How does supply and demand connect in Indian labor markets?

May 3, 2008

The paragraphs below explain how unskilled labor markets/exchanges are created in town centers in india,

Shortage of Laborers Plagues India: Skills Gap Drags Down Economy; By ERIC BELLMAN and JACKIE RANGE; May 1, 2008; Page A1

The surging demand for labor can be seen at the morning “Naka,” or labor market, of Vashi, a growing Mumbai suburb. More than 2,000 construction workers crowd onto the same corner each morning at 8:30. Skilled workers stand behind the tools of their trade: pipes for plumbers, brushes for painters, long leveling boards for concrete and bricklayers. The nomad women from Rajasthan, marked by their mirrored skirts, are usually tapped for tiling.

Contractors, recognizable from their gold rings and cellphones, dive into the crowds and place orders for skilled and unskilled workers. Those interested swarm around the contractors, negotiate a daily wage and then leave for building sites. Most of the workers are gone before 11 a.m.

There are hundreds of Nakas across Mumbai, and there have been for decades. But recently, there’s been a sharp rise in pay and expectations. Wages for some skilled laborers have more than doubled in the past two years to more than $10 a day. Unskilled laborers are making around $2.50 a day, about 50% more than before.

Workers have become pickier, says contractor Mantesh Jamadar, who comes to the Vashi Naka every morning. Many skilled workers don’t even show up at the morning market any more, he says. Instead, they have cellphones, and contractors make appointments to see them. “They used to go anywhere for work but now they refuse to travel,” Mr. Jamadar says.




What do people do in rural economies?

May 3, 2008

By listing the loans handed out per market segment, the 2006 annual report of Grameen Bank gives a snapshot of economic activities in rural markets (this is for Bangladesh). I’d be interested in finding more data long these lines…

Here are the top 25 items for which members took loans (like personal loans),


and here are the top 25 items for which members took micro-enterprise loans (small business)

The Benefits of a Long Childhood

April 10, 2008

In his essay “The Benefits of a Long Childhood,” Ethan Remmel reviews “Why Youth Is Not Wasted on the Young: Immaturity in Human Development” by David F. Bjorklund.

Children’s thinking differs from that of adults, and people tend to view those differences as deficits that need to be overcome-the sooner the better. Bjorklund argues, though, that some aspects of children’s immature cognition are actually adaptive, both in preparing them for adulthood and in allowing them to flourish in childhood. He gives several examples: Children typically overestimate their own abilities, which may maintain their motivation in the face of failure and lead to eventual success. Their limited information-processing capacity may help them learn language, because it forces them to focus on constituent components and build upward from there, whereas adult language learners skip straight to semantics, often failing to master underlying grammatical structures. And play in childhood may promote later social competence, as neuroscientist Sergio Pellis has demonstrated in rats.

Bjorklund finds implications that will interest parents and educators. Parents often want their children to be the first among their peers to reach every developmental milestone, but Bjorklund points out that earlier is not always better and may sometimes be worse.

For example, abnormally early visual experience in birds disrupts development of the auditory system. Also, in a classic study published in American Scientist in 1959, “The Development of Learning in the Rhesus Monkey,” psychologist Harry Harlow found that the ability of rhesus monkeys to discriminate objects on various dimensions such as shape was impaired by starting the training too early in life—the monkeys who started training at older ages reached higher peak levels of performance. In a 1977 study by developmental psychologist Hanus Papousek, human infants who started learning to turn their heads to specific sounds at 31 days of age mastered the task, on average, at 71 days of age, whereas infants who started learning to do so at birth did not master the task, on average, until the age of 128 days.

Bjorklund’s message is that human development takes as long as it does for good reasons and that experiences should be introduced only when children are cognitively ready for them. Early education should foster a love of learning, which will pay dividends in the long run, rather than a fear of falling behind, which increases stress and decreases motivation. He acknowledges that schooling is necessary for success in the modern world and that direct instruction is sometimes useful. But as much as possible, he believes, we should let children enjoy childhood. We should even seek to maintain some “immature” qualities, such as curiosity and playfulness, into adulthood. As Aldous Huxley observed, “The secret of genius is to carry the spirit of the child into old age, which means never losing your enthusiasm.”

This may be a contributing factor to why Finnish kids by age of 15 — who start school 2-3 years later at age 7 than students in other countries — outperform their peers on international standardized tests conducted by the OECD.

