tMichaelB is the web site for Tom Bengtson, who writes about business, religion, family and politics.

Monday, May 23, 2005

Summary of technological changes gives small businesses framework for survival

Some people say we are in the midst of a technological revolution. I don’t know what to call it, but I know things are changing.

So many things in my business -- publishing -- have changed since I embarked on my career in 1983. For example, back then newspapers and magazines were created with strips of copy output on film. They had to be trimmed and waxed and fitted into place by hand. Photos had to be turned into special graphics with a dot pattern. Color photos needed film separations. Producing a printed publication was a big deal. Today, all those things are done on a computer. My own company used to have three people in production in the early 1990s. Today, the work those people did is now done by one person, and she does a lot of other things as well.

Or I think about taking photographs. In the old days, I would shoot several photos just to make sure I got one that was in focus. Then we would process the film, and size the prints. Now, I can view my photos instantly on my autofocusing digital camera. I know right away when I have the shot I need. And I never have to deal with film or costly developing.

I think of how travel agents have basically gone away because anyone can book their own airline tickets on the internet these days. Or I think about the rise and fall of the fax machine. In the late 1980s, they were something new. Today, the fax machine goes mostly unused because everything is communicated via email. Or cell phones. At one time, they were a big deal but now everyone in business has one.

I had the opportunity recently to listen to William Carden, the president and CEO of a strategic planning and marketing research firm in Waco, Texas, talk about the impact of the technological revolution on business. He is the former dean of the National School of Community Bank Management at Texas Tech University.

He said there have been five great social and economic revolutions in the history of mankind:

The hunter-gatherer revolution, which took place about 100,000 years ago. It happened when populations got large enough that men stopped working together in groups of twos or threes, and reached out for reasons of security and food gathering into clans or groups of 20 and 30.

The agricultural revolution happened 5,000 to 5,500 years ago. It did not mean that hunting and gathering stopped. It meant that for the first time in history, at least 50 percent of men were engaged in the domestication of animals or the tilling of soil in order to provide food for cities, which had begun to emerge.

The industrial revolution occurred about 400 years ago. It started in northern Italy, working its way across Europe, and climaxing in the United States in the 19th century. It does not mean agriculture stopped. It meant that in the developed portion of the world, at least 50 percent of mankind was engaged in the manufacturer of goods and the production of things rather than tilling the soil.

The information service revolution began 35 years ago, around 1970, characterized by the commercialization of the microchip. It didn’t mean manufacturing stopped. It meant that 50 percent of employment was to be found in the information service industries, rather than in manufacturing or agricultural industries.

The bio-tech revolution started five years ago, symbolized by Dolly the sheep, the human genome project, and attempts to clone human beings. Five years from now, 50 percent of all employment will come from the bio-tech industry, Carden predicted.

What we should notice about each of these revolutions, Carden said, is that the rate of change is getting faster, and the nature of what is changing is getting greater.

The second thing to notice is that the technology of each new era transforms the nature of the era that preceded it. For example, developments out of the industrial age transformed the agricultural sector.

Carden further explained with an example of how the information services revolution changed a product of the industrial revolution. “If you bought the best refrigerator in 1970 from Sears, you would have paid $1,400,” Carden said. “It was the year the microchip was invented. Today, Sears’ best refrigerator would cost about the same, but it would have 4.5 extra cubic feet of space, it would operate at 400 percent greater efficiency, and it would weigh 175 pounds less.”

Carden said: “There is a knowledge explosion. Years ago, they used to say that knowledge was doubling every 20 years. Now, about every five years, knowledge is doubling. Two and a half years after someone graduates from college, half of what they were taught will be obsolete.”

The big catalyst for change is information technology, Carden said, as he explained the two “great technological revolutions in this country.” The first, he said, occurred between 1860 and 1970. “That was a revolution about transportation. It was about railroads, then automobiles, then airplanes. The transportation revolution was a response to the question of how do you move things cheaper and faster? It climaxed in 1970 when we put a man on the moon and we decided we had gone far enough.

“Now it is about communications. How can you move information cheaper and faster?”

