Labor Unions And Inequality

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In the wake of the Great Recession, economic inequality – the extent to which income and wealth are distributed unevenly across a population – has emerged as a major issue in the United States.

Since the late 1970s, there has been enormous change in the distribution of income and wealth in the U.S. The gap between the “haves” and the “have-nots” has widened, with a small portion of the population reaping an increasingly larger share of the country’s economic rewards. Warren Buffet got it right when he said, “There’s been class warfare going on for the last 20 years and my class has won.”

The average American has lost. Since the mid-1970s, wages have remained stagnant and middle-class earnings have lagged the cost of living.

There are a number of factors contributing to economic inequality, downward mobility among working-class Americans and the dangerous fissures it has caused American society. These include government tax and regulatory policies, the acceleration of finance capitalism, culture, immigration, globalization, and the rate of technological change.

Frequently overlooked is the declining strength of private-sector labor unions. In 1979, unions represented 24 percent of the private sector labor force; today only 6.5 percent of private-sector workers are unionized.

The effects of this decline are fiercely debated. Conservatives argue that labor unions decrease competitiveness and business profitability. Progressives say that in an era of globalization, companies threaten to ship jobs to factories offshore to extract concessions from unions with impunity. For sure, unions raise wages, but that doesn’t necessarily mean they reduce profitability or diminish competitiveness. Consider the success of unionized firms such as Southwest Airlines and UPS.

American manufacturing and wages suffered as U.S. companies engaged in extensive offshore outsourcing of decent-paying domestic jobs to China and other low-wage countries under the banner of free trade, prioritizing short-term profits over long-term investments and the public interest. For example, from 2000-2016, the U.S. shed five million manufacturing jobs, a fact that supporters of free trade and globalization rarely mention.

The loss of traditional manufacturing jobs has contributed to income inequality and declining union membership. According to a report by the Washington-based think tank the Economic Policy Institute, if unions had the same presence in the private sector today as in 1979, both union members and non-members would be making about $2,500 more each year.

Many companies have built their business models around offshoring manufacturing to reduce costs without passing the savings on to consumers. They view the wages and benefits that once underpinned a middle-class lifestyle as obscenely excessive. That’s why they support free trade and use their political power to garner the support of both major political parties, helping accelerate the demise of labor unions. Government turned a blind eye as corporations packed up good jobs and send them overseas, weakening private-sector unions.

The American public has repeatedly been told that policies that restrain foreign competition are a form of protectionism that subsidizes inefficient domestic industries and raises prices. The issue of job losses is ignored. The benefits of free trade allegedly exceed the costs of lost jobs, especially for those who work with their hands. Assumed consumer benefits should be considered when it comes to trade policy, but so should giving working-class people a fair shot at the American Dream. Americans need a more balanced way of thinking about free trade and the offshoring of American jobs.

Is it any wonder that President Trump’s campaign slogan – “Make America Great Again” – resonated with ordinary Americans? This rhetoric is reminiscent of 1988 Democratic Presidential candidate Rep. Richard Gephardt’s slogan “Let’s Make American First Again.”

Writing over 2400 years ago, the Greek philosopher Aristotle captured the importance of inequality when he wrote, “A polity with extremes of wealth and poverty is a city not of free persons but of slaves and masters, the ones consumed by envy, the others by contempt.”

Financial Sector Is Driving The Economy

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The contemporary rise of finance, promoted by both Republican and Democratic administrations, has changed America from an economy focused on sustainable growth to one dominated by the financial sector itself – a broad range of industries that includes banks, investment firms, insurance companies, and real estate firms that provide financial services to commercial and retail customers.

Since the 1980s, the financial sector has expanded to take up an extremely large slice of the U.S. economy, a trend referred to as “financialization.” Financial institutions have significantly increased in scale and profitability relative to what most see as the “real” economy – businesses that produce tangible goods – which has left the United States increasingly reliant on the financial sector to generate economic growth.

The growth is apparent when measuring the size of the financial sector as a percentage of gross domestic product. Finance and insurance alone represent about 7 percent of the U.S. GDP. Profits tell a similar story. The sector now takes around a quarter of all corporate profits, yet creates only 4 percent of jobs, according to the Bureau of Economic Analysis. In short, the financial sector has captured a larger and larger piece of the national economic pie.