Book Review of “The White Man’s Burden”

April 3, 2008

On a long plane plane ride to India, I read the “The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good ” by William Easterly – the guy that Bill Gates had a strong reaction to recently on a panel discussion in Davos earlier this year. Thanks to Mora for suggesting and lending the book to me.

From “Bill Gates Issues Call For Kinder Capitalism,” January 24, 2008, Wall Street Journal…

“If we can spend the early decades of the 21st century finding approaches that meet the needs of the poor in ways that generate profits for business, we will have found a sustainable way to reduce poverty in the world,” Mr. Gates plans to say….

To a degree, Mr. Gates’s speech is an answer to critics of rich-country efforts to help the poor. One perennial critic is Mr. Easterly, the New York University professor, whose 2006 book, “The White Man’s Burden,” found little evidence of benefit from the $2.3 trillion given in foreign aid over the past five decades.

Mr. Gates said he hated the book. His feelings surfaced in January 2007 during a Davos panel discussion with Mr. Easterly, Liberian President Ellen Johnson Sirleaf and then-World Bank chief Paul Wolfowitz. To a packed room of Davos attendees, Mr. Easterly noted that all the aid given to Africa over the years has failed to stimulate economic growth on the continent. Mr. Gates, his voice rising, snapped back that there are measures of success other than economic growth — such as rising literacy rates or lives saved through smallpox vaccines. “I don’t promise that when a kid lives it will cause a GNP increase,” he quipped. “I think life has value.”

Brushing off Mr. Gates’s comments, Mr. Easterly responds, “The vested interests in aid are so powerful they resist change and they ignore criticism. It is so good to try to help the poor but there is this feeling that [philanthropists] should be immune from criticism.”

also see Easterly’s rebuttal.

Easterly is former research economist at the World Bank now at NYU. in his book he looks at the successes/ failures of international aid interventions (financial + military) by “The West” and makes the case that they have done more harm than good during the past 50+ years.

Most of Easterly’s book makes sense to me and I agree with Easterly that philanthropic/aid agencies are not “above” criticism – their hyped up expectations do not necessarily make things better and sometimes they make things worse by standing in the way of more realistic, lasting solutions… but,

  1. I agree with Gates on one thing, that you can get into trouble measuring national economic development using aggregate GDP (growth) instead of measuring the purchasing power of the bottom pyramid (half or quarter) of earners in the economy. Easterly cites India as a success story of development showing a chart of exponential GDP growth over 20-40 years using the Indian IT industry as an example. Despite this progress, the failure is that 50 years after Indian independence close to half of all Indians (400-500 million people) still live on less than $1 of $2 per day.
  2. Easterly says new (niche) market creation is limited by social and legal barriers to trust and property rights and therefore must take place indigenously – there is not much we can do about it living in “The West.” I think we have not yet explored the potential of the Internet to overcome these constraints and help diversify agricultural economies (long tail). See my essay “Opening Niche Markets in Rural India using the Internet”
  3. Style. Though his analysis is very compelling and data-driven with graphs, stories of people, case studies of developing nations, and world history, to me the title seems a bit polarizing or stuck in the past and the tone of the writing is funny bit also feels a bit sarcastic. Perhaps it is discouraging to visionaries and optimists who want to break from the past. In his book he takes aim at Bono and Jeffery Sachs’ “The End of Poverty.”

I tried to capture the main ideas of the book… sure I missed something but I think it’s mostly here.

— Top-down “planners” at large institutions like the World Bank will mobilize resources on the basis of utopian agendas and large-scale “big pushes” that attract donor governments and private institutions (in US, UK, and The West). These visions are never achieved because they lack feedback from the people (Africa, Asia, and “The Rest”) whom they are intended to benefit, i.e. the poor. On the other hand, he notes that the World Bank produces very high quality economic research.

— Unlike market-driven firms or (legitimately) elected officials the planners are accountable to donors, not the poor. planners’ jobs are not dependent on serving the poor but rather to indulge donors’ unrealistic expectations which may never materialize. The “planners” efforts do more harm than good (large part of what the book is about). The failures of these big pushes become self-fulfilling as donors redouble their efforts, bureaucracy becomes bloated, and they begin to measure progress based on volume of aid disbursed not impact on the poor. incentives of planners and poor people are not sufficiently aligned – this is called the principal-agent problem

— Bottom-up “searchers” (NGOs, entrepreneurs, profit-seeking companies) who are on “the ground” in developing countries can get direct feedback from the poor people they serve and make real impact on the their lives. they set realistic, achievable goals unlike the planners. Too little money is going to support the searchers. several case studies.

