians, notably members of the Arrow Cross, were equally tenacious when it came to killing Jews. Even as they knew that their city and country were falling to the Red Army, Hungarians spent a lot of time, energy, and ammunition killing their Jewish neighbors. Perhaps there is a modern analogy. Europe is currently experiencing economic stagnation and irrelevance to the modern world economy (ChatGPT: “EU imports would generally be easier to replace than Taiwan imports … Taiwan imports are strategically critical; Substitution is slow and difficult; Some products currently have no near-term substitute”). Legacy Europeans are being replaced by new and improved migrants. What do a lot of legacy Europeans do with their time and energy? Protest against whatever the State of Israel is doing.

An email from New Yorker just now says that there is no upside, but only risk, in attacking Iran. I don’t subscribe so I can’t read their paywalled content, but presumably the Iranians who were previously chanting “Death to America” could start chanting “Double Secret Death to America”.

Let’s close with my favorite headline about the attack on Iran, from the Wall Street Journal. Breaking new ground in the Department of Projecting Strength, the Commander in Chief of the U.S. military is relaxing in Palm Beach rather than nervously drinking coffee in an underground war room in D.C.:

(The Israeli and U.S. militaries also projected strength by sleeping late and attacking Iran at 10 a.m. local time. The bombing of Tehran was scheduled for the same time of day as a student pilot lesson.)

Full post, including comments

How does a no-fault divorce culture play out over two generations?

I’m reading Strangers: A Memoir of Marriage by Belle Burden (wife) and co-starring “James” (a pseudonym for the husband). It’s a good illustration of how the American no-fault divorce culture plays out over two generations.

Generation 0: Both spouses had married grandparents. Divorce was obtainable, but in the typical case only if the parties cooperated and came to an agreement.

Generation 1: Both spouses had divorced parents.

Generation 2: the book.

TL;DR version: The author/wife says that she was 50 when the husband decided to avail himself of our unilateral divorce system. His new sweetheart was “was thirty-five but looked twenty“. She was happy to leave her own husband, breaking up her own kids’ home, and, in the magical world of no-fault, there was no way for the husband to obstruct her plan (in fact, he would likely have had to pay her to execute the plan).

One area of agreement between the parties is on the appropriate level of coronapanic. They abandon NYC for Martha’s Vineyard, but the husband returns to NYC to spend more time with his new sex partner.

By late April, I knew I could not keep hiding the truth from the kids. I texted James that it was time to tell them and that we needed to do it together. We hadn’t spoken in several weeks. He said he thought it would be better if I told them alone. Initially, I agreed with him. I was afraid that he would expose us to COVID. He was not in quarantine; he was having an affair in the middle of New York City. We decided we would do a family Zoom call to break the news. James’s boss texted me the next day. He was a kind man, and a friend to both of us. He wrote that he understood why I was angry, but I needed to allow James to be there to tell our kids. He spoke from experience, having been divorced, having broken the news to children himself. He wrote that he was giving James his seaplane and pilot to fly to the Vineyard.

James landed on the Vineyard just before 2 p.m. He drove down our driveway in a Jeep our caretaker had left for him at the airport, a model similar to the one he’d driven onto the ferry a month earlier. He walked up the brick path to our door. He wore a mask, so I couldn’t see his whole face, but my first thought was that he seemed happy, his step brisk and optimistic. He was carrying an empty duffel bag over his shoulder.

He said, “Mom and I are separated and we’re going to divorce. I haven’t been happy.”

James turned to me and said, “I’m starving, can you make me a sandwich?”

A lot to unpack here. If there truly was a “seaplane” why did James go to Connecticut to start his journey (a seaplane can pull up to a dock on E. 23rd St.) and then why was there a landing at the MVY airport? The principal fear 8 weeks into coronapanic is not that the children will be harmed by separation and divorce litigation, but of some tweenage kids getting infected by a virus that was killing Maskachusetts residents at a median age of 82.

