Minor Thoughts from me to you

Wealth is created every day. Wealth is created when someone creates something new and fulfills a need that other people didn't even realize was unfulfilled. Wealth is created when someone figures out how to produce an existing product faster or cheaper than it can currently be produced. Individuals innovate for several main reasons: to fulfill a need of their own, to save money, or to fulfill a need revealed by others.

Fulfilling these needs can often make an innovator very rich. Liberals come along and tax it all away for the greater good of society -- but that's another blog post.

Robert Jordan is a recent Wisconsin success story.

Robert Jordan's 20-year career as a long-distance trucker involved a lot more than hauling cheese.

After buying his own truck in 1993, he used the cab as a mobile laboratory to experiment with energy-saving ideas that would cut expenses and put more money in his pocket.

Now those experiments are paying off. Jordan, 51, of Juneau, has patented a battery system to run a truck's electronic equipment so idling isn't necessary. He's started a business called Idle Free Systems and negotiated agreements with Mack Trucks and Chiquita Brands to use his system.

With three employees, Jordan moved this month into manufacturing space in Watertown. He said he hopes to sell about 200 units this year at $6,000 each, which would mean first-year revenue of $1.2 million.

You may think that shoe innovation has gone about as far as it can go. You may think that shoes are the most stable, dependable market available. You'd be wrong. Mark Klein discovered a completely untapped shoe market.

In late July, Mr. Klein's company, Skins Footwear, intends to break the shoe in two, giving it an outer part, including the sole and upper, which he calls a "skin," and a removable inner part, which he calls the "bone."

"The bone is the constant fit and feel," he says. "Then there's this blank canvas for you to express yourself with the skins.""

The idea is that a shopper will buy a bone, for about $60, and several skins, which will range from $125 to $300. People will shift from one skin to the next, depending on what they're doing, much the way they can with other kinds of apparel.

Mr. Klein, who is 33, says he thinks that his patented skin-and-bones concept will eliminate the problem people have with shoes that look good but don't fit correctly, since the bone should guarantee the same fit for any skin in that size. He also says frequent travelers will appreciate the chance to pack only the foldable, lightweight skins, instead of full pairs of shoes.

Sounds good to me. The suggested price points are a little high right now, but if they come down a bit I'd certainly be willing to buy a bone and some skins.

Speaking of shoes, check out Masai Barefoot Technology created by Swiss engineer Karl Müller.

In the early 1990s, Swiss engineer Karl Müller realized that both shoes and backache are unknown to the Masai tribesmen - and that there is a causal connection between these two facts. By walking barefoot on the natural, soft, uneven ground of their East African homeland, the Masai activate also those muscles that atrophy when on walks on hard, even surfaces wearing conventional shoes.

During a visit to Korea he made the startling discovery that walking barefoot over paddy fields alleviated his back pain. Back in Switzerland, Müller began to develop a footwear technology that would make the natural instability of soft ground such as Korean paddy fields or the East African savannah accessible also to those, who have to walk on hard surfaces. In 1996, after years spent on research and development, Masai Barefoot Technology was mature enough to be launched on the market. MBTs are now available in over twenty countries, and approximately one million pairs of this revolutionary footwear technology are sold every year.

Speaking of Africa, the next story caught my eye because it mentioned the ideological division between those that want to help Africa through trade and those that want to help Africa through aid. (I wrote about African aid and trade just a few days ago.) As I read through the story, however, I discovered a great story of risk and innovation.

In 1997, Mr. Conteh recalled in an interview, he heard Laurent D. Kabila, then the country's president, deliver a speech in which he called upon his countrymen to rebuild Congo's infrastructure after the 30-year dictatorship of Mobutu Sese Seko. Mr. Conteh, who had no experience in telecommunications, said he was inspired. He decided to build the nation's first GSM (Global System for Mobile communications) digital network.

Mr. Conteh said he went, cap in hand, to the minister of communications to ask for the country's first GSM license. In January 1998 he got it "” but he first had to pay the government a license fee of $100,000. Over the years, and with little explanation, he said, the government, which is often terribly short of money, increased the license fee, first to $400,000, then $2 million.

Throughout the early days of his company, Mr. Conteh faced challenges unknown to Western businesses. Once, after equipment providers declined to send engineers to Congo during a dangerous time in the country's unending civil strife, he encouraged the citizens of Kinshasa, the capital, to collect scrap metal and weld them into a cellphone tower.

By the middle of 2006, Vodacom Congo had more than 1.5 million subscribers, according to Vodacom's annual report. Today, Mr. Conteh says, the company he founded has more than three million subscribers who have spent, on average, around $50 for a handset and who prepay about $2 for every five minutes of talk time. He says a recent offer for his shares valued Vodacom Congo at more than $1.5 billion. (He refused to name the interested party.)

Mr. Conteh is building a telecommunications network where none existed before. With 600 employees and 5,000 contractors, Vodacom Congo is one of his country's biggest employers. If he realizes his ambition to create a stock market and offer shares in his company, he will have created new wealth.