— On microfinance and microcredit,

Microcredit is not a panacea for poverty reduction that some have made it out to be after Yunis’ discovery. Some disillusionment with microcredit has already come in response to these blown-up expectations. Microcredit didn’t solve everything; it just solved one particular problem under on particular set of circumstances-the poor’s lack of access to credit except at usurious rates from moneylenders.

— Markets are a spontaneous outgrowth of social trust (for transactions) and property rights (for investment), and can’t be planned by aid agencies, foreign governments, or “out of the blue” after an invasion or removal of a dictator.

— Foreign aid has been most effective and made a large-scale impact in people’s lives for things like vaccination, health care delivery, and programs to keep kids/girls in school when compared to other areas in which results can’t be directly measured. dollar for dollar, the recent momentum to offer AIDS treatment ($1000 per person) like Bush’s $15 billion commitment of US taxpayer funds for Africa (30 million infected) is many times less cost-effective compared to preventing the spread of AIDS through condoms (600 million not infected) or even prevention of other life-threatening diseases like malaria, diarrhea, and infant mortality. the spread of AIDS could have been avoided had prevention been a bigger priority since experts have been predicting this epidemic for over a few decades. In AIDS, saving a life gets more “emotional” attention from the public than prevention of AIDS transmission which could save many more lives.

— There have been some success stories, but economic growth in developing countries has not been correlated to aid/intervention by the West. Colonialism and imperialism has resulted in long-term economic stagnation, which he offers as a case study to consider other neo-imperialistic plans to take over weak-states. His claim is that countries develop much faster and better when they are left to their own.

— National financial health has less direct impact on earnings of the poorest people, except indirectly via inflation and government subsidies to the poor.

The IMF’s approach is simple. A poor country runs out of money when its central bank runs out of dollars. The central bank needs an adequate supply of dollars for two reasons. First, so that residents of the poor country who want to buy foreign goods can change their domestic money (let’s call it pesos) into dollars. Second, so those poor-country residents, firms, or governments who owe money to foreigners can change their pesos into dollars with which to make debt repayments to their foreign creditors. What makes the central bank run out of dollars? The central bank not only holds the nation’s official supply of dollars (foreign exchange reserves), it also makes loans to the government [aside from foreign borrowing with bonds] and supplies the domestic currency for the nation’s economy. The government spends the currency [it borrows], and the pesos pass into the hands of people throughout the economy. But are people willing to hold the currency? The printing of more currency [excessive government borrowing from the Central Bank] drives down the value of currency if people spend it on the existing amount of goods – too much currency chasing too few goods… so they take the pesos back and exchange them for dollars. The effect of printing more currency that people don’t want is to run down the central bank’s dollar holdings. Too few dollars for the outstanding stock of pesos is kind of like the Titanic with too few lifeboats. The country then calls on the IMF. So the standard IMF prescription is to force contraction of central bank credit the government, which requires a reduction in the government’s budget deficit [government spending]… forces the government to do unpopular things [like cut subsidies] – disturbance of domestic politics.

— Bad governments (corruption and violent dictators) have been responsible for much of the slow growth in these countries, which are in turn caused by either a colonial past or by historical poverty itself. Foreign aid tends to prop these governments up, and in some cases private organizations working around these governments can lead to much better results.

— Loans are not necessary to balance a national budget, and the IMF’s prescriptions for foreign exchange lending to developing countries and reducing government spending can be way off. This is due to severe accounting irregularities in the books of these countries, uncertainty of how or when markets react to falling currency prices, and how they react to information in the economy (people’s behavior). Lending based on shaky foundations can lead to the self-reinforcing “debt trap” through repeated refinancing of poor countries and propping up of bad governments. the IMF does better in emerging markets, but he says it may be better off to leave the poorest countries alone.

US Continental Security

March 13, 2008

General Victor Renuart’s testimony to the Senate Armed Services Committee is a fun read — as it ties together all aspects of “continental security” and puts them into perspective. He oversees both the North American Aerospace Defense Command (NORAD) which has been in existence since the Cold War to protect against airborne threats (missiles, airplanes, etc) and the US Northern Command (USNORTHCOM) which was created in 2002 after the 9/11 attacks for all aspects of homeland security and incident repsonse. Some bits of trivia from the testimony… NORAD and USNORTHCOM monitor 12-20 potentially dangerous incidents everyday and there are over 17,000 manmade objects orbiting the earth in space and thousands more they cannot track.