One question is why the U.S. still has wedding ceremonies with vows exchanged. If, by cultural and legal design, the marriage lasts only until one partner thinks that a better deal is available, why do friends and family have to gather and sit through the charade of a wedding? If James can say to a judge “I discovered that I preferred banging 35-year-old women to sleeping with a 50-year-old woman” and get what he asks for (a divorce), what stops people from laughing when they hear the vows?

(Note that even if New York family courts are aggressively biased against men, James could still come out ahead financially by swapping out the 50-year-old wife to marry the 35-year-old. He just needs the courts to be consistent, for his girlfriend to divorce her husband, and for the husband she’s divorcing to earn more money than James. In that case, everything that James loses to his ex-wife will be made up for in child support revenue paid to the new 35-year-old wife by her former husband.)

Loosely related, I’m proud to have been interviewed by the New York Times: “I Let My Wife Have an Affair. Do I Have to Console Her Now That It’s Over?”

(The answer turns out to be Yes: “it may be worth your both talking this all through with a counselor” (i.e., “Yes, and also you will have to pay for assistance in consoling her”))

Admission: While the NYT story is genuine, I ripped off the above introduction from this X parody account.

Full post, including comments

Somali day care background book: Mississippi Swindle

Mississippi Swindle: Brett Favre and the Welfare Scandal that Shocked America turns out to answer some background questions on how American taxpayers ended up funding fake day cares. The author, Shad White, is the State Auditor of Mississippi. Phil Bryant, the governor at the time, received a insider’s tip that prompted an investigation by White’s team.

The root cause of the Mississippi fraud seems to be the same as the root cause of the Minnesota fraud: state officials allowed to make decisions about how to spend federal money. The author says that Clinton administration technocrats in D.C. were concerned that they’d destroyed the Black American family. Children born to “single mothers” went from roughly the same percentage as in the white population to over 60 percent (current data: 25 percent for whites; 65 percent to Blacks) in response to the Great Society “marry the government” programs introduced under Presidents FDR and Johnson, e.g., Aid to Families with Dependent Children. The Clinton geniuses implemented Temporary Assistance for Needy Families (“TANF”) in which states would get block grants and then could do whatever they wanted to with the money. They could, for example, give cash directly to “families” that didn’t work, but could also give money to nonprofit organizations that purported to assist those who didn’t work, e.g., by helping them write resumes or delivering other nebulous services.

The Mississippi DHS folks decided to give roughly 10 percent of the TANF funds to poor people and then 90 percent to friends’ nonprofit orgs whose executives spent the money on new houses, luxury vacations, kickbacks to state bureaucrats, etc. Only about $100 million was stolen from federal taxpayers, but the mechanism seems to be the same as in the much larger Minnesota fraud. The core prerequisites are (1) letting state officials decide how to spend federal money, and (2) the ability of officials to hand over taxpayer funds to nonprofit orgs.

There are some other good insights into the bureaucratic lifestyle. Some families in Mississippi living in $1 million houses and with six-figure incomes were enjoying Medicaid (an angel/VC-investor friend in a $2 million (pre-Biden dollars) house Maskachusetts was doing this about 15 years ago; he answered all of the questions on the Mass Health Connector accurately and the system kicked out that he was entitled to superlative MassHealth (Medicaid) coverage at $3/month). When the auditors pointed this out to the Medicaid bureaucrats their response was to push back rather than admit any bureaucratic errors or shortcomings. Even the people in the welfare bureaucracies who were corrupt or personally benefitting had a powerful desire to obstruct auditing and to preserve business as usual.

I’m almost done with the book and so far there isn’t a single example of a person who lost his or her job as a consequence for incompetence. A handful of people suffered criminal convictions, but nobody lost a day of wages as punishment for taxpayers losing $100 million.

If you don’t want to read the book, Wikipedia offers a summary.

