Tuesday, March 20, 2012

Creating Value Through Business Model Innovation

 In the early part of this century there was much hype around the internet. We are now seeing the success’s of those that have embraced the web. Aivars Lode

Corporate Strategy
By Raphael Amit and Christoph Zott

March 20, 2012

Could your company benefit from a new business model? Consider these six questions.

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[Image courtesy of Amazon.]

The growing popularity of e-reading devices such as the Kindle is stimulating business model changes in book publishing.

Image courtesy of Amazon.
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Companies often make substantial efforts to innovate their processes and products to achieve revenue growth and to maintain or improve profit margins. Innovations to improve processes and products, however, are often expensive and time-consuming, requiring a considerable upfront investment in everything from research and development to specialized resources, new plants and equipment, and even entire new business units. Yet future returns on these investments are always uncertain. Hesitant to make such big bets, more companies now are turning toward business model innovation as an alternative or complement to product or process innovation.

A recent global survey of more than 4,000 senior managers by the Economist Intelligence Unit found that the majority (54%) favored new business models over new products and services as a source of future competitive advantage. EIU analysts concluded that “the overall message is clear: how companies do business will often be as, or more, important than what they do.”1 And in a similar global study conducted by IBM, in which over 750 corporate and public sector leaders were interviewed on the subject of innovation, researchers found that “competitive pressures have pushed business model innovation much higher than expected on CEOs’ priority lists.”2 However, this level of interest may not have been too surprising given that the IBM study also found that companies whose operating margins had grown faster than their competitors’ over the previous five years were twice as likely to emphasize business model innovation, as opposed to product or process innovation.3 One CEO explained why his company’s focus on business model innovation had grown:

    In the operations area, much of the innovations and cost savings that could be achieved have already been achieved. Our greatest focus is on business model innovation, which is where the greatest benefits lie. It’s not enough to make a difference on product quality or delivery readiness or production scale. It’s important to innovate in areas where our competition does not act.4

The Leading Question

What do executives need to know about business model innovation?

    Business model innovation can consist of adding new activities, linking activities in novel ways or changing which party performs an activity.
    Novelty, lock-in, complementarities and efficiency are four major business model value drivers.
    Within organizations, business model choices often go unchallenged for a long time.

Business model innovation can also help companies stay ahead in the product innovation game, where as one CEO from another study explained, “you’re always one innovation away from getting wiped out by a new competing innovation that eliminates the need for your product.”5 A good product that is embedded in an innovative business model, however, is less easily shunted aside. Someone might come up with a better MP3 player than Apple’s tomorrow, but few of the hundreds of millions of consumers with iPods and iTunes accounts will be open to switching brands.

Business model innovation matters to managers, entrepreneurs and academic researchers for several reasons. First, it represents an often underutilized source of future value. Second, competitors might find it more difficult to imitate or replicate an entire novel activity system than a single novel product or process. Since it is often relatively easier to undermine and erode the returns of product or process innovation, innovation at the level of the business model can sometimes translate into a sustainable performance advantage. Third, because business model innovation can be such a potentially powerful competitive tool, managers must be attuned to the possibility of competitors’ efforts in this area.6 Competitive threats often come from outside their traditional industry boundaries.

We define a company’s business model as a system of interconnected and interdependent activities that determines the way the company “does business” with its customers, partners and vendors. In other words, a business model is a bundle of specific activities — an activity system — conducted to satisfy the perceived needs of the market, along with the specification of which parties (a company or its partners) conduct which activities, and how these activities are linked to each other. We started our research into business models a decade ago by making in-depth inquiries into the business models of 59 e-business companies in Europe and the U.S. that had undertaken initial public offerings.7 (See “About the Research.”) Later, we developed a unique data set containing detailed information about the business models of 190 entrepreneurial companies listed on U.S. or European public exchanges between 1996 and 2000. We supplemented these data on companies’ business models with another manually collected data set on business strategy, establishing empirically that a company’s product market strategy and its business model are distinct constructs that affect corporate performance.8 More recently, we have developed cases on business model choice and evolution.9
About the Research »

Building on this work, we focus in this article on business model innovation in the context of established companies. However, these ideas are equally applicable to innovators of entirely new business models and to managers of companies who need to adapt their business model incrementally with the objective of achieving business model innovation new to their organization. Even under conditions of resource scarcity, organizations do not need to renounce innovation as a way of enhancing their performance prospects. Rather, managers should consider the opportunities offered by business model innovation to complement, if not substitute for, innovation in products or processes. Business model innovation can allow managers to resolve the apparent trade-off between innovation costs and benefits by addressing how they do business, for example, by involving partners in new value-creating activity systems.

Business Model Innovation in Practice

To illustrate the power of business model innovation, consider two cases: Apple and HTC, the Taiwan-based mobile device manufacturer. For most of its history, Apple was focused on the production of innovative hardware and software, mostly personal computers. By creating the iPod and the associated iTunes, a legal online music download service, Apple introduced a radical innovation of its business model. Apple was the first computer company to include music distribution as an activity, linking it to the development of the iPod hardware and software. By adding this new activity to its business model, which links the music label owners with end users, Apple transformed music distribution. Rather than growing by simply bringing innovative new hardware to the market, Apple transformed its business model to encompass an ongoing relationship with its customers, similar to the “razor and blade” model of companies such as Gillette. This enabled Apple, and its business model partners, to extract ongoing value from the use of the Apple hardware and software. In this way, Apple expanded the locus of its innovation from the product space to the business model — and its revenues, profit and stock price change have reflected that successful business model innovation. (See “Apple’s Performance, Before and After Business Model Changes.”)
Apple’s Performance, Before and After Business Model Changes