Carden noted two laws that help us understand what is happening in the technological revolution. Moore’s Law, which says information technology is doubling in power and dropping in cost by 50 percent every 18 months, summarizes the significance of the technological revolution. Factor in Metcalf’s Law, which says the value of a system increases exponentially in relation to the number of users it has, and you have an information explosion which is changing life in the Western World.

The Internet is the world’s largest and most sophisticated telephone system. It is adding new users around the world at a rate of about 400,000 per month. “It is the shape of tomorrow,” Carden said.

In this environment of change, the ability to adapt has never been more important. From my perspective, I have seen how the printing industry has had to adapt to survive. I can see how the travel industry has had to adapt. And how the film and camera industries have had to change to survive. No business is immune from the influences of change.

Although my company’s resources are limited compared to some of the largest publishers out there, I believe NFR Communications has a significant advantage in that our size allows us to move quickly. We can make changes almost instantly; we don’t need the approval of numerous committees and a board of directors. Small businesses by nature have an edge over large companies when it comes to adaptability.

Of course, my goal is not only survival; it is success. That means I not only have to adapt to change, I have to figure out how to make the most of technological advances. Can I develop new products, or deliver products in new ways, as a result of the new technology? Can I figure out how to serve my customers better as a result of technology? This is the on-going challenge of running any small business.

Tuesday, May 17, 2005

‘Found’ is a play that deserves a world stage

Twin Cities musician Victor Zupanc has written an important play called “Found,” which is being presented by the Mixed Blood Theatre at the Sabathani Community Center in Minneapolis through May 21. This is a work that deserves more exposure than it will get during its premier, three-week run.

This story of an 18-year-old woman who returns to her native Colombia to find her birth parents has an obvious appeal to people involved with adoption, but it is a story for anyone who is looking for their roots. Anyone who has ever contemplated their origins will draw meaning from this lively 90-minute show.

Zupanc is the resident music director at the Children’s Theatre Company in Minneapolis; he has worked with big-name theatre and film producers all over the world. Although Zupanc has written or arranged music for more than 200 productions, Found is the first play he has written. I am acquainted with Zupanc as a fellow adoptive father of Colombian children. After seeing the play May 14th, I asked him how he came to write the story. He said he worked from two bits of information.

The first is a letter written by the birth mother of one of his children. He received the letter with an instruction to present it to the child on her 18th birthday. That is exactly how the play opens. The adoptive parents give their daughter, Patricia, the letter they got 18 years earlier. Upon reading it, Patricia immediately decides she needs to return to Colombia to meet the woman who wrote the letter. “Why did she give me up?” “Why didn’t she keep me?” “Does she think of me?” and “Does she love me?” Patricia asks all these questions -– which she likely has been asking for years -- and this letter opens a pathway to possible answers.

The second was a conversation Zupanc had with another adoptive parent who said he knew his adopted daughter had a birth father who was involved in Colombia’s civil war. So in Found, Patricia discovers that her father is a leader in the Revolutionary Armed Forces of Colombia, or FARC as it is know by its Colombian acronym. Patricia, raised comfortably in the Midwest, wrestles with the notion that her father is a soldier. Some would call him a murderer or a terrorist. She isn’t sure what to make of him.

Zupanc has obviously written this play directly from his heart and he pulled me into the story right from the opening. Those of us with adopted children wonder all the time how our children will cope with the gray cloud of uncertain lineage. This is an anxiety only known to those of us who have adopted internationally. Most domestic adoptions include some level of on-going relationship with the birth parents. But for those of us who flew to another continent to adopt our children, we wonder: Does my child think about his homeland? What will it be like if he chooses to go back? Will he like what he finds? Will the locals treat him any differently than he is treated in the United States?

Found takes direct aim at those questions and sitting in my seat I could feel the angst of those adoptive parents on stage. I could feel Patricia’s excitement upon her arrival in Bogota. I could feel her sorrow upon learning her mother had died, and I could feel her apprehension as she tried to sort out her feelings for her father. This play is designed to push all kinds of emotional buttons in adoptive parents and adopted children.

