Thursday, August 25, 2011

Why I almost tore up my diplomas and went to work for Frito-Lay....

Shortest De Todo blog ever, EVER! I've recently been downloading and listening to Econ Talk by Russ Roberts. There are some fascinating interviews of about one hour in length with some of the most important economists alive. The most recent interview was with a true economist, that is to say someone who actually practices economics instead of studies it. Russ Roberts interviews Brendan O'Donohoe(http://www.econtalk.org/archives/2011/08/odonohoe_on_pot.html), a Frito-Lay mid-upper level manager about supply chain, marketing, competition, theory of the firm, innovation, and on and on. The entire conversation was impressive. Brendan knew everything about his market and basically everything I know about economics. At one point I felt like tearing up my two degrees in economics. Next time I think about needing an MBA, I'm just going to listen to this podcast again and save 100K.

One of the most poignant couple of minutes comes towards the end of the interview. Brendan talks about the tremendous pressure and culture to improve and innovate, despite being the top chip producer in the USA and the World. Competitive economic market pressure leaves Frito-Lay constantly fighting to stay on top by producing more with less, satisfying their customers in new ways, and finding new ways to process information...even though Frito-Lay is the best it never rests on its laurels. Amazing testimony to how capitalism improves our lives seen through a small example of something like chips/snacks.

The contrasts with the military, and really all government actions is so clear. Because we have no internal competitor, no pressure to slash costs, no pressure to do more with less, we are constantly seeking more resources. There is always something more we could buy, more people we could use, more expensive technology we want....in order to do the mission. While Frito-Lay is figuring out how to maximize production and minimize costs, the military and the rest of the government do not have that later restraint. Instead we are only seeking to do the mission, maximize mission effectiveness, maximize security. We will take and ask for any and all resources available, regardless if the marginal benefit exceeds the marginal cost.    

4 comments:

  1. So, are you suggesting privatizing the military and other government services? The public good aspect of the services they provide put them outside the standard capitalist economic pattern. Frito-lay has competition because they provide a non-necessary item. I don't know that we should have competition, and therefore multiple service providers, for our national defense, water delivery, electrical service, etc. I certainly agree that the government and military could be a lot more efficient and cost-effective, but I don't think that lack of competition is the problem; I think it's lack of transparency and accountability, and an excess of bureaucracy.

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  2. No not at all....not proposing to have Blackwater compete to provide a public good. More of an explanation as to why asking the military to "save money" is an impossible task. The only focus day-to-day is to provide as much defense as possible and what we have is never enough. It's just like the Dept of Education, when do we have enough or good-enough education right? Never and so these entities are not capable of self-regulating.

    The discipline of the market isn't useful to something that is immune to market forces(generally). There are a lot of pundits going around firing off op-eds at each other resisting reductions in military spending, on this program or that program or whatever. The optimal solution is to cut 5%, 10%, x% of the military budgets and let the services figure out how to optimize, instead of doing this piecemeal.

    Ditto on transparency, accountability and bureaucracy!

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  3. Hi Buddy! I agree that the services should be more or less forced to "live within our means" as it relates to discretionary spending of bazillions of dollars on "new projects" such as the CV-22 tilt-rotor tinker toy, and having it replace a perfectly good and mission-hacking acft such as the MH-53M Pave Low Monster-Mongoose.
    Just a thought

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  4. The literature would agree with you in part, Tobe. But the economic side of the argument only scratches the surface on a larger issue that dominates many writings in the political science side of the house. The argument is that the US is facing what has been coined the "Hegemonic Dilemma". Our worldwide military infrastructure helps to maintain our supremacy in global markets and influence. It protects or hegemonic status. (That is if you believe the US is still a hegemony.) That being said, the US must continue to dominate militarily as a means to secure continued global influence. Again, according to the literature, the US will never make any substantial cuts in military spending; It won't happen even if it means a domestic economic boost. The American way of life still relies heavily on military influence to protect foreign markets and to deter nation-states from challenging US interests, hence why true cuts in military spending will never be addressed and why the DoD often gets a "pass" in regards to spending.

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