View Exhibit

Such performance can be hard for even some otherwise high-performing companies to match if they rely solely on product innovation. HTC has been a very innovative, profitable and growing original equipment manufacturer since its founding in 1997. Initially, HTC manufactured handsets for Microsoft-powered mobile phones for companies such as Palm, HP and T-Mobile. In 2006, it changed its product-market strategy from being a contract OEM manufacturer to selling its own HTC-branded smart phones to wireless network operators and the general public through various distribution channels. HTC has excelled in many ways, recording many firsts in the smart phone product market space and winning numerous awards for its many technological innovations. Yet HTC’s business model has remained centered on hardware design and product innovation. In effect, HTC sells great razors, but no razor blades: Its business model allows it to benefit only from the sale of its innovative, state-of-the-art smart phones and tablets, but not from their use. Comparing the performance of HTC and Apple stock in the past two years highlights the fact that in the fast-moving technology market space, product innovation without business model innovation may not always provide enough competitive advantage. (See “The Stock Price of HTC vs. Apple.”)
The Stock Price of HTC vs. Apple

View Exhibit

In contrast to Apple, HTC has not been involved in the creation or delivery of mobile content or services, and its devices function on third-party operating systems such as Google’s, generating revenues for HTC only from the hardware sales. Apple, on the other hand, benefits from economies of scope due to the interoperability of its software base (iOS, iTunes, App Store, iCloud) for its various products including its computers (iMacs), tablets (iPads), phones (iPhones) and MP3 players (iPods). In addition, Apple benefits from direct ownership of its distribution channels (online App Store, brick-and-mortar Apple retail stores). Further, Apple’s business model enables it to derive revenue from App Store sales of third-party applications, from iTune songs, and from AT&T for the use of its iPhone for voice and data.

How to Innovate in Business Model Design

An innovative business model can either create a new market or allow a company to create and exploit new opportunities in existing markets. Dell, for example, implemented a customer-driven, build-to-order business model that replaced the traditional build-to-stock model of selling computers through retail stores.10

Changes to business model design, however, can be subtle; even when they might not have the potential to disrupt an industry, they can still yield important benefits to the innovator. Consider Taco Bell, the restaurant chain offering Mexican-style fast food, which in the late 1980s decided to turn the restaurant’s kitchens into heating and assembly units. Most chopping, cooking and clean-up activities were transferred to corporate headquarters. The food was sent precooked in plastic bags to restaurants, where it could be heated, assembled and served.11 This incremental business model innovation was not game-changing for the fast food industry, but it allowed Taco Bell to realize economies of scale and improvements in efficiency and quality control, as well as to increase space for customers within the restaurants.12 Other companies might wish to change their business models in similar incremental ways or follow a business model innovator in their industry in order to achieve competitive parity.

Business model innovation can occur in a number of ways:

1. By adding novel activities, for example, through forward or backward integration; we refer to this form of business model innovation as new activity system “content.”13

2. By linking activities in novel ways; we refer to this form of business model innovation as new activity system “structure.”

3. By changing one or more parties that perform any of the activities; we refer to this form of business model innovation as new activity system “governance.”

Content, structure and governance are the three design elements that characterize a company’s business model.14 (See “Six Questions About Business Model Innovation.”) Change one or more of these elements enough and you’ve changed the model. Consider the following.
Six Questions About Business Model Innovation

View Exhibit

The content of an activity system refers to the selection of activities to be performed. For example, Colombia’s largest bank, Bancolombia, adopted activities beyond those of a typical retail bank. The perceived market need for these activities was the demand for microcredit among the more than 60% of Colombians who did not have access to banking services. To perform these new activities — an innovation in the content of its business model — the bank needed to train its top management, hire and train new staff and link the new activities to its existing system (platforms, applications and channels).15 Another example of business model innovation focused on content is IBM.16 After a severe financial crisis in the early 1990s, the company shifted its focus from being a supplier of hardware to becoming a service provider. Drawing on know-how built over decades, IBM launched a range of new activities in consulting, IT maintenance and other services. The transformation was substantial: By 2009, more than half of IBM’s $96 billion in revenues came from these activities, which had barely existed 15 years earlier.

The structure of an activity system describes how the activities are linked and in what sequence. Consider Priceline.com. This online travel agency has established links with airline companies, credit card companies and Travelport’s Worldspan central reservation system, among others. By introducing a reverse market in which customers post desired prices for sellers’ acceptance, Priceline developed a fundamentally novel exchange mechanism through which these parties interact and by which items such as airline tickets are sold. Priceline was granted a business method patent on its innovative activity system — a novel structure that continues to distinguish the company from other travel agencies.
[Image courtesy of Flickr user marko8904.]

When he first began franchising 7-Eleven stores in Japan, Toshifumi Suzuki was introducing a business model innovation in the Japanese market.

Image courtesy of Flickr user marko8904.

The governance of an activity system refers to who performs the activities. Franchising, for example, represents one possible approach to innovative activity system governance. It can be the key to unlocking value, as when Japanese entrepreneur Toshifumi Suzuki realized in the early 1970s that the franchise system that had developed in the U.S. was an ideal response to the strict regulations imposed by the Japanese government on retailing outlets, which limited their size and restricted opening times. By franchising 7-Eleven stores in Japan, Suzuki adopted a novel type of activity system governance (new to Japan, but not to the rest of the world) and managed to create value through professional management and local adaptation.17 Another example of an innovative governance structure is the recent formation of a consortium of magazine publishers, including Time, Hearst, Meredith and CondĂ© Nast, to develop an online magazine newsstand using multiple digital formats. The resulting company, Next Issue Media, is jointly owned by industry rivals and is a response by the rival publishers to declining print circulation (and hence print advertising revenue) and the growth of digital media. Fighting for survival, the publishers are looking beyond their otherwise fierce competition to their common interest in inventing a new context for magazines in the digital era. As Ann Moore, the former CEO of Time, stated, “It’s increasingly clear that finding the right digital business model is crucial for the future of our business.”18
[Image courtesy of Next Issue Media.]

