A New Start

FT: True democracy is not just about taking part

True democracy is not just about taking part

By John Kay

Published: July 28 2009 20:32 | Last updated: July 28 2009 20:32

Like most people, I want to eat rich desserts, but do not want to get fat. I want to enjoy a secure retirement, but I do not want to save towards it. I want lower taxes, and I also want better public services. Of course I do. It would be odd if I did not. Irrationality does not lie in wanting inconsistent things. Irrationality is being unwilling to make choices between inconsistent things.

There was a time when crowds would wait for hours for a once in a lifetime opportunity to see and hear William Gladstone. But technology has steadily increased possibilities for the public to participate in the political process. It has not, however, created a corresponding increase in the time the public wants to devote to the political process. If anything, the opposite: by offering so many other ways to spend leisure time and by spreading prosperity, the modern age has reduced the intensity of public commitment to politics.

Many people take the view that more avenues for participation make democracy more real. They are excited by the opportunities offered by the internet: Barack Obama was elected after a campaign that made extensive use of computers and mobile phones. Our leaders blog and twitter, receive online petitions and e-mails, consult focus groups and monitor opinion polls. If the measure of democracy is the frequency of communication between politicians and their voters, then society is steadily becoming more democratic.

But these developments do not make society better governed. If these methods of participation are extensive, they are also superficial. If democracy is about delivering what the electorate wants, it is not clear that policies that respond to every angry headline in the Daily Mail achieve that result. Popular esteem for politicians and public approval of political decisions have declined, not increased. When Winston Churchill was advised to keep his ear to the ground, he commented that the public would not have much respect for leaders observed in that position. Politicians planning appearances on YouTube might reflect on his advice.

California is not only the centre of many of these new technologies. With regular plebiscites and recalls, it is a pioneer of models of extended popular participation in the democratic process. It is also a model of dysfunctional democratic governance. The state’s budget crisis goes back to the passage of Proposition 13 in 1978. Asked whether they wanted lower property taxes, or not, voters quite reasonably decided they did. Voters also want to use more electricity but do not want more power stations. They want to reduce carbon emissions but also want to drive their cars. If you ask people simple questions that can be answered yes or no, you will get honest answers. But there is not the slightest reason why these answers should add up to a coherent policy programme, and typically they do not. Mature democracies have found ways round this dilemma. There is a big difference between expressing wants and opinions, and taking responsibility for decisions. Experiments in what is now called deliberative democracy show that when you give participants extensive information, and ask them to review alternative policy options, most people are conscientious and sensible in their approach. Political parties used to encourage this form of participation, by involving their members in policy discussions. But fewer and fewer people have time or inclination for this demanding activity, and the membership of political parties has withered to a small and depressing collection of ideologues and careerists.

Another concept of democracy invites voters to appoint people they trust to make decisions on their behalf. Two centuries ago, Edmund Burke explained to the electors of Bristol that he would be their representative, not their delegate. He would not seek to mirror or parrot their opinions, but would apply his own best judgment to the issues before him. Even if the technology had been available, we may assume he would not have twittered or consulted focus groups. It is unlikely that the results of introducing these technologies would have caused him to take a different view.

johnkay@johnkay.com
Post and read comments at www.ft.com/kay

Copyright The Financial Times Limited 2009

Economist: Flush With Ambition

Face value

Flush with ambition

Jul 23rd 2009
From The Economist print edition

Can Kunio Harimoto convert the rest of the world to the charms of the Japanese lavatory?

Toto

IT IS the Lamborghini of lavatories, the Cadillac of commodes. With its sleekly sculpted basin, high-tech control panel, automatic lid, heated seat and built-in bidet, the “Neorest” is the sort of lavatory that would surely be used by James Bond. Or so Kunio Harimoto, the boss of Toto, believes.

Toto, based in Japan, is one of the biggest bathroom- and kitchen-ceramics companies in the world. It earns around ¥500 billion ($5 billion) a year, over one-third of that from lavatories and related accessories alone. It is best known for its “Washlet” range including the Neorest, which in addition to all its other functions hides odours and plays sounds like running water or birdsong to drown out embarrassing noises. Introduced in 1980, such sophisticated lavatories have become a national institution, found in 70% of Japanese homes. Until recently more households had one than had a computer. Toto, as the market leader and technological pioneer, sells 1.5m of them a year.

In other words Toto is a Japanese industrial icon. It was founded in 1917, as Toyo Toki (Oriental Ceramic), when it introduced Western-style sit-down lavatories to Japan—a farsighted move, considering the country lacked a sewage system at the time. Toto and its products became a symbol of modernisation.

But can Toto persuade Western consumers to modernise too? Mr Harimoto, who was appointed president of the firm in April, believes it can. Like many Japanese bosses, he has worked his way up slowly through the ranks. He joined Toto straight from Waseda University in 1973. Yet his management is far from traditional. During an interview, he readily consulted his aides when he did not know something, and they in turn felt comfortable interrupting him to correct the odd fact or figure. This sort of behaviour is almost unheard of in Japan, where underlings rarely dare contradict the boss and the atmosphere tends to be icily formal. Even Mr Harimoto’s usual attire—a blazer, open collared shirt and tan trousers—is a break with Japanese business convention.

His plans are radical too: he is embarking on a big effort to extend Toto’s international presence. The company already earns around 15% of its income abroad, mainly in China, other Asian countries and the Americas. Yet most of its foreign customers opt for less sophisticated (and less profitable) products. The firm also makes squat lavatories, for example—a far cry from their high-tech cousins, which can cost more than $5,000.

In America, where bidets are considered effete if not downright twisted, Toto sells fewer than 2,000 fancy lavatories a year (although they are beloved by film stars such as Charlie Sheen and Whoopi Goldberg, among others). In Europe, too, it faces formidable obstacles, including a dense thicket of national regulations. They cover everything from the use of bronze or brass in the fixtures (depending on how “hard” or “soft” the local water is) to the degree of water pressure that the lavatory is capable of withstanding. The panoply of rules destroys economies of scale while protecting domestic manufacturers, explains Mr Harimoto, as Toto must produce different lavatories for each European country. It took the firm’s staff a full year to redesign the products to meet all these regulations, he laments.

Moreover, high-tech lavatories succeeded in Japan for unique reasons. Houses are generally small and many generations live together. Bathrooms are often the only place where there is any privacy, so homeowners are willing to spend more on them. Dwellings are kept cold in winter, so a warm seat is priceless. And lavatories like the Washlet appeal to Japanese fetishes for both gadgets and cleanliness.

Mr Harimoto, however, has spent his career in sales and marketing, and so has some ideas about how to introduce Westerners to the pleasures of the luxury loo. In China, he notes, a Washlet is an aspirational item, a mark of success. To help foster that image, and to spread awareness of the product, the firm made a big effort to sell them to developers of landmark buildings, from the Olympic stadium to the national theatre.

In Europe and America, too, Toto is attempting to place Washlets in prominent public locations. It is even providing maps to them, so the curious can seek them out and try them. It is a strategy the firm first developed in its home market, when it published a map of Washlets in the shops and restaurants of the grand Ginza shopping district, thereby reinforcing its ritzy image and providing potential customers with a free trial all at the same time. Mr Harimoto is also overseeing the launch of a handful of retail showrooms—Toto calls them “galleries”—in posh American cities like Fort Lauderdale, Florida and West Hollywood, California, to woo customers. In other words, Mr Harimoto aims to transform the humble lavatory into a chic luxury product.

Easy on the conscience, too

Mr Harimoto also has an environmental sales pitch. The Washlet’s highly engineered tornado-style flush uses 4.8 litres of water, compared with six or more in humbler lavatories. True, high-tech lavatories are energy hogs, accounting for 4% of household energy consumption in Japan—more than clothes dryers or dishwashers. But Toto has developed a fix for that as well: its lavatories boast software that “learns” what the typical pattern of use is in each household, so it can power down during quiet periods.

Mr Harimoto brims with pride about Toto’s 800 engineers and research budget of ¥12 billion to devise these sorts of innovations. But even they will have a hard time getting around the biggest obstacle to the use of its fancier lavatories in the West: the lack of electrical sockets in bathrooms. Japanese builders have been persuaded to install them behind the bowls as a matter of routine. Mr Harimoto is confident that Westerners will gradually adapt to lavatories like the Washlet too. “It took around 20 years before it became popular in Japan,” Mr Harimoto says, “We need to be patient.”

Copyright © 2009 The Economist Newspaper and The Economist Group. All rights reserved.

FT: The mobile society stalls at the gates of academe

The mobile society stalls at the gates of academe

By John Lloyd

Published: July 24 2009 20:52 | Last updated: July 24 2009 20:52

Making it has been the American dream for two centuries. Horatio Alger, who died 110 years ago this month, wrote dozens of hugely popular novels (Struggling Upward, Strive and Succeed) that imprinted the aspiration on millions of minds. In their pages boys would rise from poverty to the middle class, often through the kindly intercession of older men but always with a display of grit. The theme spanned the 19th-century Atlantic: Samuel Smiles (1812-1904) promoted the theme of social advancement through individual striving in Self Help (1859) and other works. The career of his fellow Scot Andrew Carnegie, moving from real childhood rags to world-beating riches in early middle age, gave foundation to such exhortations.