But I am convinced the play is for everyone, not just those touched by adoption. Who doesn’t wonder where they came from? Who doesn’t wonder about their heritage? This is a play about self-discovery. This is a coming-of-age story applicable to any adult or anyone coming into adulthood. We all have to figure out who is important to us. Relationships come by choice and by blood, regardless of our family situation. This play is about figuring out which relationships are the most meaningful. Patricia has romantic expectations about defining family along bloodlines, but ultimately discovers that family is more about the people who are with you during the growing up years and other crucial times.

With some minor changes to the script, Zupanc will have a story that should be presented on stages all over the world. The music is already there. He directs a small ensemble that provides a first-class soundtrack to the play. I hope he succeeds in taking this play to the next level. The world deserves to enjoy this important story.

Friday, May 13, 2005

Presidential speculation for 2008

Evan Bayh versus Dick Cheney for president in 2008? Political scientist Larry Sabato speculated along those lines in an entertaining look at politics he delivered on April 29 in Lincoln, Neb. Sabato is often quoted in the national media; learn more about him at

Bayh, a moderate Democrat, is the Indiana senator with a “squeaky clean” background. Sabato notes that Indiana’s electoral votes went to Bush in 2004. With Bayh as the candidate, those 11 votes would likely switch to the Democrat tally. Ohio, the neighboring state that determined the outcome of the 2004 election, would be dramatically influenced to go with Bayh, Sabato speculated.

Bayh is a better candidate than New York Sen. Hillary Clinton, who Sabato said carries too much baggage and is too liberal for much of the country. Sabato predicted, however, that the primaries in 2008 leading up to the Democratic national convention will feature a contest between Clinton and Bayh.

Vice President Cheney has said he won’t run for president, but Sabato described a scenario in which Cheney declares his candidacy based on a request from President Bush who says ‘there is still work to be done.’ “If he does that, he clears the Republican field. It’s over,” said Sabato. “Cheney’s the nominee. Doesn’t matter that he now is saying he doesn’t want to run.”

Sabato said all presidential elections are decided according to four factors: war, the economy, scandal, and hot-button social issues. In 2004, the war, the economy and the social issues all worked in favor of President Bush.

Although he won by nearly 3 million votes, Sabato pointed out that it was an extremely close election. “If 58,000 votes in Ohio had gone the other way, John Kerry would be our president today,” he said. “Only Woodrow Wilson in 1916 had a closer re-election in the electoral college. On the popular vote, no president who ever has been re-elected has been re-elected by this narrow of a margin.”

Sabato offered the following list for 2008 presidential candidates:


George Allen, Senator from Virginia
Chuck Hagel, Senator from Nebraska
Sam Brownback, Senator from Kansas
Rudolph Giuliani, former mayor of New York
Mike Huckabee, Governor of Arkansas
New Gingrich, former Congressman from Georgia
John McCain, Senator from Arizona
Bill Frist, Senator from Tennessee
George Pataki, Governor of New York
Mitt Romney, Governor of Massachusetts


Hillary Clinton, Senator from New York
Bill Richardson, Governor of New Mexico
Evan Bayh, Senator from Indiana
Mark Warner, Governor of Virginia
Al Gore, former vice president
Gen. Wesley Clark
Joe Biden, Senator from Delaware
John Kerry, Senator from Massachusetts
Tom Vilsack, Governor of Iowa
Phil Bredesen, Governor of Tennessee
Russ Feingold, Senator from Wisconsin
Howard Dean, former Governor of Vermont
John Edwards, former senator from North Carolina

Sabato predicted that mid-term elections in 2006 will be hard on the Republicans. The administration usually suffers during the election conducted in the sixth year of an eight-year two-term administration, he said. Sabato said Harry Truman in 1950, Dwight Eisenhower in 1958, Lyndon Johnson of the Kennedy-Johnson presidency in 1966, Gerald Ford of the Nixon-Ford administration in 1974, and Ronald Reagan in 1986 all suffered party losses in Congress. Sabato noted Bill Clinton as the exception in 1998, but attributed that to a voter backlash against Republican impeachment tactics.

Sabato also predicted Democrats will make gains in governorships across the country in 2006.

Tuesday, May 10, 2005

Economist points toward link between interest rates and employment

The Federal Reserve raised its Federal Funds interest rate to 3.00 percent on Tuesday, May 3, and three days later the Bureau of Labor Statistics announced that the U.S. economy created 274,000 jobs during April. Mitchell J. Held, an economist and market analyst for Citigroup, encouraged the business group he addressed in Minneapolis on May 3 to pay attention to those two numbers. The Fed will increase the rate of interest rate hikes if it senses the labor market heating up, Held said.