A consortium of magazine publishers is working to invent a new context for magazines in the digital era.

Image courtesy of Next Issue Media.

But how does a company increase the odds of developing the right business model for its situation? In our earlier work,19 we identified four major interlinked value drivers of business models: novelty, lock-in, complementarities and efficiency.

1. Novelty captures the degree of business model innovation that is embodied by the activity system.

2. Lock-in refers to those business model activities that create switching costs or enhanced incentives for business model participants to stay and transact within the activity system. Consider for example Nespresso, a division of NestlĂ© Corporation. It introduced a new, low-cost espresso maker that uses Nespresso-produced coffee capsules. Once a customer buys a Nespresso machine, he or she needs to use Nespresso coffee capsules — creating a lock-in that enables Nestle to profit from both the sale of the machine and the use of the machine by selling consumables that machine owners must buy from Nespresso. Launching these products involved a radical redesign of the activity system, for example, by branching out into retailing activities.

3. Complementarities refer to the value-enhancing effect of the interdependencies among business model activities. Consider, for example, eBay, which offers a platform to conduct sales over the Internet among individual buyers and sellers of used and new products. A key requirement for the platform to function properly is a payment mechanism that allows buyers to make credit card payments even when the seller does not have access to credit card services. PayPal, the online payment company that eBay acquired, offers such a function, facilitating trades that could not otherwise be completed. In other words, PayPal has a value-enhancing effect on the eBay activity system.

4. Efficiency refers to cost savings through the interconnections of the activity system. Consider Wal-Mart, which not only championed the concept of discount retailing but also designed an activity system that supports its low-cost strategy. An important activity within this system is logistics. Over time, Wal-Mart developed highly sophisticated processes, such as cross-docking, unrivalled in the industry. These processes help the company to keep its costs lower than its competitors, giving Wal-Mart an important competitive advantage.

Our research suggests that the presence of each of these value drivers enhances the value-creation potential of a business model. Moreover, we find important synergies among the value drivers. Complementarities, for example, can be more valuable when supported by novel business model design.

Interdependencies in Business Models

Interdependencies in business models are created by entrepreneurs or managers in several ways: when they choose the set of organizational activities they consider relevant to satisfying a perceived market need, when they design the links that weave activities together into a system and when they shape the governance mechanisms that hold the system together.

Interdependence among business model design elements. Content, structure and governance can be highly interdependent. Take the San Francisco, California-based peer-to-peer lending company Prosper, for example. The venture aims at enabling direct, small, unsecured loans between individual lenders and borrowers. Early on, the founders made the conscious decision to let lenders choose the borrowers to whom they wanted to lend their money. This was a structural choice that settled the question of how lending and borrowing activities were linked, but it also constituted a decision about governance because it shifted the evaluation and selection activities to the customers and away from the company.

Interdependencies between business and revenue models. Managers also need to consider the interdependency between a company’s business model and its revenue model. The revenue model refers to the specific ways a business model enables revenue generation for the business and its partners.20 It is the way in which the organization appropriates some of the value that is created by the business model for all its stakeholders. A revenue model complements a business model design, just as a pricing strategy complements a product design. Consider Better Place, whose business model aims to provide electric vehicle charging services. Like a mobile phone operator whose business model centers on enabling the use of the mobile phone device through its network rather than on the handset device itself, Better Place’s business model centers on providing charging networks and services rather than on the electric vehicle itself. It involves an innovative business model structure with partners ranging from governments, vehicle manufacturers, clean energy producers and others. Just as mobile phone operators charge customers variable or flat rates for telecommunication services, Better Place intends to implement a revenue model as a function of customers’ car usage (miles driven), thus taking into account the interdependency between its business and revenue models.21

The concepts of business and revenue model, although conceptually distinct, may be quite closely related and even inextricably intertwined. For example, in the product world, Gillette uses its pricing strategy of selling inexpensive razors to make customers buy its more expensive blades. A business model lays the foundations for a company’s value capture by codefining (along with the company’s products and services) the overall “size of the value pie” (that is, the total value that is created), which can be considered an upper limit to the company’s value capture.22 The greater the total value created through the innovative business model, and the greater a company’s bargaining power, the greater the amount of value that the company can appropriate.23

Caveats. As the Better Place example suggests, business model innovators need to bear in mind that identifying technologically or strategically distinct activities can be conceptually challenging, because the number of potential activities is often quite large.24 Many seemingly inseparable activities can now be broken down even further, especially given ongoing advances in information and communications technologies.25 (This, of course, represents not only a conceptual challenge but also an opportunity for innovative managers to redesign the activity systems of their organizations in novel ways.)

What’s more, making changes to a company’s whole activity system rather than optimizing individual activities (such as production) requires systemic and holistic thinking, which can be demanding. When responding to a crisis, operating in tough economic times or taking advantage of a new opportunity, rethinking an entire business model may not always be the first thing on a manager’s mind. This is particularly true when the level of resistance to change is predicted to be high. As a result, choices on business model design often go unchallenged for a long time.