Many say this has contributed to widening income inequality between a small pool of high earners and the rest of society, giving the financial elite ample resources to sway government policy in their favor. This political influence is quite unlike the 99 percent, whose choices are increasingly limited to making ends meet. Several Democratic presidential candidates have criticized the United States’ reliance on the financial sector and lax government regulation. Sen. Bernie Sanders has made “breaking up the banks” a key plank in his presidential platform.

One factor that has contributed to financial sector growth is deregulation.

Before the Great Depression, the status and influence of financiers was so great that when President Theodore Roosevelt filed the first major antitrust lawsuit against J. P. Morgan’s Northern Pacific Railroad, Morgan, the fabled Wall Street titan, at a February 1902 White House meeting, told the President, “If we have done anything wrong, send your man to my man, and they can fix it up.”

Four years after the stock market crash of1929, the United States passed the Glass-Steagall Act in 1933 and other legislation to rigorously regulate the financial sector and make it more stable and transparent. Glass-Steagall legislation separated investment banking from commercial banking forcing banks to choose one or the other. Little by little ever the last several decades, those laws that served America so well were rolled back starting in the 1980s onward.

The financialization of the economy was jacked up in the 1980s, fueled by Reagan-era laissez-faire policies. For example, the 1982 tax reform lowered the capital gains tax. Deregulation from the 1980s onward encouraged banks to move away from their traditional role of supporting businesses and individuals and providing the liquidity and credit needed to lubricate the economy.

For instance, the repeal of the Glass-Steagall Act in 1999, a seismic moment in the story of financialization, triggered high-risk deals and trading by financial institutions by enabling them to use deposits collected through their commercial banking arms. Lusting for quick, short-term profits that kept the money within the financial sector rather than investing it in the real economy, banks began to focus on high-risk “financial engineering” like sub-prime loans, collateralized debt obligations, structured investment vehicles, and derivatives, which Warren Buffet famously called “financial weapons of mass destruction.”

Such activities are remote from the production of tangible goods and services. Finance has become a business unto itself, all about making money from money rather than making things and being a facilitator for real business. Populists from the left and the right say Wall Street has done better than Main Street – and that may be the truth of it.

Putting Modern Monetary Theory To The Test

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An unconventional approach called Modern Monetary Theory (MMT) that suggests governments don’t have to worry about debt is gaining traction. Its basic starting point is that a government that can borrow in its own currency can take on much more debt than orthodox economics says is prudent. If you want to spend more on government programs, just print more money with a few key strokes on the Federal Reserve computer.

Governments can manage their economies though spending and taxes instead of relying on a quasi-independent central bank to do it via interest rates. If spending much more than it collects in tax revenue creates inflation, the government can deal with inflation by raising taxes.

MMT is the economic rationale coming from potential Democratic candidates for president and rising political stars like Rep. Alexandria Ocasio-Cortez (D-N.Y.), who argue that the nation can afford large-scale social projects such as the recently proposed Green New Deal, Medicare for All, free college tuition, massive public infrastructure projects, and a job guarantee program with the federal government becoming the employer of last resort.

The MMT enthusiasts acknowledge that ballooning deficits risk triggering inflation, but claim the low inflation of the past decade leaves plenty of room to increase the budget deficit. Advocates of MMT suggest using taxes to pull money out of the economy before it overheats.

Voters punish politicians for tax hikes. Do you really trust them to raise taxes to pull money out of the economy? The theory says government should stop trying to balance the budget because policies aimed at doing it hurt the economy, which forces cuts to social programs. They believe a budget surplus should be avoided at all costs.

This perspective is contrary to the conventional economic thinking that when government spends more than it collects, it either has to borrow or raise taxes. Critics such as Warren Buffet say “We don’t need to get into danger zones and we don’t know precisely where they are.” Other detractors jokingly refer to MMT as magical monetary thinking. They believe you cannot borrow endlessly without risking real economic harm, especially if the return on government investments is below the interest rate on borrowing.

And such policies may undermine the United States’ standing as the world’s reserve currency. When countries reject the dollar as a world currency and foreign buyers such as China do not want to buy U.S. debt, increased government borrowing could eventually cause interest rates to rise as investors demand a better return on treasury bonds. MMT advocates respond that U.S. borrowing costs and inflation have remained low despite our being waist deep in deficits and debt.

