Marginal Utility

by Tom Bozzo

Actual headline: NASA grounds iPhone: not "enterprise ready"

Like anyone should listen to those guys...

NASA has ignored flight surgeons and astronauts who questioned others' fitness to fly due to drinking...

A panel that studied astronaut medical issues also found that staff were "demoralized" when their identification of "major crew medical or behavioral problems" were ignored by NASA leadership. [!!!!!1!One!]

The findings suggest that problematic cultural issues remain entrenched at NASA, which has been faulted repeatedly in the past for failing to heed safety warnings through the ranks.

Though NASA's iPhone determination didn't come from NASA brass, quite:

[T]he decision was made by officials within NASA's ODIN program office. ODIN, or Outsourcing Desktop Initiative For NASA, is a program under which NASA is outsourcing computer supply and support to private-sector companies.

The meeting minutes indicate that Jeff Stephens, an ODIN acting project manager who also works for defense contractor Lockheed Martin, broke the news that the iPhone won't fly at NASA. Reached Monday at his office in Washington, D.C., Stephens said only that, "I can't comment on that one way or the other." [emphasis added]

That looks like 10/10 on the Fox Guarding the Henhouse scale — a contractor can serve as "acting project manager" for an outsourcing initiative. (*) It would be hypocritical of me to suggest that there aren't any roles for contractors in the operation of the Federal government, but having Lockheed Martin supplying and supporting desktop PCs doesn't sound like it could possibly be efficient. And you have to love that can't-do spirit of outsourced IT support.


(*) Less sensationally, the guy could be a manager for LockMart's activities under the contract, a role I've filled on what I presume to be a much smaller scale for certain of my firm's contracts.

Labels: computers, Nasa, Outsourcing

by Tom Bozzo

(Burial of the lede edition.)

The reassuring headline of Nelson Schwartz's story was, "Companies in U.S. Increase Testing of Chinese Goods." They're almost proactive, "in one case... pulling merchandise from American shelves at the first hint of a problem." That's a relief.

Why care?

The spate of recalls and the rising volume of exports have highlighted another worry: the increasing dependence of the United States’s biggest food manufacturers on China for basic additives like apple juice [*], a common sweetener, and preservatives like ascorbic acid.

These little-known additives form the building blocks of many popular staples in American kitchens, keeping fruit from turning brown or providing the sweetness in breakfast bars. Food experts note, for example, that China supplies more than half of all the apple juice imported to the United States, up from a fraction a decade ago.

Other critical but common additives have followed an even sharper trajectory... More than 80 percent of ascorbic acid, better known as vitamin C and also used as a preservative, comes from China... Chinese imports of xanthan gum, used to thicken dairy products and salad dressings, account for at least 40 percent of United States consumption.

“This is a problem for the whole food chain, but it was a blank spot,” [food industry consultant Peter] Kovacs said. “They’re doing it now, but companies weren’t testing these additives before.”

Glad they're on top of things.

And many food makers are nervous to discuss what is emerging as an issue that could threaten the trust of shoppers in long-established brands.

No kidding.

For the companies, the problem is two-fold: figuring out exactly what to test for and maintaining control over their network of suppliers, even as they turn to China for vast quantities of imports at lower prices.

Or, how can the brand-destroying appearance of chiseling be avoided without incurring the cost of not chiseling.

Meanwhile, we're assured that at least one Thomas-compatible train line is safe:

[A]fter the Thomas recall last month, Toys “R” Us went back and had its own Imaginarium train line tested by an outside company. The toys proved to be safe.

“In the past we would have just reviewed prior test results,” Mr. Ruppert said. This time, “we just decided to take the next step: real-time, real-life review by an outside company.”

In parts of the world, that might be considered the first step.

That might have helped Foreign Tire Sales, the seven-person outfit on the U.S. side of the recent Chinese tire recall story. Their manufacturer had been contracted to make the tires with a gum strip that helps keep the tires' plies from separating; the tires originally passed tests indicating that they met federal safety standards. However:

In October 2005, the company said it became concerned because of a sharp increase in customer complaints about the Hangzhou Zhongce radial tires. In investigating the complaints, Foreign Tire Sales’ officials became suspicious that Hangzhou Zhongce was manufacturing the tires without the gum strips or with inadequate gum strips...

Tests of tire segments conducted by an outside firm were not conclusive but “seemed to indicate that there were no gum strips or insufficient gum strips in the inspected tires,” Foreign Tire Sales wrote in its June 11 report to the National Highway Traffic Safety Administration.

Hangzhou Zhongce admitted in September 2006 that it had “unilaterally decided to omit the gum strips” in the tires, the report says. The Chinese company was “generally unresponsive” when asked how many tires were involved and what they were going to do to resolve the problem, the report says...

In May [2007], Foreign Tire Sales conducted another round of road tests using 2005 Hangzhou Zhongce tires. This time, the tread separated after just 25,000 miles, the report said.