Six Questions to Ask Before Launching a New Model

Our research shows that in a highly interconnected world, especially one in which financial resources are scarce, entrepreneurs and managers must look beyond the product and process and focus on ways to innovate their business model. A fresh business model can create and exploit opportunities for new revenue and profit streams in ways that counteract an aging model that has tied a company into a cycle of declining revenues and pressures on profit margins.26 We suggest that managers ask themselves the following six key questions as they consider business model innovation:

1. What perceived needs can be satisfied through the new model design?

2. What novel activities are needed to satisfy these perceived needs? (business model content innovation)

3. How could the required activities be linked to each other in novel ways? (business model structure innovation)

4. Who should perform each of the activities that are part of the business model? Should it be the company? A partner? The customer? What novel governance arrangements could enable this structure? (business model governance innovation)

5. How is value created through the novel business model for each of the participants?

6. What revenue model fits with the company’s business model to appropriate part of the total value it helps create?

To illustrate how managers might productively and proactively use these questions, consider the business model of McGraw-Hill’s book publishing business.27 In the U.S., general and trade books (including consumer titles and celebrity author books) represent about 55% of industry revenues, while academic and professional books generate the remainder. Until recently, only in business-to-business and academic text segments have websites been a true marketing platform for digital content. While e-readers such as the Kindle and the iPad are now rapidly gaining popularity, the time-consuming and expensive book publishing process had not changed in a material manner in many decades. However, Google, Amazon and other competing information and content providers have stimulated a growing customer interest in electronic formats. Publishers in the U.S. and Europe are searching for solutions to meet the emergent demand for creating and delivering digital content on portable devices while preserving and enhancing value.

Meeting the demand for digital content may require publishers to perform new activities (new business model content). Although it is unlikely that the traditional hardback/paperback book will disappear, it is expected that the demand for printed publications will fall sharply. If printing and physical distribution become less relevant in the process, the time it now takes to add a new title to a catalogue and to bookstore shelves will be reduced. Accordingly, designing, uploading and maintaining the most complete online catalogue may become a central new activity in publishers’ business models. In addition, to the extent that publishers decide to bypass traditional retail bookstores in their new business models, they will have to develop a new marketing activity targeting retail buyers. Production will need to change as well. Creating content with a digitally enabled streamlined process is another activity 21st-century publishers will probably need to incorporate into their new business models.

Linking the various activities to each other, sequencing these linkages and deciding how stakeholders will interact with one another in the new business models requires careful consideration (new business model structure). For example, the ways in which McGraw-Hill decides to interact with multiple digital distribution partners such as Apple and Amazon, through which McGraw-Hill distributes digital content to retail consumers, will affect the breadth of the company’s access to the retail digital book market. The linkages among content creators, including authors, editors, other publishing professionals and distributors, will constitute the heart of the new business model. These linkages must reflect alternatives available to authors — such as bypassing publishers altogether — as well as approaches adopted by competing publishers.

Determining whether McGraw-Hill or another partner will carry out each of the activities of the new business model requires a careful consideration of trade-offs (new business model governance). For example, should the publisher’s content be delivered through a new McGraw-Hill branded device, or by proprietary devices offered by such partners as Amazon (with its Kindle) or Apple (with its iPad), thereby leveraging their existing position in the market? Or should its content be delivered through Internet-based platforms compatible with a broad range of devices, enabling global distribution? These are crucial governance decisions that a new publishing model will answer.

Publishers’ new business models will create value through the complementarities and interdependence among activities and through the enormous efficiencies in the publishing process that the new business models could generate. A number of alternative revenue models associated with these new business models could be considered, such as single subscription pricing independent of the number of downloaded manuscripts, piecemeal pricing and/or value-based pricing for time-sensitive publications.

Taking a Systemic View

Addressing the six questions outlined above can help managers see their companies’ identities more clearly in the context of the networks and ecosystems in which their organizations operate. Without a business model perspective, a company is a mere participant in a dizzying array of networks and passive entanglements. Adopting the business model perspective can help executives purposefully structure the activity systems of their companies; the purposeful design and structuring of business models is a key task for general managers and entrepreneurs and can be an important source of innovation, helping the company look beyond its traditional sets of partners, competitors and customers. Most importantly, perhaps, this approach encourages systemic and holistic thinking when considering innovation, instead of isolated, individual choices. The message to executives is clear: When you innovate, look at the forest, not the trees — and get the overall design of your activity system right before optimizing the details.

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Raphael Amit is the Robert B. Goergen Professor of Entrepreneurial Management at the Wharton School of the University of Pennsylvania in Philadelphia, Pennsylvania. Christoph Zott is a professor of entrepreneurship at IESE Business School in Barcelona, Spain.
Raphael Amit acknowledges support from the Robert B. Goergen Chair in Entrepreneurship at the Wharton School. Christoph Zott acknowledges financial support from the IESE Research Division and from the Ministry of Science and Innovation of Spain (grant ECO 2009-12852). Both authors gratefully acknowledge the financial support of the Wharton-INSEAD Alliance Center for Global Research & Development and also thank Yuliya Snihur, Cesar Guzman-Concha and Sylvie Beauvais for valuable research assistance.

Sunday, March 18, 2012

Western Civilisation: Decline – or Fall?