Yes, the federal government could print more dollars to pay off the debt if it ever came to that, but is the dollar in danger of no longer being the world’s primary reserve currency and enjoying the lower interest rates and ability to fund budget deficits in perpetuity that goes along with it? Will rising debt and deficits cause foreign investors such as foreign central banks, sovereign wealth funds, and institutional investors to turn away from the dollar because they see increased risks from holding dollars as the government ratchets up borrowing to unprecedented levels?

The real world is much more complicated than ideological simplifications and abstractions. True to form, progressive politicians reveal good intentions, outsize ambitions, and a deficit of humility. Good intentions and grand ideas are frequently blind to the bothersome trivia of execution and to unintended consequences.

Whether you agree with MMT or not, it represents an important heterodox challenge to mainstream economic orthodoxy. Hedge fund king Ray Dalio has said the United States will adopt this economic philosophy to finance big government spending for more widespread growth.

After all, economic growth is the religion of the modern world.

Metro Transport Corporations: A New Model for Managing the Surface Transportation Revolution

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Abstract: The benefits of a coming revolution that will be marked by the rise of shared, electric autonomous vehicles (AVs) and the transition from vehicle ownership to a transportation-as-a-service model can only be captured if the transformation is properly managed. To maximize these potential benefits, we propose replacing traditional departments of transportation with quasi-public or quasi-private Metro Transport Corporations that would oversee all surface transportation in a metropolitan area.

Maximizing economic, environmental and quality-of-life benefits will require putting customers first, traditionally not an area in which government agencies excel. It will necessitate culture changes that may well be beyond the grasp of political leaders, bureaucrats and unions that too often view transportation agencies first and foremost as a source of jobs.

Under our proposal, municipalities would deed their transportation assets to the Metro Transport Corporations in exchange for ownership shares. The public sector would continue to hold the largest share, but would be joined by two other classes of owners: companies such logistics and retail companies, as well as banks, whose success is heavily dependent on rising levels of economic activity in the region, and investors simply seeking dividend income.

Economic inequality a crisis for capitalism

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Increasing economic inequality and decreasing mobility have entered mainstream consciousness and been identified as among the most pressing challenges of capitalist societies like the United States in the 21st century. Today, capitalism has a distinctly pejorative interpretation here in its free-market Mecca.

Increasingly, Americans are questioning the ideology of capitalism itself. This crisis manifests itself prominently among the nuevo millennial socialists for whom capitalism is all about profit. For them, profit is a bad word. They ignore the reality that in any economic system people hope to gain more value from things than they put into them, and that this is true in whatever you do in life.

According to a new Harris Poll, more millennials would prefer to live in a socialist country (44 percent) than a capitalist one (42 percent). The percentage of millennials who would prefer socialism to capitalism is a full 10 points higher than that of the general population. What’s more, this crowd rejects capitalism as an economic system because it benefits the wealthy and powerful; poses large social costs; and contributes to the obscene prosperity of a tiny, privileged minority.

Alternatively, proponents of capitalism argue that it is the only system humans have developed that maintains both improvement in living standards and individual freedom. Despite criticism that it is morally bankrupt, capitalism has spread prosperity across the planet. Free markets have generated enormous wealth in recent decades, as documented by the World Bank delivering millions of people out of poverty and raising living standards throughout the world. In 1990, about 40 percent of the global population lived on less than $1.90 a day, according to the World Bank; today it is less than 10 percent.

But the story is different for the average American. Since the 1970s, their wages have stagnated. Since the 1990s, cheap imports made available by NAFTA and Chinese accession to the World Trade Organization benefited consumers, but depressed wages and robbed blue-collar Americans of the secure manufacturing jobs and the health and retirement benefits that went with them.

Technological advances certainly played a major role in worker displacement, but trade policy also contributed to the U.S. losing seven million of its 19.2 million manufacturing jobs from 1980 to 2015. Yes, consumers have enjoyed lower costs for imported products, but displaced workers in the United States have paid the price and contributed to what has been labeled the crisis of capitalism: the growing gap between haves and the have-nots.

How then to define capitalism? In theory it is another ism that describes an economic way of life, a system that emphasizes private ownership of personal property and business assets, property rights that protect ownership, the sanctity of private contracts, using prices to allocate resources efficiently, a reliance on competition and incentives, voluntary exchanges between consenting adults, profit maximization, an effective legal system and limited state intervention.