Three important trends for homeland security emerge from his testimony:

  1.  Building up capability and preparation for WMD incident response is the #1 priority for USNORTHCOM – note this is not prevention. They prepare to deal with the 15 National Planning Scenarios.

  2. There is a long list of domestic incidents that USNORTHCOM has responded last year (Katrina, California wildfires, drug smuggling, etc.

  3. Working in conjunction with both state/local governments and Department of Homeland Security (DHS), the USNORTHCOM will be relied upon for delivering and coordinating all domestic disaster response for major natural incidents, man-made accidents, and hostile attacks – they are in charge of the national guard and will call on the Army/Marines as necessary. This includes Army’s CBRNE. (The letters CBRNE stand for the five mission elements of the 20th Support Command: chemical, biological, radiological, nuclear, and high-yield explosives.)

Corporate risks + rewards of breakthrough R&D

March 10, 2008

Corning’s Biggest Bet Yet? Diesel-Filter Technologies
By SARA SILVER, March 7, 2008; Page B1, Wall Street Journal

Corning, which went public in 1945 and has a market capitalization of about $36 billion, has survived — and often thrived — in recent decades by following a playbook that Wall Street and corporate America deems outmoded. While companies like Xerox Corp. scaled back long-term research, Corning stuck with the old formula, preferring to develop novel technologies than buy them from start-ups.

An investment 25 years ago has turned Corning into the world’s largest maker of liquid-crystal-display glass used in flat-panel TVs and computers. But another wager, which made it the biggest producer of optical fiber during the 1990s, almost sank the company when the tech boom turned into a bust.

Corning Inc. has survived for 157 years by betting big on new technologies, from ruby-colored railroad signals to fiber-optic cable to flat-panel TVs. And now the glass and ceramics manufacturer is making its biggest research bet ever.

Under pressure to find its next hit, the company has spent half a billion dollars — its biggest wager yet — that tougher regulations in the U.S., Europe and Japan will boost demand for its emissions filters for diesel cars and trucks.

“This is the biggest cash hole we’ve ever been in,” says Corning President Peter Volanakis.

In Erwin, a few miles from the company’s headquarters in Corning, the glassmaker is spending $300 million to expand its research labs. There, some 1,700 scientists work on hundreds of speculative projects, from next-generation lasers to optical sensors that could speed the discovery of drugs.

Corning’s roots go back to 1851, when Amory Houghton, a 38-year-old merchant, bought a stake in a small glass company, Cate & Phillips. For most of Corning’s history, a Houghton was either chairman or chief executive. Even today, Corning, population 12,000, is very much a company town. The original Houghton family mansion, still used for company meetings, overlooks the quaint downtown, which is punctuated by a white tower from one of Corning’s original glass factories. Most senior managers have spent their entire careers at Corning.

“Culturally, they’re not afraid to invest and lose money for many years,” says UBS analyst Nikos Theodosopoulos. “That style is not American any more.”

Corning also goes against the grain in manufacturing. While it has joined the pack in moving most of its production overseas, it eschews outsourcing and continues to own and operate the 50 factories that churn out thousands of its different products.

Corning argues that retaining control of research and manufacturing is both a competitive advantage and a form of risk management. Its strategy is to keep an array of products in the pipeline and, once a market develops, to build factories to quickly produce in volumes that keep rivals from gaining traction.

But because Corning often depends heavily on a single product line for most of its profit — 92% of last year’s $2.2 billion profit came from its flat-panel-display business — it is vulnerable to downturns. Even small movements in consumer demand for or pricing of its LCD-based products can cause gyrations in its stock price. During the dot-com meltdown when the market for fiber-optic cable crashed, Corning was brought to the brink of bankruptcy and by 2003 was forced to lay off half of its workers. Today it has 25,000 employees.