Wow. That's impressive. All four of these stories are impressive. All four of these stories are also great examples of how wealth is really created. Be wary of those who would promise wealth through redistribution. True wealth comes from innovation, not redistribution. Rather than focusing on shifting around existing wealth, we should be focusing on creating new wealth. These four men vividly demonstrated how it works.

Quick -- how do you increase the wealth of a nation and improving living standards for everyone? I'll tell you how. First, create a stable system of laws that apply to everyone and make sure that everyone knows what they are. This creates a level playing field where neither income nor social status prevent justice from being served.

Second, allow individuals to produce goods and compete for buyers in a free and open market. Producers will compete for buyers through price, quality, and quantity. Producers will diligently strive to gain in edge in one -- or all -- of these categories, in an effort to draw more buyers and earn more profit. As each producer gains a temporary edge, other producers will rush to imitate the innovation. What starts as an innovation by one producer will quickly become the norm for an entire industry.

This cycle will repeat over and over and over again in each sector of the market. Electronics (iPod vs Zune), automobiles (American vs Japanese), furniture (getting nicer all the time), homes (getting bigger all the time), lighting (incandescent bulbs vs compact fluorescents), and more. What once was inconceivable quickly becomes the new base line standard.

At least, that's the way things normally work. Every so often, a spanner gets thrown into the works. The story of Creekstone Farms Premium Beef provides a nice illustration.

The U.S. Agriculture Department tests beef for mad cow disease. However, the USDA has a limited budget and Americans eat a lot of cows every year. As a result, less than 1% of all slaughtered beef is actually tested for mad cow disease. Creekstone Farms sells a premium grade of beef. They'd like to offer buyers another incentive to choose their beef over their competitors. They decided to gain a competitive edge by testing all of their beef for mad cow disease and certifying every cut mad-cow-free.

This would have given Creekstone Farms a decided advantage in the market for premium beef. Their competitors were worried about losing buyers to Creekstone. Rather than compete with their own innovations, they lobbied the USDA to crack down on Creekstone's innovation. The USDA ruled that no beef producer could perform more testing than the U.S. government performed.

Creekstone is fighting the ruling in court, for their right to innovate and compete in a free market.

For the moment, the forward progress of wealth and living standards has been stopped by the U.S. government. Companies that would rather lobby than innovate control the regulatory system. Do you still believe that government regulation makes the world a better place? I don't.

(Hat tip to Coyote Blog.)

Geisinger Health System is trying an innovative approach to lowering healthcare costs: offering a warranty for certain surgeries.

Under the typical system, missing an antibiotic or giving poor instructions when a patient is released from the hospital results in a perverse reward: the chance to bill the patient again if more treatment is necessary. As a result, doctors and hospitals have little incentive to ensure they consistently provide the treatments that medical research has shown to produce the best results.

Taking a cue from the makers of television sets, washing machines and consumer products, Geisinger essentially guarantees its workmanship, charging a flat fee that includes 90 days of follow-up treatment.

Even if a patient suffers complications or has to come back to the hospital, Geisinger promises not to send the insurer another bill.

Since Geisinger began its experiment in February 2006, focusing on elective heart bypass surgery, it says patients have been less likely to return to intensive care, have spent fewer days in the hospital and are more likely to return directly to their own homes instead of a nursing home.

Unfortunately, the healthcare system isn't usually an innovator:

But hospitals have been slow to focus their attention on standardizing the way they deliver care, said Dr. Arnold Milstein, the medical director for the Pacific Business Group on Health, a California organization of large companies that provide medical benefits to their workers. Geisinger "is one of the few systems in the country that is just beginning to understand the lessons of global manufacturing," Dr. Milstein said.

Geisinger is improving care by identifying the best practices possible in cardiac surgery and then making sure that those practices are followed in every surgery. It's a simple idea, but one that doctors have been resistent to implement in the past.

Controlling costs are a large reason for the experiment:

Heart surgery and follow-up care, which runs about $30,000, are among the biggest-ticket medical offerings that Geisinger provides. But Geisinger executives say outside insurers and employers have indicated that Geisinger would need to include from 5 to 10 other procedures under its plan before they would have enough of their employees affected to make it worth their while to sign up.

Under the experiment, the hospital charges a flat fee for the surgery, plus half the amount it has calculated as the historical cost of related care for the next 90 days. So instead of billing for any additional hospital stays "” which typically run $12,000 to $15,000 "” Geisinger absorbs that extra cost.

This is the kind of healthcare reform that I get excited about. George Halvorson's idea is quite lame compared to this.

Innovations like this are why I think I'll live to a ripe old age.

A paralyzed man with a small sensor implanted in his brain was able to control a computer, a television set and a robot using only his thoughts, scientists reported yesterday.

Those results offer hope that in the future, people with spinal cord injuries, Lou Gehrig's disease or other conditions that impair movement may be able to communicate or better control their world.

"If your brain can do it, we can tap into it," said John P. Donoghue, a professor of neuroscience at Brown University who has led development of the system and was the senior author of a report on it being published in today's issue of the journal Nature.

[tags]innovation[/tags]