In practice, capitalism is not monolithic; it takes many forms. For instance, in the United States, government plays a more limited role in economic decisions than under China’s form of market driven state capitalism. There, the government has a substantial role in shaping the rules of the market and is a significant player in the economy. In the Russian style of state capitalism, the Kremlin relies on both direct government intervention in key economic sectors and control of politically connected businessmen to promote the interests of the Russian state and those who run it.

Like any economic system, capitalism is a human institution and, as such, is imperfect. It should be judged on the basis of whether it is the best system available, not the best imaginable. And it is capable of reform. As the saying goes “nothing is forever, not now, not ever, never.”

Finally it is worth remembering, to paraphrase John Kenneth Galbraith’s comment, “under capitalism man exploits man while under socialism the reverse obtains.”

 Originally Published: May 11, 2019.

Not everyone considers socialism a Cracker Jack idea

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Capitalism seemed untouchable several decades ago, but not today. Many politicians aspiring to high office, such as Senator Bernie Sanders, a self-declared democratic socialist, are making the case for the inevitable and Darwinian triumph of socialism.

It is unclear what socialism means to them. It is a word that means many things to many people and has taken many forms. The modern version is different from the textbook variety of public ownership of the means of production, distribution, and exchange, leaving to individuals only the free discretion over consumer goods and creating a paradise on earth. Publicly owned property is preferable to private enterprise, with everyone acting virtuously and focusing on the greater good.

Is it the ideal commonwealth in Plato’s Republic, with a ruling class that has no property of its own and shares all things in common? Or a more robust version of New Deal Liberalism, or perhaps Northern European social democracy? What about the path taken in Venezuela, North Korea, and Cuba?

Or is it a planned economy with benevolent bureaucrats taking the place of free-market capitalism and playing the omniscient busybody in economic affairs to create more opportunity for the underprivileged; open the horizons of education to all, eliminate discriminatory practices based on sex, religion, race, or social class; regulate and reorganize the economy for the benefit of the whole community; protect the environment; provide adequate Social Security and universal health care for the sick, unemployed and aged in a utopian ideal of total equality of opportunity and outcome?

The term has become a blank canvas as presidential candidates embracing some of these ideas become more outspoken about socialism as the solution to problems of social and economic equality, and embracing a political wish list that includes Medicare for All, a Green New Deal and free public college. All grand ideas if they work.

These proposals have great appeal to millennials, the term generally used to refer to people born after 1980 and before 2000. Millennials outnumber baby boomers as the largest generational cohort in American society.

Recent surveys of Americans 18 to 34 find that 45 percent have a positive view of socialism. It gets even higher marks from Hispanics, Asian- and African-Americans. This attraction may have less to do with their understanding of socialism and more to do with their discontent with the current economic system. In contrast, only 26 percent of baby boomers would prefer to live in a socialist country.

Why the generational disparity? Is it because many of these folks reached adulthood in a dismal job market with crippling student loans caused by the brutal 2007-2009 recession that left them with less disposable income than their predecessors? They end up hating their own culture, even as millions around the world dream of coming to the land of milk and honey. Many agree with Governor Cuomo’s comment that “America was never that great.”

But these proposals also create agita for many politicians. That is why House Speaker Nancy Pelosi, in a recent interview with CBS’s “60 Minutes,” said socialism is “not the view” of the Democratic Party,” and that lawmakers on her side of the aisle “know that we have to hold the center.” The Republicans are trying to paint Democrats with the socialism brush, using accusations of rampant amnesia about the failures of socialism as a 2020 campaign weapon.

Former President Ronald Reagan once mocked Fidel Castro’s brand of socialism with a clever joke. He said Castro was immersed in one of his long speeches when a person in the crowd was heard shouting, “Peanuts, popcorn, Cracker Jacks.” Castro continued on with his speech when a second voice was heard shouting the same thing. This time Castro became angry and screamed, “We will kick the tush of the next person I hear say that all the way to Miami Beach.” At which point the whole crowd yelled, “Peanuts, popcorn, Cracker Jacks.”

 Originally Published: April 27, 2019

Congestion pricing is part of the solution to gridlock

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The problem of traffic congestion is reminiscent of Mark Twain’s comment about the weather, “Everybody talks about it, but nobody does anything about it.” It is no easy matter to deal with the congestion problem in major urban centers.