But where the myth had reality, it now has less. Recent studies show that the US is near the top, and the UK in the upper levels, of the league of developed states in which the poor do not or cannot help themselves to rise. One much quoted study* notes that “the idea of the US as ‘the land of opportunity’ persists; and clearly seems misplaced”.

Why? Education is at the root. In the land of opportunity, the immigrants of the 19th and early 20th century could rise – or at least their families could – with the burgeoning industrial economy. In 1914, Ford’s workers were three-quarters foreign-born, and their jobs did become as solid and middle-class as Alger imagined – if more through militant unions than kindly benefactors. Now, the good jobs need at least one college degree: a PhD is no longer synonymous with genteel scholarly shabbiness but can be leveraged into great wealth, personal and corporate.

George Borjas, the economist, reckons that where children of immigrant parents had, for much of the last century, easily surpassed the earnings of their fathers and mothers, they now more often stick at the same level. Because US immigrants are disproportionately little-educated Mexicans, and because they tend to stay in Hispanic enclaves, their ability and willingness to mount the academic ladder is limited. The lesson travels: acculturation to norms of ambition, improvement through education and willingness to integrate into the broader society (which means a loss of distinct identity) are good ideas for social mobility in all societies. Insofar as some communities – including indigenous working-class communities – wish to emphasise their difference, their place on the lower rungs of class society will remain.

Thus, curiously, the university becomes an ambiguous social factor. The more education it confers, the better the possibility for advancement up through the classes. But it also functions as a filter: the professions, and higher earnings, are now so routinely associated with the degrees it gives that those without its benison find the career and class bonds tighter than ever. This seems true everywhere: a study of Latin American social mobility showed that the greater the expenditure by governments on primary and secondary schooling, the greater the mobility – yet “relatively greater public spending on tertiary education may actually reinforce the impact of family background and reduce intergenerational mobility”.

Concern over the effects of a divided society – accented by the effects of the financial crisis – is now rising. This week’s British Cabinet Office report on access to the professions presents the narrowing of access in stark terms, forecasting a kind of caste society in which professionals are drawn largely from the 30 per cent of the most highly educated (and higher social classes) of the population. This is true of all professions in wealthy countries – even as they have recruited more women, as the gender pay gap has fallen and as minority groups have seen their representation in the professions rise.

Which societies do better? We should remember that all of the advanced societies have done “well” since the war: there has been a huge shift, from working to middle class. In London, half of the working population is classified as managerial or professional; that goes down to one in five in some parts of the UK but is common in other dynamic world cities. But this is the mobility of classes, in which all advanced societies have shared: individual and family mobility – another irony – seems better served in states with a strong social democratic tradition. In the Scandinavian countries, Denmark in particular, movement up (and down) is better lubricated.

One cannot have everything. The international tables of top universities are dominated by the US and the UK, which cater for global as well as their own elites. Hard-driving and expensive private schools are embedded in the Anglo-American social fabrics; the Cabinet Office report shows that some professions – such as the judiciary and journalism – are at the higher levels dominated by their products. When this writer began in a provincial newsroom, he was one of two graduates; the route to national glory could still be trod by a school leaver with shorthand and sharp elbows. Now, it would be far more difficult.

Education needs aspiration – and aspiration needs sharp elbows, too. Parental ambition is, says the British report, four times more useful than any other factor: parents who push for entry to better schools, or better schooling in the one they get, are the real motor forces of a dynamic society. The antidote to social ossification would thus seem to be a new kind of class struggle, a storming of the frozen winter palaces that tutor and employ our increasingly entrenched elites.

* Intergenerational mobility in Europe and North America: Blanden, Gregg and Machin (LSE, 2005)

The writer is an FT columnist
More columns at www.ft.com/lloyd

FT:Elon Musk’s ground-breaking electric car

Elon Musk’s ground-breaking electric car

By John Reed

Published: July 24 2009 17:33 | Last updated: July 24 2009 17:33

Elon Musk with his groundbreaking Tesla roadster

Imagine investing in a start-up in one of the most competitive industries in the world – automaking. Against all odds, your company makes a success of it – not just with any car, but a gorgeous, groundbreaking electric roadster that accelerates from zero to 60mph in 3.9 seconds and emits no carbon dioxide. Film stars and millionaires clamour to get on your waiting list. Daimler, owner of the ­Mercedes-Benz luxury brand, buys shares in your company during the depths of the industry’s worst crisis in decades. Its chief executive praises you and your crew as “out-of-the-box thinkers”.

Imagine, too, that you left your native South Africa aged 17, made your fortune in Silicon Valley in your twenties and ploughed the money into the unlikely areas of electric cars and space exploration. Imagine your other company, SpaceX, is poised to blast an earth-observation satellite into orbit. Imagine it has also won a $1.6bn Nasa contract to replace the cargo function of the US space shuttle after 2010.

EDITOR’S CHOICE

More from Reportage - Nov-24

You’ve just imagined yourself into Elon Musk’s shoes. Are you happy?

I meet Tesla Motors’ chairman and chief executive (and largest shareholder) in London at the end of what has been a landmark week for his company: Tesla has secured a $465m loan from the US Department of Energy, earmarked for greener car technology. It was one of just three companies, alongside Ford Motor and Nissan, to have made it through an arduous application process, and will be using the money to build production facilities for electric powertrains and for its planned Model S, a $50,000 battery-powered saloon (or sedan, in US parlance) due to propel the company from the rarefied world of roadsters to the broader mass market. This came barely a month after Daimler agreed to pay $50m for just under 10 per cent of Tesla.

Musk is in Knightsbridge to open Tesla’s first overseas showroom, one of four planned across Europe. Later that evening, bankers, bons vivants and others who can spare the £94,000 the early “signature edition” of the car costs will crowd in, as paparazzi lurk outside. After all, Paris Hilton and Mischa Barton are on the guest list.

As we sit down, I congratulate Musk on his company’s achievements. Credit crunch or not, about 130 of the 200 roadsters Tesla plans to sell in Europe this year are already spoken for. And the car is truly a delight – an elegant squaring of the circle between automotive indulgence and ecological virtue – “performance with a clean conscience”, as Musk put it. Think of a Porsche that picks up not with an obnoxious roar, but a space age hum. On a spin around Hyde Park, I experience the car’s power – enough to push you back in your seat. It looks great, too: a smarter, slightly longer version of the Elise, the curvaceous, classic, low-slung two-seater built by Lotus, on which it is modelled. Even in this swanky part of ­London, people stare.

. . .

But when the congratulations are over, and I ask Musk what Tesla would have done without the US government’s loan, it’s clear that he is not as happy as he might be – not with the press he’s getting, at least. “There’s a lot of misinformation out there,” he says. “We’ll be profitable in July, and we’re already cash-flow positive. We would not need the loan to survive.”

Musk is by all accounts a brilliant man, but he can be a prickly interlocutor. I remember a phone interview with him last year for a routine business-news story as puzzlingly combative. This spring, when a reporter from The New York Times questioned the wisdom of a taxpayer-funded loan for a company that makes high-end cars, Musk called him a “huge douchebag”. (In fairness to Musk, the reporter’s piece – later corrected – wrongly claimed that Tesla was seeking federal funds for the roadster, not the Model S.) As we are talking, Musk sounds off against another writer who has taken an interest in Tesla’s start-up problems, calling Owen Thomas of the Silicon Valley-focused blog Valleywag “the single most tediously mean-spirited person I have ever encountered”.

There are, Musk says, a lot of “annoying comments out there”. “Some idiot said I referred to myself as a ‘nanomanager’, when I was joking. How can I be a nanomanager if I’m managing two companies?” His spikiness is understandable, but so is the attention he’s garnered. Tesla’s slender half-decade of history has been a torrid one, its dramas lived out largely in public due to Musk’s own decision to court the press in lieu of spending money on advertising. The company has gone through four chief executives and been party to several lawsuits, the latest an indecorous dispute over who can claim credit for inventing the company. Martin ­Eberhard, Tesla’s co-founder and first chief executive, sued Musk and the company last month for libel and breach of contract; he claims that from April 2004, when Musk joined Tesla’s board, the South African began a campaign to wrest control of the company and later sought to tarnish Eberhard’s claimed status as the company’s founding visionary. Eberhard also claims that a Tesla employee smashed his long-awaited roadster into the back of a truck during “endurance testing” in 2008, a few months after Musk sacked him as boss.

A few days before I met Musk in Knightsbridge, he published a lengthy blog post rebutting Eberhard’s claims. It ran to more than 4,000 words, not including attachments of six-year-old e-mails. Musk tells me he is also preparing his own legal filing in response. Why, I ask, at a time when Tesla has so much good news to report, is he expending so much energy on a legal spat with a former employee? “What really bothered me was the notion that there would be a DoE announcement without any rebuttal to what he said – it would be tagged with all that mud he slung,” Musk explains. “If people look at Tesla and say, ‘Those are a bunch of bad guys that got a bunch of money,’ that doesn’t sit well. I don’t want there to be a perception that the bad guys won. I wouldn’t like to say that we’re flawless and morally unimpeachable and holier than thou. But we’re pretty good, and we generally try to do the right thing.”