“The most important factor in looking at the Fed Funds rate over the next three or four months will be the unemployment rate,” Held said. “If the unemployment rate drops below 5 percent and stays there, I would not be surprised to see before the end of the year, the pace of rate hikes pick up.”

Despite the healthy growth in job numbers, the unemployment rate remained unchanged at 5.2 percent for April. That’s compared to 5.5 percent in April 2004, and 6.3 percent in June of 2003. After gains of 300,000 jobs in February and 146,000 jobs in March, total employment stands at 133.3 million jobs. The Bureau of Labor Statistics said the April gains came from new hires in construction, mining and service businesses.

Held said that two-thirds of the cost of any product is labor, so if labor costs go up, the Fed begins to worry about inflation. “When you start to get below 5 percent unemployment, that’s when wages start to get bid up,” he said.

Held said he expects the Fed Funds rate to be between 3.5 percent and 4.0 percent at year end, and trend as high as 4.75 percent in 2006. “At that point, we think the Fed will become more neutral in nature." (The neutral rate is the rate at which it neither stimulates nor deters economic growth.)

Held is generally optimistic about the condition of the economy. Although many observers have said the economy is “going through a soft patch,” Held said the country’s foreign exchange policy and fiscal policy, in addition to the Federal Reserve’s interest rate policy, are all encouraging economic growth.

The widening trade deficit, coupled with a perception that European economic growth will be greater than U.S. growth, has put the dollar “under some downward pressure,” Held said. “Downward pressure tends to promote economic growth. Foreign exchange policy is not particularly restrictive at this point.”

Tax collection for the month of April was higher than expected, Held said. Budget deficit estimates are going to be reduced sharply, he said, estimating the 2005 deficit “somewhere south of $350 billion.” Spending, he said, remains a problem. “Unfortunately, people on both sides of the aisle have not forgotten how to spend,” he cautioned. “Nobody is serious about any spending restraint. Fiscal policy itself is not particularly restrictive at this point.”

The core inflation rate is 2.3 percent, creating a real Fed Funds rate of 0.70 percent, Held said. “People would say that is still accommodative. Anything north of a real Fed Funds rate of 2 percent is restrictive.” The Fed has a lot of room to raise rates, given the current inflation situation.

“The three policies are clearly not restrictive and may be even accommodative,” Held summarized. “Until one of those policies becomes restrictive I don’t know how this economy grinds to a halt. There are no policies standing in the way.”

Friday, May 06, 2005

Governor’s Chief of Staff outlines Minnesota’s budget situation

Dan McElroy is one of the most articulate political staffers I have ever met. The chief of staff to Minnesota Governor Tim Pawlenty addressed a business group in Bloomington on May 3. He talked about the Governor’s priorities for the state budget, which is currently being debated in the legislature.

McElroy said the Governor wants a budget that enhances the state’s competitiveness with other states for attracting and retaining good jobs, which make a high quality of living possible.

“This is not our grandfather’s economy,” McElroy said. “Fifty years ago, most of the jobs were anchored here; there were ties to here that were difficult to break. They were anchored to the soil in agriculture; they were anchored to the timber industry, or to minerals extraction, or to huge investments in manufacturing. Those anchors are no longer in place…

“Every job we compete for in Minnesota is a job that is essentially portable. The fast-growing industries are not anchored to soil or timber or minerals. They are anchored to a highly-trained workforce, to good communications and transportation, and to a competitive business environment.”

McElroy summarized the administration’s budget proposal. It increases government spending in the next two years by 6 percent so the budget goes from $28.3 billion in the last biennium, to $29.6 billion in the next biennium.

McElroy noted that in 1970, Gov. Harold LeVander proposed a biennial budget that for the first time hit $1 billion. It had doubled in 14 years, since 1955, when Gov. Orville Freeman presented a $500 million budget.