Mr. Lavigne [the Foreign Tire Sales attorney] said it appeared that Hangzhou Zhongce at times used no gum strips on the tires and in other instances, used half the amount of gum strip that was required by its agreement with the company.

So it took them "just" 19 months from when they noticed the rash of customer complaints to conduct definitive tests leading to the recall order. That's something to think about when politicians say they want government to move at the "speed of business."

A catch is that Foreign Tire Sales can't afford the recall, as it reportedly has no inventory and apparently no financial reserves to speak of. This implies one sense in which the cheap Chinese tires may have been too cheap: the price should have included a product liability insurance premium, in which case F.T.S. wouldn't be facing extinction (for what that's worth) and taxpayer wouldn't be facing up to a $90 million bill for the firm's lax oversight of its suppliers.


[*] As an added bonus, this article was accompanied by a remarkably useless graph. It shows a collapse in the share of apple juice imports from Germany and a large reduction in the share from Argentina, taken over (and then some) by China. But nowhere is there an indication of the quantity of imports or the import-vs-domestic share.

Labels: Moral Hazard, Outsourcing, Product Safety

by Tom Bozzo

David Leonhardt scores some easy points (*) in a good Economix article on outsourcing that puts in the Paper o' Record something I said in our comments last week: it lets rich-country outsourcers reap benefits of what would otherwise be outlaw behavior while (mostly) preserving their corporate images. Leonhardt:

This secrecy [about companies' relationships with Chinese contract manufacturers] brings a number of advantages. It keeps competitors from finding out tricks of the trade. It keeps consumers from discovering that their $100 brand-name shirt comes from the same assembly line as a $40 generic version. And it prevents activists from criticizing a company for the working conditions in a factory where its products are made. The companies get the cost advantages of outsourcing without the publicity disadvantages.

This leads us to the Quote of the Day, from Dani Rodrik:

[Rich and poor nations] should consider instead exchanging policy space: “I [poor nation] will allow you to protect your national social compact, if you allow me to engage in development strategies that conflict with WTO and IMF rules of good behavior.” The challenge is to design procedures that enable the use of policy space for socially desirable purposes, while limiting it for beggar-thy-neighbor purposes.

That's from a short essay (MS Word), "Saving Globalization From Its Cheerleaders," linked from this post.


(*) We've been there before.

Labels: Economics, Outsourcing, Product Safety, Thomas the Frackin Tank Engine

by Tom Bozzo

To Dani Rodrik's new-ish blog (h/t The Street Light):

Imagine some change in the economy leaves Tom $3 richer and Jerry $2 poorer, and I ask you whether you approve of this change. Few economists, regardless of their political and philosophical orientation, would be able to give a straight answer without asking for more information. [True; snip. M]ost of us [i.e., non-economists] would care about the manner in which the distributional change occurred--i.e., about procedural fairness. The fact that the shock created a net gain of $1 is not enough to conclude that it is a change for the better.

Economists of many stripes tend to like the pie-increasing changes on the theory that the extra pie could, in principle, be redistributed to provide everyone with more pie (leaving aside the thorny question of the 'optimal' portions of pie). Of course, when there's no mechanism to efface a serious redistribution of the pie, it is not unlikely to be considered small comfort that the other guy could give you back your two slices of pie, were he less of a pie-hogging jerk. [*] This led various blogiversal commentators to dub the improvement-with-redistribution concept as a 'fallacy,' not at all without reason.

Back to Rodrik:

[This] clarifies... why the archetypal man on the street reacts differently to trade-induced changes in distribution than to technology-induced changes (i.e., to technological progress). Both increase the size of the economic pie, while often causing large income transfers. But a redistribution that takes place because home firms are undercut by competitors who employ deplorable labor practices, use production methods that are harmful to the environment, or enjoy government support is procedurally different than one that takes place because an innovator has come up with a better product through hard work or ingenuity. Trade and technological progress can have very different implications for procedural fairness. This is a point that most people instinctively grasp, but economists often miss.

People also may recognize that procedural fairness shortcomings increase the likelihood that the additional piece of pie may be a lobbyist's fiction or the like.

Kash Mansori notes approvingly in the Street Light post that Rodrik files his post in a category of "Economists' blindspots." It's a good one, indeed, to which we might eventually add something along the lines of, "Not even trying to resolve the contradictions." Cf. the NPR interview with Vivek Wadhwa this morning on outsourcing and the "engineer shortage," in which Wadhwa notes with concern trends towards outsourcing increasingly high-level tasks (while also making it clear that the private incentives favor hollowing-out), undermining arguments along the lines of, "Don't worry about outsourcing, it just means that we're retaining (indeed, specializing in) higher-valued intellectual property creation jobs."


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[*] Madisonian FYI: LMNO'Pies' "pie bites," available at the Westside Community Market when LMNOPies [site layout really screwed up in Mac Firefox?!] makes an appearance, are really good.

Labels: Econoblogs, Economics, Outsourcing