New York is getting ready to address the issue with a congestion pricing plan. After many years, it may be an idea whose time has finally come, but there is even more governments can do to combat traffic bottlenecks.

Congestion pricing advocates point to an array of health, safety, and environmental benefits, including air pollution, pedestrian injuries, and unclogging city streets. They cite the success of congestion pricing plans in places like London, Stockholm and Singapore.

These cities use different methods to toll drivers in their respective congestion zones. London uses a video surveillance system to record car license plates. Singapore uses larger gantries with sensors to read license plates, or directly charges E-ZPass-like units in cars. Stockholm has installed gantries and cameras at all entry points to the tolled zone.

Some New Yorkers claim congestion pricing is an unfair tax that disproportionately hurts poor people who do not have access to public transit. While affluent motorists can pay for a quicker ride, the working class will struggle to pay the toll. Suburban commuters, of course, see the plan as benefiting the city at their expense.

After years of hesitation, New York is on the verge of becoming the first U.S. city to charge motorists for driving into a central business district. The program is expected to be implemented in 2021, once the necessary infrastructure is in place.

The congestion pricing plan will help pay for badly needed repairs to the city’s transit system and reduce gridlock. The goal is to generate $1 billion annually to secure the issuance of $15 billion in municipal bonds.

Drivers could pay $12 for cars and $25 for trucks to enter the heart of Manhattan. Prices may vary based on time of day and traffic volume, and potentially offer exemptions and credits to certain travelers, such as discounts for buses, taxis and motorcycles. For example, residents in the congestion zone who earn less than $60,000 annually will be eligible for credits.

Not surprisingly, politicians avoided making many of these difficult decisions. Instead, they will be made by a six-member Traffic Mobility Review Board.

The idea of road pricing was developed by Professor William S. Vickrey, the 1996 Noble Prize winner in economics who passed away four days after winning the prize. He argued that the consequences of not charging motorists for their rush-hour usage could be “disastrously expensive”.

Society pays a high price for congestion. When traffic flow nears maximum road capacity, each additional motorist imposes a delay on others (as density increases, speed drops and travel time lengthens). The delays increase geometrically. Vickrey argued that only peak-load pricing could solve the congestion problem in urban transportation.

Major U.S. cities including Los Angeles, San Francisco, Seattle and Boston are exploring various forms of congestion pricing to unclog city streets and raise money for transportation. And the time may be right to consider tying price to performance. Money-back travel time guarantees could be offered to help customers accept higher prices for transportation services.

For instance, a turnpike a charge of 10 cents per mile during a particular time of day would be linked to a minimum average speed. If the average falls below the minimum, customers are charged progressively less. Advances in technology make it possible to put customers first and introduce a new level of accountability for public transportation providers by offering these guarantees.

This would promote customer trust and acceptance of pricing changes and provide a turnpike operator with an incentive to insure that the road is providing superior service. Former House Speaker Tip O’Neil famously said, “All politics is local”. The same can be said for trust in government transportation agencies.

Originally Published: April 12, 2019

 

Stock market boom doesn’t float everyone’s boat

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Forgetting history is an American pastime. The current bull market that ranks among the great rallies in stock market history began 10 years ago this month, just about the time when Lady Gaga’s “Poker Face” was the number one song in America.

The stock market party has been going on for a decade, but many Americans have not been invited. The Standard & Poor’s 500 index has soared over 300 percent since March 2009, but the gains are heavily concentrated among the richest families.

The richest families are far more likely to own stocks than are middle- or working-class families. Eighty-nine percent of families with incomes over $100,000 have at least some money in the market, compared with just 21 percent of households earning $30,000 or less, according to a Gallup survey.

Overall, 62 percent of families owned stocks before 2008. That number has fallen to 54 percent, the Gallup poll found. The psychological and financial damage inflicted by the 2008 financial crisis and the subsequent Great Recession continue to weigh heavily on the average American, just as memories of the Great Depression influenced financial habits for decades.

In March 2008, the Financial Meltdown, Financial Apocalypse, Financial Collapse – call it what you will – began, with the feds arranging a shotgun marriage between Bear Stearns and JPMorgan Chase. In March 2008, Bear Stearns, the smallest of the five major Wall Street investment banks, was unable to fund its operations and was bleeding cash, having lost the confidence of the market. The feds were faced with a choice between letting the company fail or taking extraordinary steps to rescue it. They choose the latter.