In Musk’s telling, the task of running Tesla is even a burden of sorts. “I’m not trying to do this company because I think this is the easiest way to make a buck – I’d be bloody insane,” he says, with traces of South Africa in his flat vowels. “There are many other things I’d do if maximising my wealth was my objective. The reality is, it’s not fun running a car company and a rocket company at the same time. The amount of work I have is way past the fun point.”

As the past year has shown – not just for Tesla but for the auto industry as a whole – Musk isn’t joking. Even in good times, carmaking is an unrewarding business. The sector is a textbook case of too many players chasing too few profits, turning out cars of ever greater sophistication and quality, but which customers resist paying more for. Automakers devour capital, and take years to get their products on the road. Scale is essential and earnings are modest, even for the industry’s top players. Before the crisis pushed Toyota into a record loss this year, its 6 per cent average operating margin was seen as an industry gold standard.

And yet the rich have long been tempted by the dream of making beautiful cars – often letting this get the better of their business sense. John DeLorean, the high-flying former General Motors executive, made only about 9,000 of the cars that carried his name; by the time the vehicle made its star turn in the film Back to the Future, in 1985, DeLorean’s company was in administration. Other big business minds have bought trophy car brands, only to suffer big losses. Tata Motors, the carmaker owned by Ratan Tata’s industrial group, has poured more than £1bn into Jaguar/Land Rover since paying Ford $2.3bn for the marques last year. And as makers of big-ticket, status-linked products that the public connect with emotionally, carmakers are also vulnerable to unusual amounts of media scrutiny.

These challenges are magnified in the nascent field of battery-powered cars, where big manufacturers have launched models that failed to find a market for reasons of performance, price or practicality – or all three. General Motors’ EV1, introduced in 1996 then withdrawn just a few years later, is the best-known of these flops. Around the same time, Toyota introduced an electric version of its RAV4 sport utility vehicle, also built largely to meet California’s shifting rules on zero-emissions vehicles; it was discontinued.

. . .

Both models were made in numbers too small to recoup their costs, although conspiracy theories involving oil companies and other vested interests sprouted after they pulled the plug.

But over the past two years, carmakers have begun taking a renewed interest in electric and plug-in hybrid petrol-electric cars, driven by last year’s oil price spike, tightening environmental regulations and strides in the development of lithium-ion batteries, which deliver more power for less weight than the bulky batteries used in earlier cars. This makes it that much more remarkable that Tesla has an electric car on the road well before rivals’ planned plug-in models arrive, and that it has managed to break even in what has been an annus horribilis for world carmaking.

Musk says his interest in the technology dates back to his time at university. He left South Africa as a teenager, in apartheid’s waning days, to avoid military service, enrolling at college in Canada, then earning a scholarship to study at the University of Pennsylvania’s Wharton School, where he earned undergraduate degrees in economics and physics. According to his blog, he then worked briefly on ultracapacitors (electronic components that store electric charge) in Silicon Valley, and planned to write a thesis on their potential use in cars for a graduate physics degree at Stanford. Instead of doing graduate work, however, in 1995 he left school to “start a couple of internet companies”.

Musk and his brother first co-founded a company called Zip2, which built online publishing software for news organisations. They sold the group to Compaq for more than $300m in 1999. But if that accounts for his first million, Musk made his fortune with X.com, an online payments venture that in 2000 merged with another company to become PayPal. Ebay bought PayPal in 2002 for $1.5bn of stock. Musk won’t disclose what his exact stake in the company was.

Musk with a SpaceX Dragon capsule

Musk founded SpaceX in 2002, and again turned to electric cars. In 2003, he says he heard of a company called AC Propulsion that had developed the Tzero, a prototype electric sports car with a driving range of 300 miles. Through that company, he says, he connected with Tesla Motors, then a start-up interested in developing the car commercially. Eberhard, an electrical engineer and entrepreneur, had founded Tesla in June 2003 with partners Marc Tarpenning and Ian Wright.

Since leaving the group in 2007, Eberhard has been a thorn in Musk’s side, weighing in on the company’s problems in his blog and the media. When I e-mailed him seeking an interview, Eberhard responded quickly and we talked for more than an hour.

The conflicting accounts of Tesla’s early days might seem arcane to anyone outside Silicon Valley, petty in their differences or beside the point now that the company is a viable concern. But they shed some light on Musk’s qualities as an entrepreneur and manager. And Tesla’s founding narrative matters perhaps more, not less, now that the company increasingly looks like a success. According to Eberhard, he began studying electric cars early this decade – long before Musk invested in Tesla – when GM was pulling its failed EV1 model off the road, oil was at a record low and George W. Bush’s administration was denying the existence of global warming. He began collecting brochures on Ebay of early electric vehicles – “goofy little cars”, he calls them, with style and performance little better than golf carts. Eberhard acknowledges Tesla’s debt to AC Propulsion, with which he made contact as he searched for electric cars in use. “The company was about to go out of business,” he says. “When I saw them, they had five employees left and were not paying salaries. I paid their rent and commissioned them to build a car.”

After incorporating Tesla, Eberhard and Tarpenning contacted Lotus – a good match for an electric car company because of its expertise in lightweight construction. The partners went scouting for funds and pitched their project to Musk in 2004, at SpaceX’s Los Angeles headquarters. “Cleantech” was not yet a buzzword among California’s venture capital funds, but Musk bit.

“He liked the idea and peppered us with questions,” says Tarpenning. “We went again, and he said, ‘I’m in, you convinced me.’” Musk invested $6.35m of Tesla’s initial $6.5m Series A financing. (In his blog, Musk described Tesla at the time as three partners with an unfunded business plan and no trademarks, assets or offices to their name.)

The company was now up and running, with Eberhard as chief executive and Musk as chairman. The business model rested on starting with a highly visible, top-end car with a big enough price tag to defray start-up costs. Customers began to line up for the planned roadster. Tesla began collecting deposits and talking to the media – to great effect. A breathless Vanity Fair profile in May 2007 said Musk wanted the company to be the next Ford, “liberating the world, at last, from the internal-combustion engine”.

According to Musk, he left most of the day-to-day management to Eberhard. Others tell a different story. “You had a CEO who was technically your boss, but then a chairman who had to approve everything,” says one former employee, who asked to remain anonymous for fear of potential legal action by Tesla. (Last year, the company brought and lost a ­lawsuit against Fisker Automotive, a company that consulted on the roadster. Tesla claimed it stole trade secrets and did substandard work.) Musk acknowledges that he took an interest in the car’s styling, incorporating design elements from McLaren and Porsche F1 cars.

. . .

He also asked for a touchpad door latch, although Eberhard says he warned this would increase costs and delay the car’s launch. “He was pot-shotting – he would become obsessed,” Eberhard claims. “He couldn’t have a conversation without it being about the door latch.” Musk wanted the car to be made from carbon fibre, a lightweight and sleek material that is much more expensive and difficult to paint than metal. He also asked for a lower door sill – a costly adjustment, though one that would be endorsed by anyone who has ever negotiated the tricky stooping and straightening required to enter a Lotus Elise. Eberhard now blames Musk’s design tweaks for the cost overruns and launch delays.

With the car’s planned September 2007 launch date approaching, the problems came to a head as the company struggled to find a transmission that would allow the car to accelerate from zero to 60 in less than four seconds. Musk felt this was a crucial performance parameter that had to be met to justify the car’s high price. When two vendors failed, the car’s launch was delayed. By now, customers who had paid deposits were growing impatient and the buzz around Tesla was souring into its first bad press.

In August 2007 Eberhard says that Musk sacked him over the phone, without notice, demoting him to president. Musk, however, blames the cost overruns on Eberhard, saying that almost every major system in the car had to be redesigned, retooled or switched to a new supplier after he left. The fact that the roadster cost so much more than planned owes not to “typical entrepreneurial hubris”, Musk says, but the fact “that we essentially had to spend the development money twice”.

In his blog posting, Musk accused Eberhard of using the example of the touchpad door latch as an excuse for why it cost more than $140m to bring the roadster to market instead of the $25m that he estimated in the 2004 business plan. “That would have to be one hell of a door latch!” he wrote. He also accused his former chief executive of playing “to a common archetype – that of the noble inventor who is usurped by the rich and powerful businessman”. In an e-mail after our interview, Musk described Eberhard’s lawsuit as “insane”. “This is not a typical case of one person’s opinion vs another’s where ‘the truth lies somewhere in the middle’,” he wrote.

Tarpenning says the tussle over Tesla’s founding “blows me away, especially because he [Musk] is so accomplished”. Tarpenning points out that reporters, bloggers and others have devoted scant attention to Musk’s arguably bigger achievements at SpaceX, while focusing on every problem at Tesla. “He has been successful getting things into orbit and nobody cares – yet because of his involvement in an electric car company, he’s getting called twice a week by the media,” says Tarpenning. “SpaceX is such an amazing achievement – I think it drives him a little bit insane!”