An interesting take on the current state of things and what needs to be done to reboot. Taking Ideas from elsewhere and implementing here in the States. What a novel concept some issues to getting implemented. I have personally been at dinners where individuals have almost become violent in their opposition of the importation of solutions. Aivars Lode

By Niall Ferguson
As a freshman historian at Oxford back in 1982, I was required to read Edward Gibbon's Decline and Fall of the Roman Empire. Ever since that first encounter with the greatest of all historians, I have pondered the question whether or not the modern West could succumb to degenerative tendencies similar to the ones described so vividly by Gibbon. My most recent book, Civilization: The West and the Rest attempts an answer to that question.
The good news is that I do not believe that Western civilization is in some kind of gradual, inexorable decline. In my view, civilizations do not rise, fall, and then gently decline, as inevitably and predictably as the four seasons or the seven ages of man. History is not one smooth, parabolic curve after another. The bad news is that its shape is more like an exponentially steepening slope that quite suddenly drops off like a cliff.
To see what I mean, pay a visit to Machu Picchu, the lost city of the Incas. In 1530 the Incas were the masters of all they surveyed from the heights of the Peruvian Andes. Within less than a decade, foreign invaders with horses, gunpowder, and lethal diseases had smashed their empire to smithereens. Today tourists gawp at the ruins that remain.
The notion that civilizations do not decline but collapse inspired the anthropologist Jared Diamond's 2005 book, Collapse. But Diamond focused, fashionably, on man-made environmental disasters as the causes of collapse. As a historian, I take a broader view. My point is that when you look back on the history of past civilizations, a striking feature is the speed with which most of them collapsed, regardless of the cause.
The Roman Empire did not decline and fall over a millennium, as Gibbon's monumental work seemed to suggest. It collapsed within a few decades in the early fifth century, tipped over the edge of chaos by barbarian invaders and internal divisions. In the space of a generation, the vast imperial metropolis of Rome fell into disrepair, the aqueducts broken, the splendid marketplaces deserted. The Ming dynasty's rule in China also fell apart with extraordinary speed in the mid–17th century, succumbing to internal strife and external invasion. Again, the transition from equipoise to anarchy took little more than a decade.
A more recent and familiar example of precipitous decline is, of course, the collapse of the Soviet Union. And, if you still doubt that collapse comes suddenly, just think of how the postcolonial dictatorships of North Africa and the Middle East imploded this year. Twelve months ago, Messrs. Ben Ali, Mubarak, and Gaddafi seemed secure in their gaudy palaces. Here yesterday, gone today.
What all these collapsed powers have in common is that the complex social systems that underpinned them suddenly ceased to function. One minute rulers had legitimacy in the eyes of their people; the next they did not. This process is a familiar one to students of financial markets. Even as I write, it is far from clear that the European Monetary Union can be salvaged from the dramatic collapse of confidence in the fiscal policies of its peripheral member states. In the realm of power, as in the domain of the bond vigilantes, you are fine until you are not fine—and when you're not fine, you are suddenly in a terrifying death spiral.
The West first surged ahead of the Rest after about 1500 thanks to a series of institutional innovations that (to entice younger readers) I call the "killer applications":
1.Competition. Europe was politically fragmented into multiple monarchies and republics, which were in turn internally divided into competing corporate entities, among them the ancestors of modern business corporations.
2.The Scientific Revolution. All the major 17th-century breakthroughs in mathematics, astronomy, physics, chemistry, and biology happened in Western Europe.
3.The Rule of Law and Representative Government. An optimal system of social and political order emerged in the English-speaking world, based on private-property rights and the representation of property owners in elected legislatures.
4.Modern Medicine. Nearly all the major 19th- and 20th-century breakthroughs in health care were made by Western Europeans and North Americans.
5.The Consumer Society. The Industrial Revolution took place where there was both a supply of productivity-enhancing technologies and a demand for more, better, and cheaper goods, beginning with cotton garments.
6.The Work Ethic. Westerners were the first people in the world to combine more extensive and intensive labor with higher savings rates, permitting sustained capital accumulation.
For hundreds of years, these killer apps were essentially monopolized by Europeans and their cousins who settled in North America and Australasia. They are the best explanation for what economic historians call "the great divergence": the astonishing gap that arose between Western standards of living and those in the rest of the world. In 1500 the average Chinese was richer than the average North American. By the late 1970s the American was more than 20 times richer than the Chinese.
Westerners not only grew richer than "Resterners." They grew taller, healthier, and longer-lived. They also grew more powerful. By the early 20th century, just a dozen Western empires—including the United States—controlled 58 percent of the world's land surface and population, and a staggering 74 percent of the global economy.
Beginning with Japan, however, one non-Western society after another has worked out that these apps can be downloaded and installed in non-Western operating systems. That explains about half the catching up that we have witnessed in our lifetimes, especially since the onset of economic reforms in China in 1978.
I am not one of those people filled with angst at the thought of a world in which the average American is no longer vastly richer than the average Chinese. I welcome the escape of hundreds of millions of Asians from poverty, not to mention the improvements we are seeing in South America and parts of Africa. But there is a second, more insidious cause of the "great reconvergence," which I do deplore—and that is the tendency of Western societies to delete their own killer apps.
Who's got the work ethic now? The average South Korean works about 39 percent more hours per week than the average American. The school year in South Korea is 220 days long, compared with 180 days in the U.S. And you do not have to spend too long at any major U.S. university to know which students really drive themselves: the Asians and Asian-Americans. The consumer society? 26 of the 30 biggest shopping malls in the world are now in emerging markets, mostly in Asia. Modern medicine? As a share of gross domestic product, the United States spends twice what Japan spends on health care and more than three times what China spends. Yet life expectancy in the U.S. has risen from 70 to 78 in the past 50 years, compared with leaps from 68 to 83 in Japan and from 43 to 73 in China.
The rule of law? For a real eye-opener, take a look at the latest World Economic Forum (WEF) Executive Opinion Survey. On no fewer than 15 of 16 different issues relating to property rights and governance, the United States fares worse than Hong Kong. Indeed, the U.S. makes the global top 20 in only one area: investor protection. On every other count, its reputation is shockingly bad. The U.S. ranks 86th in the world for the costs imposed on business by organized crime, 50th for public trust in the ethics of politicians, 42nd for various forms of bribery, and 40th for standards of auditing and financial reporting.
What about science? U.S.-based scientists continue to walk off with plenty of Nobel Prizes each year. But Nobel winners are old men. The future belongs not to them but to today's teenagers. Here is another striking statistic. Every three years the Organization of Economic Cooperation and Development's Program for International Student Assessment tests the educational attainment of 15-year-olds around the world. The latest data on "mathematical literacy" reveal that the gap between the world leaders—the students of Shanghai and Singapore—and their American counterparts is now as big as the gap between U.S. kids and teenagers in Albania and Tunisia.
The late, lamented Steve Jobs convinced Americans that the future would be "Designed by Apple in California. Assembled in China." Yet statistics from the World Intellectual Property Organization show that already more patents originate in Japan than in the U.S., that South Korea overtook Germany to take third place in 2005, and that China has just overtaken Germany too.
Finally, there's competition, the original killer app that sent the fragmented West down a completely different path from monolithic imperial China. The WEF has conducted a comprehensive Global Competitiveness survey every year since 1979. Since the current methodology was adopted in 2004, the United States' average competitiveness score has fallen from 5.82 to 5.43, one of the steepest declines among developed economies. China's score, meanwhile, has leapt up from 4.29 to 4.90.
Not only is the U.S. less competitive abroad. Perhaps more disturbing is the decline of meaningful competition at home, as the social mobility of the postwar era has given way to an extraordinary social polarization. You do not have to be an Occupy Wall Street activist to believe that the American super-rich elite—the 1 percent that collects 20 percent of the income—has become dangerously divorced from the rest of society, especially from the underclass at the bottom of the income distribution.
But if we are headed toward collapse, what will it look like? An upsurge in civil unrest and crime, as happened in the 1970s? A loss of faith on the part of investors and a sudden Greek-style leap in government borrowing costs? How about a spike of violence in the Middle East, from Iraq to Afghanistan, as insurgents capitalize on our troop withdrawals? Or a paralyzing cyberattack from the rising Asian superpower we complacently underrate?
Is there anything we can do to prevent such disasters? Social scientist Charles Murray calls for a "civic great awakening"—a return to the original values of the American republic. He has a point. Far more than in Europe, most Americans remain instinctively loyal to the killer applications of Western ascendancy, from competition all the way through to the work ethic. They know the country has the right software. They just cannot understand why it is running so damn slowly.
What we need to do is to delete the viruses that have crept into our system: the anticompetitive quasi monopolies that blight everything from banking to public education; the politically correct pseudosciences and soft subjects that deflect good students away from hard science; the lobbyists who subvert the rule of law for the sake of the special interests they represent—to say nothing of our crazily dysfunctional system of health care, our overleveraged personal finances, and our newfound unemployment ethic.
Then we need to download the updates that are running more successfully in other countries, from Finland to New Zealand, from Denmark to Hong Kong, from Singapore to Sweden. And finally we need to reboot our whole system.
Voters and politicians alike dare not postpone the big reboot. If what we are risking is not decline but downright collapse, then the time frame may even be tighter than one election cycle.