Bear Stearns was sold to the JPMorgan Chase, with the Federal Reserve providing $29 billion as an inducement to the acquiring bank. Bear Stearns may have ceased to exist as an independent firm, but it continued to haunt the financial world like Marley’s Ghost for months thereafter. Its collapse signaled the real start of the financial crisis. Bear’s demise started a banking liquidity crisis in which financial institutions became unwilling to lend to each other, and credit markets seized up.

A growing number of formerly solid financial institutions were turned into basket cases. After their years of kindergarten management games, shooting up on short-term borrowings, ample use of leverage fueled by low interest rates, and binging on risky trades blew up in their faces. Freezing their lending to businesses and individuals alike caused vast portion of the nation’s business activity to grind to a halt, leading to the Great Recession.

The Financial Meltdown of 2008 was one of the most critical events in American history, a biblical-style plague tanked the stock market by nearly 60 percent in the fall of 2008, killing off other financial and credit markets in the process. Banks and firms either vanished into bankruptcy or had to be rescued by taxpayers. The financial system nearly collapsed, triggering an economic crisis.

The deepest recession in decades wiped out some $11 trillion of wealth and vaporized more than eight million American jobs by September 2009. It froze up the nation’s vast financial credit system, leaving many firms without enough cash to operate. It forced the Federal government to spend $2.8 trillion and commit another $8.2 trillion in taxpayer funds to bail out crippled corporations like General Motors, Chrysler, Citigroup, AIG and a host of other too-big-to-fail private institutions.

In addition to their jobs, it cost millions of Americans their homes, life savings, and hopes for a decent retirement. These Americans were in no position to invest in stocks and benefit from the subsequent run-up in the stock market. By contrast, the wealthy have gotten even richer.

This was a cataclysm far worse than any natural disaster the nation has experienced, and its ripples continue to be felt today.

Originally Published: March 29, 2019.

All strategy is relative

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The word strategy has undergone much inflation in recent years. There is no strategy deficit; today, everyone is a strategist. The word is employed promiscuously as a value-enhancing qualifier: a strategy for tax preparation, for breastfeeding, for losing weight. The word has been drained of meaning.

In the business world, books about strategy are legion. For instance, airport bookshops, as any regular traveler knows, are replete with books on successful business strategies that make extravagant promises. The road to strategy is paved with platitudes in these popular books: Think outside the Box, Break Down Siloes, Move the Needle, Paradigm Shift, Low Hanging Fruit, and Aim High, so if you miss you won’t shoot your foot off.

When reading books on business strategy that offer prescriptions for managers, often one comes away with the uneasy sense that each author has defined the term in self-serving ways to support whatever management shtick he or she happens to be promoting, creating a strategic straightjacket, if not a cottage industry, with thoughts that don’t extend much beyond the drabbest clichés.

In this context, strategy may seem like nothing more than an impressive label pasted on an author’s pet idea to boost sales of his or her book. As the late Peter Drucker, a widely noted management consultant, educator, and prolific author once commented, “I have been saying for many years that we are using the word ‘guru’ because ‘charlatan’ is too long to fit in a headline.”

Put simply, strategy is aligning means with ends, and the trick is getting the proportions right. The alignment, like beauty, is in the eyes of the beholder. The question that haunts every strategy is “how”. How do you get from means to ends? It is always the how before the who and why. Strategy happens in the space between means and ends. It is the relationship that unfolds at the intersection of the two.

Consider an example from the wide world of sports: regardless of the quality of its players, no National Football League team can hope to reach the Super Bowl without an effective strategy to guide its performance. The ability to develop and implement a strategy is the secret to success for such coaching icons such as Bill Walsh, Tom Landry, Vince Lombardi and of course, Bill Belichick.

They all understood the importance of beginning each season with a strategy that incorporates everything knowable at the time about the performance potential of their own players and how best to exploit these resources, plus the potential of opposing players and how best to defuse it. Not to be overlooked is that the competition gets a vote. And all this knowledge is written down (along with accompanying tables and diagrams) in thick playbooks.

But they also understood that no pre-season strategy is ever carved in stone. It must be continually revised in response to the inevitability of events that can never be anticipated—like injuries to key players and to those on opposing teams, the unexpected emergence of star rookies and the mystical ability of battered old pros to somehow pull it together one more time as the season unfolds.