Loosely related, a thoughtful perspective from U.S. Senator John Kennedy of Louisiana:

Also, pronouns and goats in Minneapolis:

Full post, including comments

History of Huawei (II)

A second post about the core topic within House of Huawei: The Secret History of China’s Most Powerful Company

How does hiring and firing work in a company that isn’t passionate about DEI?

On January 28, 1996, Ren Zhengfei held Huawei’s first “mass-resignation ceremony.” Each head of a regional sales office was told to prepare two reports: a work summary and a written resignation. “I will only sign one of the reports,” Ren said. “Dear Chairman,” the resignation letter said, “I have fought for the company’s sales development and sacrificed my youth. But in the few years that I’ve worked on the sales front lines, my technical and business ability may not have kept up…. If through the process of examination and selection, the company identifies a more suitable person for sales work, I will sincerely resign from my current position.” Huawei had started out in rural markets, and many of its early sales managers were provincial in their experience and network of contacts. As Ren sought to go national and international, he decided to make the entire sales staff resign and reapply for their jobs. “The mountain goat must outrun the lion to not be eaten,” he had told them ahead of the event. “All departments and sections must optimize and eat the lazy goats, the goats that do not learn or progress, and the goats with no sense of responsibility.” Now Ren took the podium. “Being an executive at Huawei should be understood as a responsibility, a choice to sacrifice personal happiness,” he said. The resigning sales managers were allowed to speak in turn, some choking back tears. “As a Huawei person, I’m willing to be a paving stone,” one said. “If I can’t keep up with the pace of the company’s development, I’m willing to let new people, and higher-level people, take over my job,” another offered. “My youth and ability are limited, and Huawei’s future is long,” a third said. “I can’t hold back the company because of me.”

Maybe sales will be one of the few jobs left to humans after Elon Musk gets Optimus to do everything?

Ren had grown up in the Mao years, when there was no such thing as private-sector sales. Now he presented sales to his young followers in rousing terms, almost as a mystical vocation. “Sales work is special, complex, and noble,” he told them. “You need the intelligence of a scientist, the insight of a philosopher, the eloquence of an orator, the ambition of a social reformer, and the optimism and persistent spirit of a religious man.”

Polite protocol for a business dinner involved breaking out the baijiu, a clear sorghum spirit that has an eye-watering 120-proof kick, and pouring out round after round of shots over a rotating parade of exquisite dishes. The protocol also involved getting drunker than your clients to show your respect for them. One early Huawei executive wrote about having to excuse himself for a vomit break while entertaining customers—not an uncommon occurrence. Others developed stomach or liver ailments. This seemed to happen particularly often in the far northeast, which had a reputation for heavy drinking. “The key staffer for this account is currently suffering hepatitis but refuses to come back to Shenzhen for medical treatment and insists on fighting on the front line through the ice and snow,” Ren said in 1995 about a Huawei salesperson based in Yichun, close to the northeastern border with Russia.

The story of Huawei is definitely not as simple as “it was a planned economy and the planners picked Huawei”:

Despite the interest that Huawei had received from government officials, it was only one among many contenders, and not even the most favored one. In 1995, officials had set up a state-owned switchmaking champion called China Great Dragon Telecommunication in an effort to combat the foreign switchmakers. Great Dragon was built around the military engineer Wu Jiangxing’s breakthrough 04 switch and had been formed by merging eight smaller telecom companies. The government was pouring some $2.2 billion a year into the venture. Also in 1995, the Xi’an Datang Telephone Co.—a venture set up by a state-run research institute and several Chinese graduates from US universities—began mass production of its new switch, the SP30. And across town in Shenzhen, the Zhongxing Telecommunications Equipment Company—which would later be known as ZTE—had developed its ZXJ10 switch. People called them the Big Four of China’s domestic switchmaking, and they made quick work of eating into the foreign vendors’ market share. Within a few years, the price of telephone switches in China had dropped from $300 per line to $70 per line. With so many contenders, and such thin margins, companies were always flaming out. In early 1996, a dozen of Great Dragon’s 04 switches abruptly failed due to a software problem. The company never recovered.