Trust in students + lessons tailored to their needs leads to results in education

March 8, 2008

What Makes Finnish Kids So Smart? By ELLEN GAMERMAN, February 29, 2008; Page W1, Wall Street Journal

“…by one international measure, Finnish teenagers are among the smartest in the world. They earned some of the top scores by 15-year-old students who were tested in 57 countries. American teens finished among the world’s C students even as U.S. educators piled on more homework, standards and rules. Finnish youth, like their U.S. counterparts, also waste hours online. They dye their hair, love sarcasm and listen to rap and heavy metal. But by ninth grade they’re way ahead in math, science and reading — on track to keeping Finns among the world’s most productive workers…

The academic prowess of Finland’s students has lured educators from more than 50 countries in recent years to learn the country’s secret, including an official from the U.S. Department of Education. What they find is simple but not easy: well-trained teachers and responsible children. Early on, kids do a lot without adults hovering. And teachers create lessons to fit their students.

In addition to the article, also see the video linked from the WSJ website. The international comparison/test was for 15 year olds in math, science, and reading skills. The video explains that Finnish students don’t start school until age 7 allowing them to play, be free, and develop emotionally for a longer time than their American counterparts who start first grade at age 5.

Morgan Stanley Microfinance Conference

February 20, 2008

Reporting from the Morgan Stanley offices in Westchester, NY… at the first day of the Women’s World Banking conference on microfinance  

In the morning Aisha De Sequeira gave a cool talk summarizing the worldwide microfinance industry. Microfinance institutions (MFIs) are banks that require capital (equity/debt financing) like any other business, which they use in turn lend to their “clients” in small amounts of $1000 or so. Based on projected growth plans of these MFIs in the next 5-10 years, Morgan Stanley estimates that their total capital needs will be $280B, but in actuality may remain as low as $20B – what to do about the gap in order to service the needs of end users? (that’s 500 million people according to Premal Shah at Kiva). 

Aisha says MFIs can be categorized into Tier 1 (10%) which are profitable, and Tier 2 (90%) which are not profitable but most (or all) have business plans to become profitable. In afternoon sessions they were even talking about some MFIs going IPO. Profitability for 1st gen MFIs tooks 13 years, 2nd gen took 9 years, and 3rd generation are becoming profitable in as short as 4 years. The less mature MFIs usually get funded by organizations out of social responsibility, and the more mature MFIs can access commercial capital markets – they represent a diversified asset compared to other classes of investments. In funding MFIs, there is a tradeoff between absolute returns versus social responsibility – transparency allows people to make that evaluation. 

Had a few hallway/lunch conversations. Professor James Austin (HBS) helped me understand that there may be a difference between urban and rural microfinance, but information on types of the types of businesses that are funded is probably not readily available yet – the major source of information/feedback is simply whether the loans get repaid (or not). Talking afterwards to Abid Safaffe, CEO of the Kashf Foundation (an MFI based on Lahore, Pakistan) whose operations are growing at 60-80% year on year, she says they see a “higher cost of operations” in rural areas due to distance and organizational hurdles and that most of their rural clients are farm-related (animals and agriculture). The urban clients (70%) are easier to serve and they are mostly “selling small stuff.” Also spoke to Asphina Skihauli — a loan officer from a South African MFI called Women’s Development Bank (WDB) that is purely rural focused. They pointed out that most of the clients are illiterate, start off in farm opportunities (like animals or selling vegetables), then after seeing success they move onto more profitable things like sewing, artifacts, manufacturing pottery or wooden chairs, all based on ideas they come up with which the bank then supports. WDB provides education for free. 

At dinner one of the people I met expressed skepticism in the claims about microfinance. He thought that while there were lots of success stories and cases,

  1. there is not a lot of data to support microfinance as being diversified asset class yet.
  2. repayment rates are really so high as being reported due to refinancing by the MFI (instead of allowing client to default)
  3. most of the profitable MFIs are in urban microfinance, leaving the unprofitable rural operations to NGOs and non-profits

In her presentation, Roshaneh Zafar the President/founder of Kashf (means “miracle”) cited Yunis’ call to action to get started several years ago – “if you fail blame me.” 

In another talk I heard that Mexico has 106 mllion people of which 45% live on less than $2/day – in aggregate does not appear a whole lot different than India. Microfinance penetration in Mexico has been only 7%. Similarly Pakistan is 160 million people, 80% of them live on less than $2 per day, and microfinance penetration is 6-8%.

Some useful links

  • The Microfinance Information Exchange (Mix Market)
  • Consultancy Group for Advocacy for the Poor (CGAP)
  • Small Enterprise Education and Promotion Network (SEEP)

Kiva: The Ebay for Microfinance

February 8, 2008

Yesterday I went to the talk by Premal Shah about which he calls the “Ebay for microfinance.” It was at Zerox PARC. Thanks to Chari for giving me a heads up about this. They get lots of press and also see a recent NY Times article about them.