After sacking Eberhard, Musk installed Michael Marks, a former chief executive of Flextronics and early investor in Tesla, as interim chief executive. Marks assembled a new management team and wrote a list on a whiteboard of the factors preventing Tesla from shipping cars, assigning executives to tackle each of them. “There was a lack of knowledge about how long it takes to get a car through tests and manufacturing bugs – this is a very regulated industry,” Marks now says. “And there was a real lack of recognition of how much it was going to cost.” Nevertheless, one by one, the problems were solved. Meanwhile, Musk drafted as a new chief executive, Ze’ev Drori, a former Israeli army officer and founder of a semiconductor company, and hired executives from other carmakers to prepare for the roadster’s launch.

The Tesla’s performance easily matches its petrol-guzzling competitors

Musk took delivery of the first roadster in early 2008. The company spoke about doing an initial public offering (IPO) and expanding into Europe. It firmed up plans for the Model S, announced its intention to build a factory in California and appointed Goldman Sachs to raise $100m of financing. Then the credit crunch hit, sending Tesla back to existing investors, led by Musk, for a smaller $40m. (Musk says he has put about $74m into Tesla, and $100m into SpaceX.) The company delayed the launch of the Model S, made about a quarter of its staff redundant and closed its engineering office in Michigan. Musk also said he was taking over as chief executive. This, says Marks, made sense because “Elon was making all the major decisions anyway”. (Marks and Drori have both left the company) Musk now says he gave “serious thought” to the notion of pulling the plug on the company. “I was faced with the decision last year: do I let Tesla die, or do I make it live, with a lot of pain and grief?”

Reports about Tesla’s squeezed finances hit the media, despite Musk’s efforts to stop staff from leaking. (In one instance, the company rooted out an offender by sending several employees slightly altered versions of the same e-mail.) The bad news continued. Darryl Siry, Tesla’s head of sales and marketing, resigned, saying he was uncomfortable with the extent to which the company was relying on deposits for the Model S to fund its operations. “I felt the company was chronically underfunded and undercapitalised,” says Siry. In March, Tesla unveiled a prototype of the Model S that prompted sceptical notices from some motoring scribes, who described it as having more style than substance and being nowhere near ready for series production.

And yet in May, when things were ostensibly looking the bleakest, Daimler announced its investment in the company. It was the vote of confidence Tesla needed. In June, the news came that two years of painstaking work by Tesla’s Washington representative had borne fruit in the shape of the Department of Energy loan.

However the legal dispute with Eberhard plays out, Musk’s ability to pilot Tesla through the car industry’s current crisis now seems to vindicate his decision to seize control of management two years ago. His sweating of details on the roadster has resulted in an unimpeachably beautiful maiden model. The company’s immediate survival is no longer in question. In addition to the new funds, the company now also has other “people who want to invest”, Musk says, but there is no current need for additional capital. If Tesla turns a profit in July, as he says it will, Musk will have accomplished something extraordinary in a business where the odds are stacked solidly in favour of incumbents.

While some of the claims Musk and others made for Tesla in its early days now sound grandiose, the company has succeeded in beating steep odds and getting an electric car on the road. Even Valleywag, which has chronicled Musk’s problems in gleeful detail, has acknowledged it is time to “give him his due”, recently referring to Musk as the founder of Tesla. Silicon Valley has a history of building paradigm-shifting businesses, and much as we like to laugh at the folly of the Elon Musks of this world, their drive creates products that improve our lives.

The real challenges for Tesla – and the true test of Musk’s mettle – will come over the next three years, as it makes the risky transition from a niche producer of about 1,000 cars a year priced at $100,000 to a high-volume manufacturer of about 20 times that many cars, selling at half that price and destined for a much more crowded middle-premium market. The company’s main concern will not be breakthrough propulsion technology, but the more routinely brutal demands of the car business. From a quirky start-up whose growing pains were chronicled in excruciating detail, Tesla is taking a much bigger step into the public eye as a mass-market carmaker benefiting from a taxpayer-funded loan for closely watched new technology. The status may put new demands on the amount of transparency and accountability required of the company – and on the gravitas demanded of its straight-talking CEO. “Tesla’s not a private company any more if they’re taking public funds,” says Siry. “It’s a big leap,” Musk acknowledges in Knightsbridge. But “every company goes through transformations”.

Rival electric or plug-in cars produced by Renault/Nissan, Toyota, GM and other carmakers will have hit the road by 2011, when Tesla’s Model S saloon launches. The biggest question – and not just for Tesla – will be whether consumers with less money than the rich first-adopters are ready to buy. Like other carmakers, the company will need to persuade people that the higher price tag of a plug-in car will be recouped in the lower running costs of petrol-free driving. But Tesla’s saloon will also be competing against petrol-engined luxury cars of similar quality that cost about half as much. Daimler will be taking a seat on Tesla’s board, and helping it in areas like supply, production and vehicle engineering. Musk says that he still plans an IPO, “probably a couple of years from now”.

As Tesla aims to enter the big leagues, Musk shows few signs of softening his harder edges, as evidenced by his counterclaims against Eberhard. Tarpenning, still a Tesla shareholder, left the company in January – a company very different from the one he founded. “Elon has a much bigger vision for Tesla than I had when we started,” he says. “He really wants to be a big, grown-up car company – making cars and driving trains and everything else. It’s a big vision, and it’s a much more capital-intensive vision.

“That said, it could be a valuable vision. Elon swings for the fences. He makes big bets, and wants a big outcome.”

John Reed is the FT’s motor industry correspondent

Copyright The Financial Times Limited 2009

FT: Book review: The Idea of Justice

This, for Sen, is a mistaken way to think about justice. First, we are unlikely ever to agree on what is a “just society”. The idea of justice is necessarily multi-faceted, not smooth-cut. To illustrate the “pervasive plurality” of the idea of justice, Sen gives us an example. Imagine three children quarrelling over a musical instrument, let’s say a flute. The first claims the flute is hers because only she knows how to play it; the second demands it because he, the poorest of the group, lacks toys of his own, and this will give him something to play with; the third notes that she has laboured for months in making the flute, and it would therefore be unjust for her not to have it. The claims of justice collide here: and no singular meaning of justice will help us.

Rejecting Rawls and his intellectual lineage, Sen favours a more motley thought-line: Adam Smith, Condorcet, Bentham, Mary Wollstonecraft, Marx, John Stuart Mill. Each, according to Sen, thought about justice in comparative rather than absolutist terms. Instead of asking what is a perfectly just society, their ideas were incited by particular injustices. Sen also takes inspiration from Indian philosophy. Sanskrit has two distinct words to refer to justice: niti, which denotes the rules and behavioural norms of justice; and nyaya, the actual social “realisations” of justice – the lives people can lead, regardless of whether or not the institutional architecture and laws have been perfectly rendered. From the perspective of nyaya, the prevention of blatant injustice can be more important than the pursuit of perfect justice.

The advancement of justice therefore relies, Sen concludes, on democracy, understood in Bagehot’s phrase as “government by discussion” – a process of collective reasoning that injects more information, more perspectives and more voices into debate. For Sen, democracy, like justice, is best understood not as an institutional or indeed even as a state or governmental form. Rather, it is the possibility of voicing continuous assessments about how a society and its members, or even how we as a species, are doing.

===

Book review: The Idea of Justice

Review by Sunil Khilnani

Published: July 25 2009 01:37 | Last updated: July 25 2009 01:37

The Idea of Justice
By Amartya Sen
Allen Lane £25, 304 pages
FT Bookshop price: £20

The quest for justice – political, social, economic – has fired political imaginations ever since the great American and French revolutions at the end of the 18th century. Nearly a quarter of a millennium later, in most places justice is still a fugitive ideal, seen off in part by the claims of custom and tradition, the presence of inequalities and the weight of sheer power. But the pursuit of justice has also foundered because, for all its imaginative potency, the idea seems discretionary. Apparently lacking any objective basis, it seems something we can choose to concern ourselves about – or not bother with. The modern idea of the market – “blind” in its distributions – was proposed precisely as a cure for the vexations of distributive justice.

Reality’s seeming disdain for justice has not stopped academic philosophising about it. For more than 50 years now – ever since Harvard philosopher John Rawls began publishing the articles that came to be celebrated as the 20th century’s most important work of political philosophy, The Theory of Justice – the concept of justice has been scrutinised in seminar rooms, dissected and rebuilt into a perfect, icy ideal.

Yet what has half a century’s strenuous pondering over the idea done for its practical extension across the world? Amartya Sen, Rawls’s long-time Harvard colleague and interlocutor, is too polite to pose this question. But his book does in fact provide an answer – and an alternative.

In The Idea of Justice, Sen places Rawls within one of two divergent strands of modern western thought about justice. Stretching from Hobbes to Rousseau and Kant, political philosophers have taken the model of a social contract as the way to secure agreement over the allocation of freedoms, obligations and goods among individuals. Sen calls this “transcendental institutionalism”, focused as it is on identifying a singular institutional model, derived from abstract principles.