To quote the justly criticized former Secretary of Defense Donald Rumsfeld: “stuff happens”. No meaningful National Football League strategy ever has a half-life of more than a week or so. Top coaches know this. They even welcome it because of the fresh opportunities it can bring.

The dirty little secret they understand is that you don’t have to get your strategy perfectly right, as long as it’s not so far wrong you cannot put it right quickly. If the competition has a poor strategy, your strategy only has to be less poor. Strategy is a relative venture.

Finally, it is always useful to remember Damon Runyon’s advice: “Maybe the race isn’t always to the swift. Or the battle to the strong. But that’s still the way to bet.”

Originally Published: March 16, 2019

 

Shifts in automobile technology and ownership will have consequences for public transit.

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TechBy Joseph M. Giglio and Charles Chieppo

The rise of shared electric self-driving cars and the transition from a world of ownership to one of consumers purchasing transportation as a service holds the promise of significant economic, environmental, and quality-of-life benefits. But it will also pose an existential threat to public transportation in general and commuter rail in particular.

The first recommendation in the December report from Governor Baker’s Commission on the Future of Transportation is “Prioritize investment in public transit as the foundation for a robust, reliable, clean, and efficient transportation system.” In broad terms, the commission is right. But maximizing potential benefits from the unprecedented disruption of surface transportation that lies ahead will also require fundamental change at the MBTA and a hard look at which transit modes are positioned to compete in a brave new world.

The commission’s charge was to look at the Commonwealth’s needs and challenges over the next 20 years. But if that horizon is extended to 40 years, station-to-station service to the suburbs is unlikely to be very attractive in a world where shared electric self-driving cars will offer much faster door-to-door service at a price that won’t be much higher.

Drivers are normally the largest expense for any transportation business. It currently costs about 55 cents a mile to operate a vehicle with a single occupant. But it’s estimated that the cost could fall to 15 cents a mile for autonomous vehicles carrying two or three passengers, which would significantly reduce public transit’s price advantage.

Connected vehicles will also dramatically reduce human error, resulting in big increases in throughput thanks to variables like higher travel speeds, less space between vehicles, and less frequent braking in response to accidents and other travel events.

In the future, agencies like the MBTA will probably subsidize trips that are currently taken on commuter rail rather than operate them. Even with the transportation transformation in its infancy, Florida’s Pinellas Suncoast Transit Authority, which serves the St. Petersburg/Clearwater area, eliminated some bus routes further from the urban core, after it experienced an 11 percent overall drop in ridership, and replaced them with subsidies for Uber and Lyft rides. Since then, over 25 US communities have established similar partnerships — and the disruption caused by ride-hailing services is minuscule compared with what is to come.

MBTA commuter rail ridership has declined. Nonetheless, it will remain with us for the next couple of decades. It still needs to be improved, but massive investments in new lines like South Coast Rail or, even worse, Springfield, would be a fool’s errand.

The biggest challenge for the future will be making transit work in congested downtown areas. One Boston traffic simulation model showed that while shared autonomous vehicles would reduce travel times and the number of vehicles on the road even as total miles traveled rose by 16 percent overall, downtown travel times would be 5.5 percent longer because the vehicles would substitute for transit use.

Rising to this challenge will require focusing more investment in the urban core. But success will require something more: changing the MBTA’s top priority from providing jobs and pensions to serving its riders.

During a three-year exemption from the Commonwealth’s costly anti-privatization law, the T dramatically improved performance in areas such as cash collection and reconciliation and warehousing and logistics, and saved millions. Despite this success, there was nary a peep about extending the exemption or making it permanent.

Few would argue that the MBTA is skilled at putting customers first. The question is whether — in the face of an existential threat to public transit and with far less margin for error — political leaders, bureaucrats, and unions can change the authority’s culture and begin to lay the groundwork that will allow the T to perform the way we’ll desperately need it to in the future.

Part of that culture change will be recognizing that commuter rail is poorly positioned to compete over the long-term. When the Patriots win the 2060 Super Bowl, stories about a suburban rail network overwhelmed with riders are likely to generate the same reaction as when we tell our kids about having to get up and walk to the television to change the channel.

Originally Published: February 15, 2019.

Joseph M. Giglio is a professor of strategic management at Northeastern University’s College of Business Administration. Charles Chieppo is the principal of Chieppo Strategies.