“We had 3.5 million people in 1970,” McElroy said. “That was spending of $123 per capita. If the budget had grown from 1970 to 2000 by inflation, it would have been $8.8 billion, and it was, in fact, $26 billion, or at that point, about $2,500 per capita. It is now about $3,000 per capita…

“If government were to grow as fast between now and 2030 as it did between 1970 and today, the budget in 2030 would be $1.3 trillion or $54,000 per capita. In order for it to be the same percentage of personal income that it is today -- about 10 percent -- every man, woman and child in Minnesota would have to make $540,000 per year from cradle to grave. That might happen, but I think it would be a mistake to bet the ranch on that.”

McElroy gave the following reasons for Gov. Pawlenty’s reluctance to raise taxes.

First, he said: “It is illogical in this competitive environment for government to grow faster than the economy. The debate is that some elements of our spending, such as education and health care, are growing faster than the balance of the economy. Can we make the tough decisions to hold the total growth in state government to about 6 percent? Can government grow faster than the economy, responsibly in the long term? We do not believe that it can.”

Second, he explained that surrounding states are not raising taxes. He said Wisconsin, Iowa, Illinois and Michigan are unlikely to raise taxes this year. North and South Dakota already have adjourned their 2005 legislative sessions and did not raise their taxes.

Third, McElroy said the state’s demographics are working against us. He described something called the “dependency ratio,” which is the number of people under 16 and over 65 compared to the number of people between 16 and 65. Most government services, he said, are consumed by the young and the old, and funded by working people between 16 and 65.

“Today there are 55 people under 16 or over 65 for every 100 people between those ages,” he said. “By 2030, that number will be 65, and by 2040 it will be 80. Can we continue to grow services as fast in a condition where we have about 55 dependents for every 100 wage earners as we can in a circumstance where we have 80 dependent people for every 100 people who are in their prime working years? We argue that is not very smart.”

Fourth, McElroy said Minnesota already is a very high tax state. “The latest data from the Minnesota Taxpayers Association, based on 2002 numbers, shows Minnesota spends 20 percent more than the national average on state and local spending combined,” McElroy said. “We spend 11 percent more than Wisconsin, 18 percent more than Iowa, 47 percent more than South Dakota. 113 percent more than Mississippi. That spending drives taxes.

“Minnesota ranks fifth in the nation for taxes on a per capita basis, and eighth in the nation on taxes as a percentage of personal income. We rank first by far in the Upper Midwest on those measures.

"Do we get enough competitive advantage from the education investment we make, the transportation investment that we make, the environmental investment we make, to justify those high prices? Over the last 30 years, we have. Can we sustain that competitive advantage with health care growing at 18 percent per biennium? That challenge in this whole equation is not education, transportation or the environment; it’s the rapid growth in the cost of health care.

“We are proposing health care spending to grow by 15 percent in the next biennium, compared to 18 percent under current law,” he said. “We are proposing to go from first in the nation for the generosity of our state-subsidized health care programs to first in the nation. And we will go from the lowest number of uninsured persons in a state, to the lowest number of uninsured people in a state, in the country. We are proposing to slow the growth in Minnesota Care by 23,000 people over the next two years…

“One problem we are having is dumping, where employers who used to offer health care no longer do. Another is the changing demographics of the health care market. Is it an easy decision to slow the growth of Minnesota Care? It is not. None of our surrounding states have programs like Minnesota Care, except Wisconsin. But Wisconsin does not provide coverage at all -– it never has –- for single adults without children. And they stop family coverage at 185 percent of the federal poverty level. Minnesota has been at 275 percent of that level and is proposing to go to 190. If we do not get health care expenditures under some level of control, it will literally eat the budget for all other things that are important to our ability to be competitive.”

Fifth, he said, “The people of Minnesota would like us to not raise taxes. Gov. Pawlenty and staff have traveled to more than 500 cities, listening to people about this issue. The number of people who think government should live within its means ranges from 60 to 70 percent.”

McElroy addressed two other issues: education and casino gambling.

He noted that the administration in proposing an 8 percent increase in education funding over the next two years. The administration advocates a pay-for-performance system, while critics oppose that system.