This, for Sen, is a mistaken way to think about justice. First, we are unlikely ever to agree on what is a “just society”. The idea of justice is necessarily multi-faceted, not smooth-cut. To illustrate the “pervasive plurality” of the idea of justice, Sen gives us an example. Imagine three children quarrelling over a musical instrument, let’s say a flute. The first claims the flute is hers because only she knows how to play it; the second demands it because he, the poorest of the group, lacks toys of his own, and this will give him something to play with; the third notes that she has laboured for months in making the flute, and it would therefore be unjust for her not to have it. The claims of justice collide here: and no singular meaning of justice will help us.

Second, in comparing what furthers justice, or lessens injustice, Sen argues that we do not need an institutional blueprint of the just society to guide us. We don’t need to know the height of Mount Everest to decide whether K2 or Kanchenjunga is the higher peak.

Rejecting Rawls and his intellectual lineage, Sen favours a more motley thought-line: Adam Smith, Condorcet, Bentham, Mary Wollstonecraft, Marx, John Stuart Mill. Each, according to Sen, thought about justice in comparative rather than absolutist terms. Instead of asking what is a perfectly just society, their ideas were incited by particular injustices. Sen also takes inspiration from Indian philosophy. Sanskrit has two distinct words to refer to justice: niti, which denotes the rules and behavioural norms of justice; and nyaya, the actual social “realisations” of justice – the lives people can lead, regardless of whether or not the institutional architecture and laws have been perfectly rendered. From the perspective of nyaya, the prevention of blatant injustice can be more important than the pursuit of perfect justice.

Our perceptions of injustice are, of course, always coloured by the values, interests and customs we happen to have. Yet, Sen insists, by using our powers of critical reasoning, we can move beyond their grip towards agreement about certain injustices. He adopts Adam Smith’s device of the “impartial spectator”: no omniscient viewpoint, but a comparing eye. Smith’s is an estranging device, encouraging us to step outside our given values and prejudices in order to reason about them – and to work towards altering those that don’t stand up to such reasoning.

In the second, more worldly half of the book, Sen asks what is it that the pursuit of justice should actually advance? Can we agree on a measure by which to judge when a society, in its quest for justice, is getting closer or drawing further away from it? The possible categories he considers include liberty, “primary goods” and resources, happiness and well-being.

Sen’s own preferred category is that of “capabilities”. By this he means not just the resources to live certain kinds of life that we have reason to value, but the capability of an individual to choose to use – or not use – the resources at hand to achieve what he has reason to value. Sen is interested in outcomes. But unlike utilitarians, who are interested in little else, he is also interested in how those outcomes are brought about – especially the extent to which they are brought about through the free choices of individuals.

The point of such an approach is not to arrive at a singular idea of “perfect justice” – that icy ideal. Justice is a plural and evolving idea – if it must reckon with age-old injustices, it must also be responsive to the astonishing human ingenuity for inventing new ones.

The advancement of justice therefore relies, Sen concludes, on democracy, understood in Bagehot’s phrase as “government by discussion” – a process of collective reasoning that injects more information, more perspectives and more voices into debate. For Sen, democracy, like justice, is best understood not as an institutional or indeed even as a state or governmental form. Rather, it is the possibility of voicing continuous assessments about how a society and its members, or even how we as a species, are doing.

In this intricate, endlessly thought-provoking book, Sen brings the full force of his formidable mind and his moral sense to show how specific questions – of chronic malnourishment, ill-health, demographic gender imbalance – must be analysed in terms of justice. Doing something about them is not a discretionary matter – it is a requirement of being human. Sen is the most sophisticated intellectual campaigner of our times – his arguments have shaped not just academic disciplines but the policies of governments and of global institutions like the World Bank. Not enough, he would say – but he has done much to bring a measure of justice back into the world.

Sunil Khilnani is the author of ‘The Idea of India’ (Penguin)

Copyright The Financial Times Limited 2009

FT: The Case for God

The Case for God

Review by John Cornwell

Published: July 20 2009 06:01 | Last updated: July 20 2009 06:01

The Case for God: What Religion Really Means
By Karen Armstrong
Bodley Head £20, 376 pages
FT Bookshop price: £16

WB Yeats wrote that our ideas about God are all “trash and tinsel”, like a tawdry wedding dress hiding the truth that lies beneath. Karen Armstrong, one of our best living writers on religion, agrees. But in her latest book, The Case for God, she argues that there was a time when people understood God better.

“The modern God resembles the High God of remote antiquity, a theology that was unanimously either jettisoned or radically reinterpreted because it was found to be inept,” she writes. In other words, our notion of God, whether we be atheists or believers, has regressed to the infantile.

The biggest offenders are those who treat God like an interventionist Superman problem-solver. Armstrong’s catalogue of inept culprits includes politicians who appeal to God to justify their policies, terrorists who invoke him to commit atrocities and scientists who fit God into a physical theory, even if just to debunk him.

Science, she argues, has had a deeply misleading influence on both believers and unbelievers. When Richard Dawkins attacks God, his target is an absurd super-designer, necessarily more complex than any of the complexities in nature. Moreover, there are believing scientists who see God as a kind of fine-tuning twiddler. In fact, modern notions of God, Armstrong says, are largely the fault of theologians who, from the 17th century onwards, attempted to exploit science as a prop for faith. This rational quest for God, she says, actually encouraged atheism.

She also points out that science-based theology is notoriously unreliable. When a theologian conjures up God to fill a gap in our knowledge, a new theory can then eject him. And the idea of God as an “it”, or a “being”, or an object in the world competing for attention with other objects, has undermined a deeper, more mysterious sense of God that had developed in all faiths over centuries.

Armstrong seeks to isolate what she sees as the crucial lost idea of God as the unknowable and unspeakable. Anything less than acknowledging the ineffable nature of God, she insists, leads to idolatry – worshipping a god of our own creation. By definition, there is no easy way to write about the unsayable.

One of her attempts, at the heart of the book, involves the teachings of Christian philosopher Denys the Areopagite, St Paul’s first convert. “First we must affirm what God is,” she writes. “God is a rock; God is One; God is good; God exists. But when we listen carefully to ourselves, we fall silent, felled by the weight of absurdity in such God-talk.”

In the next phase, we deny these attributes. “But the ‘way of denial’ is just as inaccurate as the ‘way of affirmation’. Because we do not know what God is, we cannot know what God is not, so we must then deny the denials ... ”

The final phase, if you’re still on board, is a state that mystics call the “dark night of the soul”, or the cloud of unknowing. Writing about God, she says, is hard. So is reading about him.

Yet just thinking about God won’t do; Armstrong insists that sensing God depends on prayer, ritual, scripture and silence; it is a process rather than a logical conclusion. Nor does any single faith have a monopoly on enlightenment. If only religions could return to true enlightenment we would be capable, she writes, quoting Keats, of handling “uncertainties, mysteries, doubts, without any irritable reaching after fact and reason”.

What are the prospects for Armstrong’s call for a more enlightened understanding? Some religionists are beginning to turn towards a more imaginative, less scientific and dogmatic approach to faith. She believes a maturer understanding of God would lessen antagonism between science and religion; reduce religious-inspired violence; and bring about greater compassion.

Sadly history shows that most attempts to combat wounding elements within religion tend to provoke reactions from the extreme. Armstrong is aware of this; but this prodigiously sourced, passionately written book is a compelling plea to give it a try.

John Cornwell is author of ‘Darwin’s Angel: An Angelic Riposte to the God Delusion’ (Profile)

Copyright The Financial Times Limited 2009

FT: Entrepreneurship: The ice cream king of Poland

Entrepreneurship: The ice cream king of Poland

By Jan Cienski

Published: July 21 2009 23:23 | Last updated: July 21 2009 23:23

The biggest clouds hanging over Zbigniew Grycan’s fast-growing ice cream business are not the shadows cast by the world economic crisis, but by Poland’s grey and rainy summer.

The economic crisis has not halted his plans to have 80 ice cream cafés across the country by the end of the year, up from just over 70 currently. The business has been hurt by the recent fall in the value of the zloty, but the overall effects of the crisis have been generally positive by lowering the price of milk and other locally sourced raw materials, which had rocketed last year.

“I have the largest chain of ice cream parlours in the country, and I’m continuing to invest,” says Mr Grycan, a heavyset 68-year-old, sheltering from the sun under an umbrella outside his café on Chmielna Street in central Warsaw and sipping tea.

Mr Grycan, who became Poland’s ice cream king only to sell his kingdom to a private equity firm, and then start a new ice cream business, has bet on his compatriots’ sweet tooth in the past and has usually won.

Cream, egg yolks and sugar are in a sense in his blood – he is the third generation in a sweet-making family, which makes him a rarity in Poland. War, migration, border changes and 45 years of communism destroyed most Polish family-owned businesses and wiped out any inherited entrepreneurial traditions.