Heart Surgeon Speaks Out On What Really Causes Heart Disease

Interesting statement from a Heart Surgeon on how food pyramid is so out of whack with reality.
2 things to fix the medical system in the USA reform Tort law and educate the masses on correct eating. Aivars Lode

We physicians with all our training, knowledge and authority often acquire a rather large ego that tends to make it difficult to admit we are wrong. So, here it is. I freely admit to being wrong. As a heart surgeon with 25 years experience, having performed over 5,000 open-heart surgeries, today is my day to right the wrong with medical and scientific fact.

I trained for many years with other prominent physicians labelled "opinion makers." Bombarded with scientific literature, continually attending education seminars, we opinion makers insisted heart disease resulted from the simple fact of elevated blood cholesterol.

The only accepted therapy was prescribing medications to lower cholesterol and a diet that severely restricted fat intake. The latter of course we insisted would lower cholesterol and heart disease. Deviations from these recommendations were considered heresy and could quite possibly result in malpractice.

It Is Not Working!

These recommendations are no longer scientifically or morally defensible. The discovery a few years ago that inflammation in the artery wall is the real cause of heart disease is slowly leading to a paradigm shift in how heart disease and other chronic ailments will be treated.

The long-established dietary recommendations have created epidemics of obesity and diabetes, the consequences of which dwarf any historical plague in terms of mortality, human suffering and dire economic consequences.

Despite the fact that 25% of the population takes expensive statin medications and despite the fact we have reduced the fat content of our diets, more Americans will die this year of heart disease than ever before.

Statistics from the American Heart Association show that 75 million Americans currently suffer from heart disease, 20 million have diabetes and 57 million have pre-diabetes. These disorders are affecting younger and younger people in greater numbers every year.

Simply stated, without inflammation being present in the body, there is no way that cholesterol would accumulate in the wall of the blood vessel and cause heart disease and strokes. Without inflammation, cholesterol would move freely throughout the body as nature intended. It is inflammation that causes cholesterol to become trapped.