“We ignored the fact that in some schools 70 percent of the students don’t finish high school in four years, or 40 percent of the students can’t read at an eighth grade level in time to graduate in four years. On average, we graduate about 90 percent of our students in four years, compared to a national average of 74 percent, but we can’t be content with educating averages,” he said. “We have to educate every child. And so we have to be willing to change some things, like paying teachers based on their performance rather than their seniority, re-inventing the junior and senior year in high school so it is more effective. And we have to look more at school principals as CEOs, rather than bureaucrats and thoughtless disciplinarians. That is, someone who is running a business whose product is satisfied parents and educated children. We cannot have a competitive economy in the 21st century without effective schools.”

On gambling, he said the debate is about who should benefit from its expansion.

“It is a fact that Minnesotans love to gamble,” he said. “We are among the top states in the country in terms of gambling per capita. We have 18 successful casinos in Minnesota. We have the third-largest casino gaming industry in the country after Connecticut and California. Our competitors get revenue from casino gaming. Connecticut, California, New York and others states get about 25 percent of the revenue from their tribal casinos in exchange for exclusivity. States around us get revenue from gaming. In Wisconsin’s case, they have an agreement with their tribes. In Iowa, South Dakota, Illinois and Michigan, they have private gaming.

“The governor’s preference would be not to expand gambling. But it would be delusional to say that gambling isn’t expanding of its own initiative. We’ve gone from 15,000 slot machines in Minnesota five years ago to 21,000 machines today. There are more sales of lottery tickets, pull tabs, and online gaming than ever before. It’s a $1.4 billion industry. The question is not should gambling expand, but who should benefit?

“In a presentation before the Minnesota Senate the executive director of the Minnesota Indian Gaming Association testified that fewer than 1,000 Minnesota Indians have benefited significantly from casino gaming. Fifty-four thousand people are still waiting.

“The governor has partnered with the White Earth tribe, which has 24,000 members, about 44 percent of Minnesota’s Indians, to propose working with Canterbury Park, to have two facilities which we are calling the Casinos at Canterbury. It would not provide a geographic expansion of gaming. It would provide revenue to the state, revenue to some of the poorest Indians of Minnesota.

“Would you rather get revenue from Minnesota gaming, or raise taxes on Minnesota families? We think it makes more sense to get revenue from gaming.”

The constitutional deadline for the legislature to adjourn in 2005 is Monday, May 23. The lawmakers will have to make a lot of progress to meet that deadline.

Monday, May 02, 2005

Bankruptcy: reform versus education

After an eight-year battle, bankruptcy reform finally became law when President Bush signed it on April 20. The bill was passed on the strength of the belief that too many people who wipe out their debts with the bankruptcy process could, in fact, repay at least a portion of their debt. The new law will force more people into the repayment plan version of bankruptcy (Chapter 13), rather than allow them to file Chapter 7, which essentially allows them to wipe out their debts.

It will be interesting to assess the effects of this law after it has been in place for a few years. The American Bankruptcy Institute commissioned a study that says under the current system less than 4 percent of Chapter 7 filers would be candidates for any repayment plan at all. The new law subjects bankruptcy filers to a “means” test, which attempts to determine their ability to repay their debt. If the new test forces more than 4 percent of those Chapter 7 filers into Chapter 13, the law will simply prolong their period of financial hardship until they fail under the repayment plan.

In the best of circumstances, when a person files for Chapter 13 bankruptcy, he or she gets a court-appointed trustee to establish a repayment plan to fit their situation. In most cases, however, there are too few trustees available to give every filer a customized plan. Most filers get forced into template plans designed for everyone but suitable for no one. If it turns out that the number of people failing to meet the requirements of their Chapter 13 repayment plans increases dramatically, something is going to need to be done about improving those plans.

My hunch is that after a few years, we will discover that we don’t have a bankruptcy problem in this country, we have a debt problem. It isn’t that too many people game the bankruptcy system, it is that too many people run up unsustainable levels of debt. Although credit card companies pushed for this legislation, I am skeptical that it will do much to change the amount of money collected from over-extended borrowers.

Much more important is financial education to help people understand what is realistic in terms of managing debt. This is a matter of working with schools, colleges and community education programs to get people into basic budgeting courses. Community-oriented lawmakers should consider taking the lead on this effort; if they were successful, I suspect the lasting impact of those efforts would be far more substantial than the effects of bankruptcy reform will ever be.