His parents operated an ice- cream shop in the western city of Wroclaw (at one point the city’s only ice cream parlour), which was taken over by the government for only a brief period at the height of Stalinist terror in the early 1950s. As a young man, Mr Grycan trained at one of the few decent hotels in the Polish capital, and in 1962 opened his own shop in western Poland. In 1979, he bought Zielona Budka (Green Cabin), a single ice cream shop in Warsaw.

“I’ve been an employer for 47 years,” he says proudly. His company currently has 750 employees.

Poles start to get a taste for cool desserts

Poland’s grey skies and cool weather have not turned the locals into ice cream fanatics.

The average Pole eats about 3.5 litres of ice cream a year, while Swedes eat about 13l and Americans shovel down about 23l annually (a statistic whose effects can be seen when comparing waistlines in America and Poland).

However, the Polish market is steadily growing – a decade ago Poles ate less than 2l each. Euromonitor, a research company, estimates that sales this year will be about 1.2bn zlotys ($400m, €280m, £240m).

The largest share of the market, with 35 per cent, belongs to Unilever, with its Algida brand, followed by 21 per cent for Koral, the largest local ice cream maker. In third place is Switzerland’s Nestlé, which has 8 per cent market share, according to MEMRB, a retail tracking company.

His first businesses were small – limited by the communist distaste for entrepreneurs and by the difficulty in getting raw materials such as sugar, which was often only available on ration cards.

That changed in 1989 when communism collapsed, and those few people with business experience and access to capital could rapidly expand their companies. By the mid-1990s, he had a factory in suburban Warsaw and his ice- cream was available across the country. Zielona Budka remains one of the best-known Polish brands of ice cream.

“I’ve been an entrepreneur all my life and I wasn’t afraid to risk my money,” he says.

But even a family background in commerce did not prepare Mr Grycan for dealing with the challenges of running a modern business in an increasingly complex regulatory environment.

His first problem came from Poland’s notoriously unpredictable tax authorities, who in 1997 alleged he had not paid VAT, and confiscated money from his accounts. Mr Grycan eventually won in court, but development of his business had been delayed.

A year later, he took Zielona Budka public and by 2001, Enterprise Investors, one of central Europe’s largest private-equity funds, had become a majority shareholder. Mr Grycan remained on the management team, but increasingly chafed at being part of a company he did not control.

The biggest friction came over the fund’s focus on the bottom line, a business model that earned profits through volume sales – but which he felt undercut the chain’s tradition of selling high-quality ice cream at low margins.

“I didn’t really agree with the way they were running things. The financial director would try to cut costs as much as possible,” he says. “I’ve always been concerned about having a good product.” Mr Grycan left the business after signing a three-year do-not-compete clause. Zielona Budka is now owned by Britain’s R&R ice cream company.

Instead of retiring quietly, Mr Grycan jumped back into the family business. His wife had retained an ice cream shop in Warsaw, so once the non-compete term was up in 2004, he set up Grycan – Lody od Pokole (Grycan – generations of ice cream).

“People warned me not to start this business because there was a lot of competition,” he says. “They said I was crazy to get back into the same business, but we did manage to find a space for ourselves in the market.”

The company does not reveal revenue and profit figures, although Mr Grycan says his company has just under 10 per cent of the Polish ice cream market worth about 1.2bn zlotys ($400m, €280m, £240m) annually. The business makes about half its income through sales at the Grycan parlours, and half through selling bulk ice cream in supermarkets. So far the company undertakes no advertising, relying instead on having a good presence in the new shopping malls that have sprung up in the country’s largest cities, and on Mr Grycan’s personal reputation as Poland’s ice cream magnate.

This time round, Mr Grycan is determined to retain much closer control with his eponymous company than when he owned Zielona Budka. Although he is conscious of costs, he devotes just as much effort to coming up with new flavours such as spice cake, poppy seed and melon, and keeping an eye on quality. “I have the final say in the company,” he says. “All the fruits we use are real. If the ice cream is mango, then we peel mangos in the factory.”

Asked if he might list the new company, Mr Grycan rolls his eyes and shakes his head.

He has abandoned most franchising, after finding that franchisees did not maintain the standards he wanted. Now his only franchisees are his 24-year-old twin daughters, Magdalena and Malgorzata. He charges them market rates, and hopes the experience of running their own operations will prepare them for taking over the whole business eventually. “I want them to know everything from the ground up. You can only learn by doing,” he says. Malgorzata, who is studying at the country’s leading business school, is his “right hand” in running the business with his wife.

Unlike many other successful Polish companies, he has no immediate plans for foreign expansion. Many other companies, particularly those involved in consumer goods such as food and clothing, undertook rapid foreign growth during the boom years and have had to retreat to their home markets.

Although the downturn has not stopped consumers slurping ice cream, it has affected the bottom line. Most rents in Polish malls are denominated in euros, as are costs for ingredients such as chocolate, coffee and exotic fruits, but earnings come in sharply depreciated zlotys.

“It has been very negative for me because I’m not an exporter,” says Mr Grycan.

Copyright The Financial Times Limited 2009

FT: Moore’s Law hits economic limits

Moore’s Law hits economic limits

By Chris Nuttall in San Francisco

Published: July 20 2009 19:33 | Last updated: July 20 2009 19:33

A leading chip manufacturing company will break ground on a 200-acre site in upstate New York this week, starting construction on a $4.2bn state-of-the-art factory.

But these days, new chip “fabs” are as rare as the April 1965 issue of Electronics Magazine.

Intel co-founder Gordon Moore predicted in 1965 that transistor densities on chips would continue to double, about every two years

EDITOR’S CHOICE

In depth: Semiconductor showdown - Jun-09

Samsung to spend $4bn on eco-tech - Jul-20

Makers of chips seek a wider audience - Jul-19

Intel paid $10,000 for a single copy of the magazine in 2005. This was the issue which featured an article by the company’s co-founder Gordon Moore, in which he predicted transistor densities on chips would continue to double, about every two years.

In accordance with what we now know as Moore’s Law, we have moved from pieces of silicon with 16 transistors on them in the 1960s to ones with 600m today. More than 1m could fit on the full stop at the end of this sentence.

Globalfoundries’ “Fab 2” in New York will achieve another level of miniaturisation when it begins volume production in 2012, making chips with circuitry just 28 billionths of a metre wide.

But its construction is a rarity because of another aspect of Moore’s Law. We have yet to reach a scientific limit to further miniaturisation, but an economic one is fast approaching, according to some experts.

“The high cost of semiconductor manufacturing equipment is making continued chipmaking advancements too expensive to use for volume production, relegating Moore’s Law to the laboratory and altering the fundamental economics of the industry,” wrote Len Jelinek, chief analyst for semiconductor manufacturing at the iSuppli research firm, last month.

Mr Jelinek predicted that Moore’s Law would no longer drive volume chip production from 2014, sparking intense debate in Silicon Valley.

His reasoning is that circuitry widths will dip to 20nm (nanometres or billionths of a metre) or below by that date. But the tools to make them would be too expensive for companies to recover their costs over the lifetime of production.

The costs and risks involved in building new fabs have already driven many makers of logic chips (processor or controller chips) towards a “fabless” chip model, where they outsource much of their production to chip “foundries” in the Far East.

The 14 chipmakers who were in the game at the 90nm level have been reduced to nine at the current 45nm level. Only two of them – Intel and Samsung – have firm plans for 22nm factories.

Intel argues that only companies with about $9bn in annual revenues can afford to be in the business of building new fabs, given the costs of building and operating the factories and earning a decent 50 per cent margin. That leaves just Intel, Samsung, Toshiba, Texas Instruments and STMicroelectronics.

Andy Bryant, Intel’s chief administrative officer, says Gordon Moore’s original article was an economics paper rather than a technical treatise.

“Moore’s Law is really not about the science, it’s about the business model that the science drives,” he says. “What Gordon said was the model is driven by the cost reductions that are allowed – the science takes the technology into more and more devices and the volume will explode because the cost comes down, so it is an economic model.”

So as long as demand can be maintained by consumers and businesses wanting the latest gadgets and features, Moore’s Law, and the huge investments it entails, will continue to make economic sense for fab builders.

“You see a lot of companies, who can no longer afford to be in manufacturing, wanting to declare the end of Moore’s Law, but it’s not in the near future,” he says.

However, with fewer companies to whom they can sell factory equipment and tools, these are tough times for big suppliers such as Applied Materials.

Hans Stork, Applied’s chief technology officer, says there will have to be consolidation among chip equipment suppliers. But he sees opportunities in other segments of a chip market split three ways into logic chips, D-Ram memory and Nand flash storage.

“We still see considerable upside on the storage side, there’s a lot of innovative work being done on solid-state drives to make them mainstream – that could be a big lever for us,” he says.

Those chip companies priced out of the market for the next level of miniaturisation are expected to extend the life of current technology with fresh innovation and marketing ploys.

Intel rival Advanced Micro Devices chose to split the company, with AMD becoming a fabless chipmaker and the new Globalfoundries spun off as a fab owner to make chips for AMD and others. Globalfoundries is working with IBM and has been bankrolled by the Abu Dhabi government. Business alliances and government support are other ways that companies can compete with Intel and Samsung.