Kiva is a nonprofit website and clearing house that enables Internet users (lenders) to give 0% (interest-free) loans to specific individual or small-group “entrepreneurs” (borrowers) in developing countries in Africa, South America, Eastern Europe, and Asia. They work with 85 field partners from 40 countries, called microfinance institutions (MFI), who post/vet entrepreneur profiles which are in turn selected by Internet users for personal loans. One of the biggest advantages of Kiva is end-to-end transparency — each lender can “see” who which borrower they are lending to, track their progress through journal updates, and see when the loan is being repayed. See a blog post by Guy Kawasaki that explains their fee per transaction business model — $2.50 voluntary fee that lenders pay when checking out their “shopping cart.”  

Yunis was first 30 years ago, and today there are 10,000 MFIs worldwide. He estimates there are 500M people needing loans like this, and only 100M have been reached through traditional microfinance to-date. Access to capital is still a bottleneck he says. Note: Kiva is prevented from operating in India due to their bank regulations.

Kiva Statistics. Kiva is 3 years old, so far $20M loaned by Q1 08 in 3 years since inception,. Observing parabolic quarter on quarter growth in loans and expect to have loaned $250M to $1B in five years surpassing efforts of microfinance initiatives major banks like Citibank ($100M).  

The Kiva model:  

Internet user (a lender, social investor) 

–> Kiva (online marketplace)  

–> Local Field Partner (Microfinance Institution)  

–> Developing World Entrepreneur (the borrower) 

Each Kiva lender has given on average 2.2 loans — $25 max limited by Kiva. Over the 20-30,000 people visit the site daily, and 3% end up giving loans. Each borrower is usually funded by 15-20 lenders on average — typically in the range of $1000 total loan size. The lenders usually sign up within a day of a loan request being posted for an entrepreneur. In some war torn or crisis areas like Iraq of Afghanistan, the lenders sign up in just a few hours. 

The lenders (social investor) rationale is that Kiva is transparent (know where it goes), sustainable (if repaid, money can be lent to someone else), affordable ($25 to change someone’s life), and unique (“I love microfinance, I want to participate”). For the microfinance institution, Kiva offers a low interest US dollar capital, no liability, flexible repayment terms, and financial assistance + incentives for transparency. 100% of loan funds go directly to the borrowers.

Kiva checks out (verify) the MFIs and the MFIs in turn check out the borrowers. The MFI charges 20% interest rate to cover distribution costs, and they bear currency ris as well when converting from US dollars to local currency and back during repayment period. In the future Premal hopes they can establish credit histories for individuals and bypass this intermediate layer completely. Kiva uses random sampling to audit and check on the MFIs for fraud.  

Unlike traditional microfinance where borrowers are organized into groups who are accountable to each other, social accountability is created via the Internet. Borrowers’ profiles are made visible on the Internet, and is therefore visible online to locals who watch each other at Internet kiosks/cafes. 

Capital. Internet users are willing to bear greater risk than banks probably due to the “personal connection.” People don’t want (need) to lend with interest, whereas banks have to when they are working with MFIs.  

Operating Principles. “Unreliable credit is OK, but unreliable data is not OK.” Each lender gets a “portfolio” of people who they lend to, much like a stock portfolio on Etrade. Loans in this model create a “persistent tie” between the people across the world with journal updates. The accountability is simple. If you are getting repaid, something is working. If you don’t get repayed, something is not working. MFIs report repayment rates of 99.7% but Premal believes that’s skewed to report better than actual results because the MFIs don’t want to discourage Kiva. He believes the actual repayment rate is over 90%. There is a “Risk & Due Diligence Center” on the website. 

Diversification. I asked what types of different activities and market opportunities are being funded, epecially outside agriculture. He said he doesn’t know for sure, but says that agricultural opportunities are the dominant activity being funded. In addition, there appears to be a slight lender bias. For example, the most popular kind of loan that gets funded by lenders is African female farmer, and the least popular is an Eastern European male taxi driver. He questions whether or not that is economically rational, but says that’s what it is right now. In 3Q 2008 they plan to open up APIs so researchers can download and analyze the loan data from their website to gain further insights. 

Organization. is 25 people and operates on very low overhead thanks to cooperation and donations from several silicon valley companies. For example PayPal gives free payment processing. Google offers free AdWords traffic.  