Inflammation is not complicated -- it is quite simply your body's natural defence to a foreign invader such as a bacteria, toxin or virus. The cycle of inflammation is perfect in how it protects your body from these bacterial and viral invaders. However, if we chronically expose the body to injury by toxins or foods the human body was never designed to process,a condition occurs called chronic inflammation. Chronic inflammation is just as harmful as acute inflammation is beneficial.

What thoughtful person would willfully expose himself repeatedly to foods or other substances that are known to cause injury to the body? Well, smokers perhaps, but at least they made that choice willfully.

The rest of us have simply followed the recommended mainstream diet that is low in fat and high in polyunsaturated fats and carbohydrates, not knowing we were causing repeated injury to our blood vessels. This repeated injury creates chronic inflammation leading to heart disease, stroke, diabetes and obesity.

Let me repeat that: The injury and inflammation in our blood vessels is caused by the low fat diet recommended for years by mainstream medicine.

What are the biggest culprits of chronic inflammation? Quite simply, they are the overload of simple, highly processed carbohydrates (sugar, flour and all the products made from them) and the excess consumption of omega-6 vegetable oils like soybean, corn and sunflower that are found in many processed foods.

Take a moment to visualize rubbing a stiff brush repeatedly over soft skin until it becomes quite red and nearly bleeding. you kept this up several times a day, every day for five years. If you could tolerate this painful brushing, you would have a bleeding, swollen infected area that became worse with each repeated injury. This is a good way to visualize the inflammatory process that could be going on in your body right now.

Regardless of where the inflammatory process occurs, externally or internally, it is the same. I have peered inside thousands upon thousands of arteries. A diseased artery looks as if someone took a brush and scrubbed repeatedly against its wall. Several times a day, every day, the foods we eat create small injuries compounding into more injuries, causing the body to respond continuously and appropriately with inflammation.

While we savor the tantalizing taste of a sweet roll, our bodies respond alarmingly as if a foreign invader arrived declaring war. Foods loaded with sugars and simple carbohydrates, or processed with omega-6 oils for long shelf life have been the mainstay of the American diet for six decades. These foods have been slowly poisoning everyone.

How does eating a simple sweet roll create a cascade of inflammation to make you sick?

Imagine spilling syrup on your keyboard and you have a visual of what occurs inside the cell. When we consume simple carbohydrates such as sugar, blood sugar rises rapidly. In response, your pancreas secretes insulin whose primary purpose is to drive sugar into each cell where it is stored for energy. If the cell is full and does not need glucose, it is rejected to avoid extra sugar gumming up the works.

When your full cells reject the extra glucose, blood sugar rises producing more insulin and the glucose converts to stored fat.

What does all this have to do with inflammation? Blood sugar is controlled in a very narrow range. Extra sugar molecules attach to a variety of proteins that in turn injure the blood vessel wall. This repeated injury to the blood vessel wall sets off inflammation. When you spike your blood sugar level several times a day, every day, it is exactly like taking sandpaper to the inside of your delicate blood vessels.

While you may not be able to see it, rest assured it is there. I saw it in over 5,000 surgical patients spanning 25 years who all shared one common denominator -- inflammation in their arteries.

Let's get back to the sweet roll. That innocent looking goody not only contains sugars, it is baked in one of many omega-6 oils such as soybean. Chips and fries are soaked in soybean oil; processed foods are manufactured with omega-6 oils for longer shelf life. While omega-6's are essential -they are part of every cell membrane controlling what goes in and out of the cell -- they must be in the correct balance with omega-3's.

If the balance shifts by consuming excessive omega-6, the cell membrane produces chemicals called cytokines that directly cause inflammation.

Today's mainstream American diet has produced an extreme imbalance of these two fats. The ratio of imbalance ranges from 15:1 to as high as 30:1 in favor of omega-6. That's a tremendous amount of cytokines causing inflammation. In today's food environment, a 3:1 ratio would be optimal and healthy.

To make matters worse, the excess weight you are carrying from eating these foods creates overloaded fat cells that pour out large quantities of pro-inflammatory chemicals that add to the injury caused by having high blood sugar. The process that began with a sweet roll turns into a vicious cycle over time that creates heart disease, high blood pressure, diabetes and finally, Alzheimer's disease, as the inflammatory process continues unabated.

There is no escaping the fact that the more we consume prepared and processed foods, the more we trip the inflammation switch little by little each day. The human body cannot process, nor was it designed to consume, foods packed with sugars and soaked in omega-6 oils.

There is but one answer to quieting inflammation, and that is returning to foods closer to their natural state. To build muscle, eat more protein. Choose carbohydrates that are very complex such as colorful fruits and vegetables. Cut down on or eliminate inflammation- causing omega-6 fats like corn and soybean oil and the processed foods that are made from them.

One tablespoon of corn oil contains 7,280 mg of omega-6; soybean contains 6,940 mg. Instead, use olive oil or butter from grass-fed beef.

Animal fats contain less than 20% omega-6 and are much less likely to cause inflammation than the supposedly healthy oils labelled polyunsaturated. Forget the "science" that has been drummed into your head for decades. The science that saturated fat alone causes heart disease is non-existent. The science that saturated fat raises blood cholesterol is also very weak. Since we now know that cholesterol is not the cause of heart disease, the concern about saturated fat is even more absurd today.

The cholesterol theory led to the no-fat, low-fat recommendations that in turn created the very foods now causing an epidemic of inflammation. Mainstream medicine made a terrible mistake when it advised people to avoid saturated fat in favor of foods high in omega-6 fats. We now have an epidemic of arterial inflammation leading to heart disease and other silent killers.