“No one company or country is really going to drive this forever, I think it’s going to be collaborative in many forms that we are yet to see,” says Doug Grose, Globalfoundries chief executive.

This is the second in a series on the challenges facing the semiconductor industry. More news and analysis at www.ft.com/chipmakers

Copyright The Financial Times Limited 2009

FT: Not made in Japan

Not made in Japan

By Robin Harding and Jonathan Soble in Tokyo

Published: July 20 2009 19:04 | Last updated: July 20 2009 19:04

Inside the rows of tin-sided buildings in a beach-side suburb an hour out of Tokyo, aqua-green machines churn out the most basic of industrial components: pairs of inset steel rings that spin on a doughnut of balls or rollers.

EDITOR’S CHOICE

Nissan battery plants for UK and Portugal - Jul-21

NEC sees chip recovery ‘in three years’ - Jul-19

Japan raises economic view for third month - Jul-13

Lex: Japan’s economy - Jul-08

Lex: Japanese elections - Jul-13

Japan past worst of slump, says minister - Jul-01

The bearings produced by the NSK factory in Fujisawa may look a lot like the prototypes Leonardo da Vinci sketched five centuries ago, but the company still has plenty of costs. Its annual research budget of Y10bn (£64m; €74m; $105m) supports a team of chemists who concoct recipes for grease – 60 of the 200 varieties NSK uses were developed in-house – and computer engineers whose software detects impurities in alloys. “You can buy cheap Chinese-made bearings that look just as good, but I wouldn’t use them,” says Masatoshi Shirai, the plant’s deputy manager.

Yet for all their quality, the plunge in global demand and a sharp rise in the yen have thrown Japanese manufacturers into crisis, and reignited a debate about the country’s reliance on the sector. That is because it was not finance that transmitted this recession to Japan – it was manufacturing. In spite of having no real estate bubble or banking trauma to speak of, the slump in exports – down by half at their nadir in February – helped push output down by 14 per cent in annualised terms during the first quarter, making Japan’s recession one of the deepest in the developed world.

As Anglo-Saxon leaders worry that an over-reliance on finance has weakened their economies, Japan’s problems are a reminder that there are dangers on the other side of the fence. Economists long warned that domineering exporters and a relatively puny domestic services sector left Japan dependent on foreign demand, exposed to the whims of the currency market and vulnerable to low-cost Asian rivals. The global recession appears to have proved them right, raising the question: do factories such as Fujisawa have a future?

In a country where monozukuri, or making things, is part of the national identity, hand-wringing about the state of manufacturing is not new. Light-speed industrialisation shielded Japan from western imperialism in the 19th century and rebuilt it after the second world war – a war that was itself a demonstration of the importance of material production. “It wasn’t the US service sector that defeated Japan,” notes Robert Dujarric of Temple University in Tokyo. Well-paid blue-collar jobs, he adds, have been a pillar of Japan’s postwar social equality.

Companies have been quietly shifting production overseas for three decades, to overcome trade barriers or take advantage of cheaper foreign labour. Employing one in 10 workers, manufacturing’s share of gross domestic product, at 21 per cent as of 2006, remains high by developed-country standards – but is well below its peak of 36 per cent in 1970. The assumption was that high-skilled work would stay in Japan and ever-growing global sales would ensure a minimum level of exports.

That view is now being questioned. As the recession deepened early this year, factories started to close and workers were dismissed – in many cases with no promise of rehiring when the economy recovered. Sony said it would shut four of its 10 domestic electronics plants and outsource their production. Mikio Katayama, the president of Sharp, announced a strategy shift, saying that in future “exports from Japan will not make sense even in the most advanced technological fields”. For a company that defines itself by its manufacturing prowess, the comment suggests more than a cyclical malaise.

Even before the recession, efforts to keep jobs at home were looking strained. Companies have pushed down on wages, turning productivity gains into lower prices or higher profits: labour costs as a share of manufacturing output fell from 73 per cent in 1994 to 49 per cent in 2007. Rather than provide stable employment, factories hire temporary workers – often Chinese or Brazilians on short-term visas – who get low pay and poor conditions. Japan has not just moved factories to cheap labour, it has also brought cheap labour to the factories.

As manufacturing jobs have been devalued, Japan’s young have increasingly lost interest in them. According to the Rose project, a Norwegian-funded global survey of attitudes towards science, Japanese secondary-school students responded more negatively to the proposition “I would like to get a job in technology” than their peers in all the 25 countries polled.

Students looking for the kind of stable lifelong jobs once offered by manufacturers now increasingly choose public services or utilities. In a survey this year by Recruit, an employment agency, students ranked Central Japan Railway, part of the old state rail network, as the most attractive employer. Sony ranked 89th; Toyota 96th.

That has exacerbated the problems presented by Japan’s ageing population. “When you look at the population structure, it’s going to be extremely difficult to find groups of low-cost labour,” says Tadahito Yamamoto, president of Fuji Xerox, the office equipment supplier. Eighty per cent of its manufacturing has already gone abroad, and all that will remain, he says, are the products with highest value-added – inks; engineering and development jobs; and assembly that can be totally automated.

Japan’s response to past manufacturing downturns was often to intervene in the foreign exchange market to weaken the yen, juicing up the competitiveness of its exports. Massive intervention earlier in the decade brought some short-term relief but left the economy as reliant as ever on foreign demand, and thus more vulnerable when the yen surged and orders fell. Intervention now would draw howls of protest from recession-hit trading partners, and the finance ministry has stayed out of the market in spite of open pleas from the chairman of Canon and the former president of Honda. Few executives expect relief from the strong currency soon.

One possible response to the loss of manufacturing competitiveness is that it is no bad thing to move production offshore: Japan can keep the company headquarters, which will still provide good administration, marketing and design jobs. Some that have moved down this road have managed it: Yamaha Motor employed 11,000 workers in Japan at the start of the 1980s, when it made three out of four of its motorcycles locally. Today domestic bike production accounts for just 5 per cent of the total but Yamaha’s Japanese workforce has shrunk only slightly, to 9,000.

Another, oddly defeatist, response is that Japan needs manufacturing because its service sector is not competitive enough. Outside its dismal banks, Japanese service companies are known for treating their customers beautifully, but not making much money. “If you were to look at the top 50 companies in Japan based on where they rank in their industries, I think they’d all be manufacturers,” says Temple University’s Mr Dujarric.

Yet there is a more nuanced, and more optimistic, way to look at the future of Japanese manufacturing. For answers to their dilemmas, many Japanese executives turn to Takahiro Fujimoto, who runs the University of Tokyo’s Manufacturing Management Research Centre from a ramshackle office above a bank.

For him the question is not whether Japan should manufacture, but in what products it has a comparative advantage. He argues that Japan’s strengths were forged in the high growth era of the 1960s, when staff and natural resources were in short supply, forcing companies to minimise waste and to rely on teamwork among multi-skilled workers rather than a narrow division of labour. From these roots came practices that caught the imagination of the industrialised world, such as “just in time” production to minimise inventories, and “kaizen”, or continuous improvement on the factory floor.

Takahiro Fujimoto asked Japanese manufacturers whether their products needed customised or off-the-shelf components, and whether there were design trade-offs, such as between safety and saving energy. The result (above right) was a spectrum of 170 products, from the ‘integral’ that must be designed as a complex whole to those with a simple, ‘modular’ design. It turns out that Japan is most successful at exporting ‘integral’ products – although Prof Fujimoto emphasises the limits of his data.

“We should be good at products that are co-ordination intensive in terms of production and design,” says Prof Fujimoto. What is more, this advantage should be durable, because it was evolved rather than deliberately created, and so cannot be packaged into a form that is easy for foreign or domestic rivals to copy. His data suggest that the more complicated a product is to design and make, the more of it Japan exports (see chart).

For all Japan’s reputation, the hard-to-design products where it may have a sustained advantage are not necessarily high-tech. “We lost semiconductors but we still keep the toilet bowl,” says Prof Fujimoto, referring to the success of Toto, a company that makes hydro-efficient toilets to satisfy demand from water-constrained China.

This theory also fits the pattern of how companies are responding to the recession. Hitachi and Toshiba, for example, are playing down consumer electronics, which use high-tech parts but have simple design, in favour of the ultimate hard-to-design product: the nuclear power station.

Apart from products that are globally competitive, two other kinds of plant are expected to prosper in Japan: “quick factories”, producing just-in-time goods for the domestic market, and “mother factories”, kept alongside research centres to provide instant feedback to product designers.

Takanobu Ito, chief executive of Honda, says the “broad trend” at his company is away from exports in favour of localised production, but he sees an important role in Japan for such keystone facilities. “Our approach is to perfect the newest and most advanced technologies in Japan before transferring them overseas . . .  These technologies aren’t just products, they’re connected to the production process itself. That means that without production [in Japan], our technology couldn’t advance.”

For NSK’s Fujisawa plant that suggests the future is relatively bright. Its metallurgists and grease-wizards support nine factories in Japan and 17 abroad, and in some applications, the humble ball bearing is a very customised product indeed.