Making cars safely, efficiently, and high-quality — a look into organizational culture

January 29, 2008

Along with a group of MIT alums, one week ago (1/22/2008) I was fortunate to visit the automotive manufacturing plant in Fremont, CA that turns out the Toyota Corrolla, Pontiac Vibe, and Toyota Tacoma pickup truck. The NUMMI auto plant is a joint venture of GM and Toyota. In North America, for Toyota it is the most efficient plant taking 19 hours of human effort per vehicle produced and seventh overall (GM and Honda have more efficient plants) — see the article “Most efficient assembly plants” in Automotive News. In 2007 NUMMI produced 407,881 vehicles — see “There’s a new No. 1 plant: Georgetown.” I have blogged about NUMMI’s high-trust workplace, and here are some notes that another MIT alum put together in 2003.

The first thing I noticed at the entrance to the plant was a rug on the ground titled “Safety Absolutes”

Safety is the overriding priority

All accidents can and must be prevented

At NUMMI, safety is a shared responsibility

Their mission statement posted on the wall is

“Through teamwork, safely build the highest quality vehicles at the lowest possible cost to benefit our customers, team members, community, and shareholders.”

What struck me was message of social accountability and interdependence being conveyed in both the rug and mission statement.

The plant is 5.5 million square feet (118 football fields or 122 Costcos), and workplace for 5,000 “team members” (they didn’t say employees). There are also 300 temporary workers who come in to help for seasonal variations in production.

The emphasis on relationship with team members and “community” comes out at every turn in the plant. The plant has had no layoffs in its 23 year history of operation. Wages start at $20/hr and go up to $35/hr in three years. The plant has 160 “team rooms” with refrigerators, lunchrooms, and lockers. Phrases I heard included “quality, pride, teamwork, job security, benefits, pay, family, successful year, looking out for my family, winning team, all about the family.”

There are five stages (divisions) to auto manufacturing at NUMMI.

  1. Stamping steel into body sheets — 1 million lbs of steel / day
  2. Body / welding
  3. Paint
  4. Plastics
  5. Assembly — the assembly line is 1.5 miles long producing 650 trucks / day and 900 cars / day. There hours per truck, one produced every 85 seconds.

Quality control involves random test drives and audits at the end of the production line. The quality philosophy really starts with the team members who are trusted with the authority to push a button that will raise an alert to stop the assembly line if they find a problem — an innovation from Japanese lean manufacturing. There was a time when auto plants did not allow their employees to do this. Once they raise the alert, the a red light goes on and they have 81 seconds to decide to clear the alert the before the line actually stops. Sometimes it gets cleared up within that time, and other times the line has to stop to fix the problem. After reading about it before coming to the plant, I was really curious and I actually saw it stop a few times. The line statistics are prominently displayed for team members to view on a scoreboard. They were reporting 2% downtime and the target is to remain less than 4%.

The NUMMI team members work in teams of 4-6 people, and they rotate their jobs throughout the day whenever they want to — this eliminates most of the repetitiveness and boredom usually associated with manufacturing. They usually spend 1 year in a division (like plastics) before moving onto other types of jobs in the plant, so that way employees learn about all aspects of manufacturing/production. Team members are encouraged to find ways to improve the process and implement these ideas. Using a “frame rotator,” the truck chassis were flipped upside down to aid team member ergonomics during assembly of the drivetrain. We saw several robots by Kawasaki, and automatically routed (guided) vehicles to transport auto parts.

If an auto plant can do this, what would it look like if we incorporated this philosophy into software development? Software programmers and test engineers would have the authority to raise alerts and hold up software releases instead of a manger having the final say in triage of bug reviews. People would rotate between software and test. What if the space shuttle launch could be delayed by any engineer on the team instead of being determined by launch managers? To make this work all engineers have to have sufficient system level knowledge and be “trusted” with the authority to make these decisions.

There is a hierarchy,

  1. skilled worker — several of whom are organized into quality circles
  2. team leader of 4-5 workers (tends to be nurturing)
  3. group leader of several teams (tends to be more disciplined)

Only the teams are evaluated for performance, not individuals. People can get fired, but they can’t get layed off. The plant operates in two 7.5 hour shifts for a total of 15 hours per day, five days a week so people have weekends off. According to the tour guide, job rotation was the big thing that drew employees to the plant, not work or guaranteed employment.

The big difference that comes out here is the relationship with team members and that trust turns into better results.