What you can do is choose whole foods your grandmother served and not those your mom turned to as grocery store aisles filled with manufactured foods. By eliminating inflammatory foods and adding essential nutrients from fresh unprocessed food, you will reverse years of damage in your arteries and throughout your body from consuming the typical American diet.

Live free and pay more tax

As I commented a number of years ago, cities will need to consolidate and do whatever they can to reduce costs, now we see the results. Aivars Lode

LAST week the state of Washington began auctioning the licences to 167 of the liquor stores it runs. By June 1st Washington will be out of the liquor business altogether, freeing private businesses to sell spirits in the state for the first time since Prohibition. Last year, despite dire warnings about corporate profiteers, drunk drivers and surging policing costs, voters in the state approved the privatisation in a referendum by 59% to 41%.

Something similar happened in Georgia on March 6th, when voters lifted the ban on sales of alcohol on Sundays in 24 of the 27 cities and counties that had put the issue on the ballot, alongside the state’s presidential primary. Since Georgia first allowed local governments to hold referendums on Sunday sales last year, voters have approved the practice in 129 out of 154 instances, often by huge margins. Last year in Texas, attempts to turn “dry” localities “wet” succeeded on 57 out of 64 occasions. In West Virginia meanwhile, the state legislature has just passed a bill allowing liquor stores to hold tasting sessions. It is the ninth state to approve such a measure since 2009. “The world is getting wetter,” exults Frank Coleman of the Distilled Spirits Council of the United States (DISCUS), an industry group.
This trend is not, sadly, the result of a sudden renunciation of paternalism by state governments. Rather, it stems from the states’ dire fiscal straits in the aftermath of the recession. “States are looking for a source of revenue beyond [directly] taxing their residents,” says Holly Wetzel of the American Gaming Association, which represents gambling interests. Mandy Rafool of the National Conference of State Legislatures puts it more bluntly: “States have been so desperate over the last few years that they’re looking at everything.”
It is not just drinkers who are benefiting from a loosening of puritanical regulations around America. Massachusetts last year became the 24th state to allow casinos in some form. Ohio did the same in 2009, and Maryland did in 2008. Maine, not to be outdone, has just issued its first casino licence, and also lifted a ban on fireworks at the beginning of the year. Rhode Island legalised fireworks in 2010, and will hold a referendum in November about expanding gambling.
Officials in Massachusetts, for example, have suggested that the three casinos to be built there could bring in as much as $400m a year, plus $300m in initial licensing fees. By the same token, local governments hope that lifting bans on booze or fireworks will bring in big dollops of sales and excise tax. When Michigan approved the sale of new types of fireworks at the beginning of last year, the legislature estimated the change would bring in an extra $5.5m a year in taxes and fees. A similar argument is made for extending licensing hours, or allowing tastings: that they will boost sales, bringing in extra tax dollars. Dannel Malloy, the governor of Connecticut, who in January proposed lifting price controls and allowing Sunday sales among other reforms, argues that they will yield $6m-11m in new revenue, and help return as much as $570m in sales now lost to neighbouring states.
But despite all these initiatives, many parts of America are still lumbered with a bizarre and complex array of restrictions on drinking, gambling and the like that seem entirely out of keeping with a country that proudly calls itself the land of the free. Even after Washington leaves the club, 17 states will still maintain a government monopoly on either the sale or distribution of spirits, or both. In Maryland it is actually certain counties that run their own liquor stores, monopolising sales of even wine and beer.
Many states, especially in the South, remain a confusing patchwork of wet, dry and “moist” counties, the latter being those that allow sales of only certain forms of alcohol at certain types of establishment. There are over 4,000 state and federal laws concerning alcohol, says Mr Coleman of DISCUS, and another 1,900 were proposed in 2008 alone. Rules about gambling are an equally perverse mix. Only 12 states have no casinos of any sort. But several more allow them only on boats or at racetracks. Another 12 limit gambling to Indian reservations. And four states still ban fireworks of all kinds.
Not all attempts to liberalise these regimes succeed. Republican governors in Virginia and Pennsylvania have failed to push through promised privatisations of state liquor stores, despite their party’s control of both state legislatures. In Kentucky, the Republican-controlled Senate squelched the newly re-elected Democratic governor’s plans to hold a referendum on bringing casinos to the state. Andrew Cuomo, New York’s Democratic governor, vetoed a bill that would have permitted only the most innocuous forms of fireworks, such as sparklers.
Lobby groups for these industries take heart from the fact that the movement is, at least, all in one direction. No states have significantly tightened restrictions in recent years. Each easing of the rules makes the next one more likely, by demonstrating that disaster does not occur. Despite the steady deregulation of alcohol, for example, drunk driving and underage drinking are at record lows. And even as fireworks become more widely available, they are causing fewer injuries.
Yet even the lobbyists are careful not to call too loudly for the lifting of all strictures. The American Gaming Association says it takes no position on whether more states should legalise gambling. DISCUS claims not to mind whether states run their own liquor stores, as long as they are willing to “modernise” them by allowing tastings, long hours, a big choice and so on.
Most strikingly, lobbyists and politicians seem to shy away from the notion that regulation should be trimmed simply in the name of personal freedom, rather than on practical grounds. The legislature in New Hampshire (motto: “Live free or die”) recently considered a bill that would have allowed shops that already had licences to sell beer and wine to buy spirits in bulk from the state monopoly and resell them. The sponsor told his fellow lawmakers that by approving the proposal they would be “promoting limited government” and “enhancing freedoms”. The state House of Representatives, which is controlled by Republicans, sent the measure down to defeat, 179-123.