Mr Shirai points out a stack of metre-wide roller bearings used in the gearboxes of North Sea wind turbines. “Those go 60 to 100 metres in the air. Once you install them, you don’t want to have to replace them.”

Big changes for the producers of little things

Nothing symbolised Japan’s ascent in the 1970s and 1980s like consumer electronics. Companies such as Sony not only grew, they defined the cutting-edge of technology.

Today they are symbols of a different kind as competitors from Taiwan and South Korea have gained the initiative. Pioneer lost Y131bn (£838m; €972m; $1.4bn) last year and closed its television business in February, JVC was forced into a merger with its Tokyo-based peer Kenwood in 2007, and Sony has wrestled with losses in TVs and falling overall profitability. Almost every consumer electronics company has shut factories in Japan.

Consumer electronics is an industry that has never stayed for long anywhere. In the 1960s, US companies dominated in TVs; in the following two decades it was the turn of the Japanese. More recently Korea and Taiwan have grown – but their eclipse by China is already on the horizon. “Consumer electronics is always seeking cheaper capital and labour costs,” says Kota Ezawa of Nikko Citigroup in Tokyo.

But capital and labour costs are not enough to explain why so few Japanese companies have matched the success of Apple, which outsources its production, and has had a string of hits with devices such as the iPhone and the iPod. Nor does it explain Japan’s struggles in the related areas of computing and semiconductors, where US makers such as Dell and Intel have prospered, but NEC, Fujitsu and other Japanese champions have not.

A large part of the problem is that, in the shift from analogue to digital electronics, products became more modular. Whereas Japanese companies made everything from cathode ray tubes to the phosphors of an analogue TV screen in-house, and that was a source of competitive advantage, modern digital sets can be assembled using a liquid crystal panel and chips from a range of suppliers. A retailer such as Amazon can now make the Kindle book reader because it need not design the components itself and it can outsource assembly.

The move to digital also increased the importance of software – an area that, outside video games, Japan has not had much luck with. All this was compounded by a slowness to adapt. “Inflexible mindsets meant that vertical integration and inefficiencies persisted for longer than necessary,” says Mr Ezawa.

The future is likely to involve fewer consumer electronics and more business-to-business products: Panasonic is buying Sanyo to move into solar power and lithium-ion batteries, while Toshiba and Hitachi are concentrating on power stations and infrastructure. Sony, meanwhile, is trying to make networked products for which it can also sell software and media content.

Copyright The Financial Times Limited 2009

FT: The Chambermaid Wears Prada

The chambermaid wears Prada

By Josh Sims

Published: July 18 2009 01:59 | Last updated: July 18 2009 01:59

The bar uniform at the Connaught, London, above, and, below left, a W Hotel uniform designed by L.A.M.B

There are elegant, streamlined clothes that began life on the sketchpad of designer Michael Kors. Then there are short, gymslip-style black jersey dresses by Gwen Stefani, the frontwoman of the punk-ska band No Doubt and creator of the clothing line L.A.M.B. So far, so fashion. But neither Kors’ nor Stefani’s designs are on the catwalk or in a shoot; rather, they are uniforms for staff of the trendy W Hotels chain. This summer, what you see while lounging around a resort could be as chic as anything you see in a store.

“I wanted to design a super-cute dress that I would be excited to have in my own closet, and approached it in the same way I think about my clothing for a tour,” Stefani said of her hotel uniform, which debuted early this year. “We’ve designed an outfit for these women to wear while on their own stage every night.”

Designing uniforms for restaurant employees and airline crews has long been a fashion sideline. Bruce Oldfield did it for McDonald’s staff last year; 40 years ago Emilio Pucci created a uniform for Braniff International Airways, as Julien Macdonald did, more recently, for British Airways.

Hotels have only recently come round to the idea, but they are making up for the lost style years. Alongside W Hotels, staff at the Hotel Monaco in Denver are sporting Cynthia Rowley this season, those at the Royalton New York are in Yohji Yamamoto, and at the Peninsula, Beverly Hills, they are in St John.

The motivation is simple: the desire to intensify competition. According to a 2008 PwC report, some 30 new hotel brands launched over the preceding 30 months. So brand image has become ever more important to differentiation. The choice of a hotel is as much a statement of taste as the choice of car, clothing or any other consumer goods.

“Uniforms are becoming much more important to the hotel industry now, as more hotels become ‘fashion’ brands themselves,” says Nicholas Oakwell, managing director of No Uniform, a uniform design company that counts Ibis Hotels, the Connaught in London, and Abode, the British boutique hotel chain, among its clients. “It’s about building customer appeal: the uniform tells a customer what the hotel is all about, especially since guests tend to be more fashion- and design-conscious now.”

Indeed, today’s hotel uniform, whether it be chic and minimalist or something more striking, can be as exclusive and as much of a statement as any designer line. When Top Hat Imagewear – a hotel uniform design business that works with the Ritz-Carlton, the Four Seasons and MGM Grand groups – designed a new look for the $400m overhaul of New York’s Plaza Hotel last year, the result was ornate black outfits with gold trim and hand-embroidered details.

“It needed to say, ‘This is the Plaza, and we’re back!’ and the concept made for quite an expensive uniform by industry standards – there was nothing faux about it,” says Marion Steinger, Top Hat’s senior vice-president. “That is rare [at the moment] but it’s increasingly the case. Hotels won’t compromise on uniforms and they don’t want to see their competitors’ staff dressed in anything similar.”

The Connaught’s latest uniform, created late last year, includes jackets made from specially woven fabrics and horn buttons with a hand-engraved logo. “We get a lot of customers saying, ‘Can we buy the suit, can we buy the dress?’” reports Oakwell. “That is the kind of level hotel uniforms have to operate on now. Although we don’t sell them – we want to keep the exclusivity.”

By contrast, the new Nylo Hotels, located in Texas and Rhode Island, sell their 20-piece NyloWear uniform collection, designed by Project Runway reality TV winner Daniel Vosovic, online.

The Gansevoort Hotel Group, which launched in 2003 and operates hotels in New York and Miami, is the apogee of the fashion approach to uniforms. It pioneered an arrangement with Hugo Boss, Alexander McQueen for Puma, Nautica and, for its 2010 Toronto opening, Prada, that sees the uniforms selected from across these brands’ collections – at no cost to the hotels. Instead, it is product placement for the brands.

“We couldn’t afford to do it any other way,” says Gansevoort’s chief executive Elon Kenchington. “And we want to align ourselves with the fashion world, from which a lot of our guests come. Having staff in designer clothing has fast-tracked our own brand to luxury status.”

....................

HOTEL STYLISTS

‘We don’t just change the flowers’

Instead of having a few pages in a magazine to fill, how would a fashion editor feel about styling an entire hotel? “Etonnée” – astonished – says Maud Lesur, a 35-year-old stylist and fashion editor at Madame Figaro magazine who, in 2004, was asked to become a fashion consultant at the five-star Métropole (www.metropole.com), a 130-year-old institution just a credit card’s throw from the Monte Carlo casino, Simon Brooke writes.

“But then I decided that I could bring an external viewpoint and some originality to the world of the luxury hotel,” she says.

Her job is to restyle the Métropole’s image every two or three months. January’s theme was taken from the frills and extravagant prettiness of the dresses in Sofia Coppola’s film Marie Antoinette, while this spring the colours were purple and green, following the colour trends from the women’s and men’s wear shows in Paris. The current theme, entitled Blue Mood (pictured), was drawn from the deep turquoise-blue of Matisse’s paintings of goldfish in a blue room.

“Deciding on the themes is like working on a mini-collection,” says Lesur. “My job is like being a fashion editor but at the same time it’s very different. We don’t just change the flowers every season, as hotels have done in the past; we change the cocktails in the bar, the amuse-bouches served in the restaurant and the ties of the concierges. Even the doorknobs will reflect the look, and in each bedroom there’ll be an object that symbolises the theme. It means that in every part of the hotel you have a ‘mood touch’ in keeping with that season’s fashions.”

. . .

Hotels haven’t just discovered fashion gurus – they’ve discovered beauty gurus too. From pedicurist extraordinaire Bastien Gonzalez, who plies his no-polish buffing to the feet of guests at the One and Only resorts and Paris’ Hotel Costes, to the Guerlain experts at the Waldorf-Astoria in New York, upscale services have become de rigueur extras, Vanessa Friedman writes.

Although the holiday-treatment landscape has tended to be dominated by the spa crowd, a new addition to the fold is attempting to bring the city salon to the seaside. Julien Farel (www.julienfarel.com), whose eponymous Manhattan space is a favourite of the Madison Avenue and Wall Street sets, has agreed a deal with the Capella Hotels and Resorts group to open in the Capella Pedregal (www.capellapedregal.com) in Cabo San Lucas, Mexico, which launches this month.

“Beauty on vacation is more in demand than ever,” says Farel. “People do not have the time to get everything done prior to travelling, and this gives them an opportunity to recast it as pampering – which is a vacation activity, after all.”

Copyright The Financial Times Limited 2009