Huawei had started out as an underdog compared with its state-owned rivals. Now it was emerging as the frontrunner, so much so that the state-owned companies were crying foul. “They sell cheaply to get market share,” an executive at Datang complained. Great Dragon’s Wu Jiangxing griped to Shenzhen’s Science and Technology Bureau that the local government shouldn’t just support privately owned companies.

Despite the shortage of PhDs in DEI in China and overt sexist sentiments, women are able to rise to top executive positions.

The executive who rose the highest was Sun Yafang, who was elevated from marketing and sales president to Huawei’s vice-chairwoman in 1994. She was an intense woman of around forty, with a hawkish nose and a stately bearing. She had overseen Huawei’s “marriage” to the state through the joint ventures with provincial telecom bureaus and had led the mass resignation of the sales managers. People whispered that Madam Sun had worked for the Ministry of State Security, or the MSS, China’s powerful civilian intelligence agency, before joining the company. Perhaps that had something to do with her rapid rise through Huawei’s ranks, or perhaps not.

Sun ran a tight ship, cracking down on excessive golfing among the managers. “Huawei’s sales staffers all know that if Madam Sun sees you without a tie on a convention floor, your fate will be a miserable one,” a member of her team wrote about her. “Not to mention her fiery temper. The hurricane of her criticism will leave you with no possible hope to find an escape.”

Ren had proved willing to promote capable female executives, even as he sometimes expressed old-fashioned views on women in the workplace. “Many companies don’t like hiring female employees, because female employees are inefficient and can’t achieve the goals when they do things,” Ren said in a speech to Huawei’s secretaries around this time. “Female employees have a big shortcoming, which is they like to gossip and nag, which undermines unity. Originally, the purpose of hiring female employees was to add a lubricant to the management team. The main characteristic of male employees is their rigidity, and they are prone to producing sparks when they collide. With a layer of elastic sponge in between, there won’t be sparks.”

A lot of Huawei’s management and corporate practices were modeled on IBM’s and with IBM consultants’ help:

IBM’s consultants started arriving at Huawei’s headquarters in August 1998. They would remain in residence for a decade. Gary Garner, one of the early IBM consultants, recalled that his first impression of Huawei was that it was a vibrant but undisciplined company where things were sometimes just scrawled on sticky notes instead of being filed properly. “President Ren had a whole bunch of bright young PhDs,” he said, “but it was disorganized. It wasn’t ready to go to the international market.” Some of Huawei’s managers protested the new systems, which they found burdensome. Ren insisted they follow the IBM way. If the shoes didn’t fit, Ren told them, they had to “cut their feet to fit the shoes.” IBM’s output was fifty-five times Huawei’s that first year, 1998. Ren set a goal of shrinking the difference to thirty-five to forty times greater by 1999. “We are making big strides forward,” he told his staff. “We’re narrowing the gap.”

One place that Huawei didn’t follow IBM was onto a public stock exchange. The company remains privately owned, mostly by employees, to this day.

Imagine if U.S. politicians would follow Ren’s example of voluntary semi-retirement at age 67:

In December 2011, Ren, sixty-seven, announced he was stepping back to allow younger hands to steer the company. “I increasingly don’t understand the technology, increasingly don’t understand finance, and only half understand management,” he told his staff. “If I can’t treat our group kindly and democratically, and fully unleash the talents of all our heroes, I will have achieved nothing.”

Much of the rest of the book is about Huawei’s entries into various foreign markets and tussles with the U.S. and other Western intelligence agencies that either (1) wanted a back door to tap into communications, or (2) were worried that their Chinese counterparts had a back door into Huawei’s gear. I won’t cover that here because it is too involved, but I will have another post about this House of Huawei: The Secret History of China’s Most Powerful Company.

Full post, including comments