11 thoughts on “The centrality of coffee

  1. Just read your 16.09.03 article on McDonalds. Very interesting, although limited, as economic theories tend to be, by the absence of culture (as you honestly admit).

    Two comments:

    1. You mention the lack of American-made products around you, with only your PC being badged as made in America (although probably from parts constructed and assembled in Asia). But what about the software on your PC? Made in Seattle? Likewise, my Japanese-badged car was designed in a design studio in the US (where companies such as Mazda moved their studios), and marketed via a global campaign developed by a British ad agency.

    It is very easy to focus on what we can see and touch, and ignore the intangibles (software, design, marketing, legal advice) which appear currently to be areas where the US and UK have comparative advantages. (That may not last, as more such services are sent offshore to India.) I would guess the total value of intangibles in most products comprise the greater part by value than the stuff we can touch.

    2. McDonalds in the US didn’t grow in a vacuum. When McD’s started spreading beyond its original store, its only competitors were local cafes and restaurants with “lots of color”. In other words, customers would be faced with dirty restaurants and restrooms, absence of menus, strange local dishes, the possibilities of over-charging and short-changing if they were not locals, and who-knew-what ingredients in regional dishes (ever been to Louisiana?).

    McDonalds provided the traveler of the 1950s with consistency, cleanliness and value-for-money. It beat its local competitors hands down, just as the new Interstate Highway System was allowing Americans to see their own country. It is no wonder at all that they grew so quickly, and they deserve praise for recognizing and exploiting the opportunity.

  2. Some good points there Peter.

    I’d agree McDonalds was one of the first companies ever to deliver consistently clean, affordable and reliable fast food – a product/service which the world has always been hanging out for. Sometimes local joints can be brilliant, sometimes awful.

    And in an age where more and more family/relationship groupings find themselves more mobile than ever before (for lifestyle or economic reasons), a MacDonald’s is both a trusted food source and an orientation centre for whatever community they’ve driven into. It’s the best food deal peasants have ever had. (And yes, I’ll do Maccas occasionally. We all like some rough trade, ‘specially when pissed at 4am.)

    “ignore the intangibles (software, design, marketing, legal advice)�

    Another good point Pete. It’s been estimated that around 50% of US export dollars now come from IP – software, film, TV and music, computer games, porn, hi-tech patents – and service industry skills like law, financial services, engineering, design, and military, security and incarceration expertise etc. (Basically, anything that involves appetites, management systems or people control)

    Which is great for the US in one way, ‘cos they’re areas that consume less and less resources while adding more and more value per payment unit.

    But they are also such pirateable, fungible and headhunterable sectors as well. The US may breed and reward the people who have these ideas better than anywhere else – but can it keep the next generation of fun, wild and evil little minds from roaming as it gets all insular, cranky and neurotic while China becomes the world’s factory, India the world’s data processing centre, Eastern Europe the world’s online brothel and SE Asia the world’s middlemen/fixers?

    For example, Melbourne’s now the world’s third biggest city for formally enrolled foreign students, after London and New York. Mainly ‘cos the new generation of smart hungry Indian students (been to 7-11 lately?) have given up trying to weave their way through Homeland Security’s longwinded and incompetent procedures and are now coming here instead.

    And ‘specially now the Aus and Indian academic years coincide, the MCG’s getting a major makeover and M. Night Shyamalan’s last film in the US was crap.

    (At this point, my point tails off into a drunken stupor. But fortunately I live in Australia so I can still get away with such “relaxed” behaviour…so far.)

  3. (1) Seattle produces hardly any software, although it is the base for a large software marketing organisation that acquires software made elsewhere.

    (2) Coffee production is a good proxy for being a developing country. That is, at present those countries that can produce it for climatic reasons don’t do so if they are wealthy enough. But Australia is gladly creeping up in the coffee production stakes… (see Crystal Creek, the Tweed River, et al). I suppose it helps that all cold climate countries have by now moved beyond the lower levels of being “developing”.

    This is the sort of stuff you find out when you go exploring on your own rather than sticking to what you should during an MBA.

  4. PML,

    1) I don’t get your point. If (let’s name names) Redmond, WA-based Microsoft derives the profit from the production and distribution of software, who gives a toss where it’s produced? The point is that the profit accruing to the company’s intellectual capital goes to its (largely) US-based shareholders.

    2) Reliance on commodity exports is, in the main, a good proxy for being a “developing” country. One anomaly in 2004 is Australia, as it was in 1904.

  5. Dear P. M. —

    I’m surprised you say that Seattle produces hardly any software. My understanding is that the past, current and forthcoming versions of the Windows Operating System were and are still produced in-house and in-town by Microsoft employees. In so far as some few parts or components are not generated in-town, they are still generated in-house (ie, by Microsoft employees). Microsoft is not about to risk losing control of its core business by outsourcing its creation.

    Indeed, for all the talk we hear about computer-supported work and global production lines, the generation of a large and complex software system still benefits greatly from the people working on it being in close physical proximity. It is possible to produce something complex and of high quality without this (eg, see Linux OS), but not if you want to guarantee quality standards and deadlines ahead of time. One could argue that the quality of Linux is a luckly fluke, or due to personalities, rather than something that arises from the nature of its production system.

  6. For Fyodor, I was picking up and running with the previous poster’s emphasis on where things were actually produced (this does matter when there are network externalities, but that doesn’t apply here). The coffee thing was my applying the general principle of commodity export emphasis to this post, which happened to be about coffee.

    Peter McB, you have a different definition to mine about what “generating software” is. It is Microsoft’s practice to buy up outside software and modify it, precisely in order to bring it all under that control – insourcing if you will. But in my book that’s not actually adding any functionality, and it is no more “generating” it than the act of compiling it and loading it onto CDs or whatever. At its simplest, those new versions require no more than having genearlly available libraries stripped out and proprietary ones used instead. The process is apparent in things like browsers, but occurs all over Microsoft’s products.

    The last independent Microsoft product was a Basic interpreter, before they bought QDOS to get into the operating system game. Even that involved no creativity, just a rework of existing concepts – but unlike everything since, there is no obvious ancestor in source form. That’s why BG goes on about “innovation”, meaning the marketing exercise of getting these things to the market segments who aren’t early adopters. It’s not invention by any definition, or innovation by most people’s definitions.

  7. P.M. —

    You mis-read my post. I was referring to the (versions of the) Windows Operating System, easily the largest and most complex software Microsoft sells, all of which to my knowledge has been created in-house and in-town. It is true that Microsoft has purchased applications software from outside, such as Excel and Powerpoint. But I’m not referring to them: MS Windows is all their own, even if they purchased QDOS when they began. According to one estimate, Windows XP has 40 million source lines of code. It is by far the largest software they sell, and among the largest and most complex ever made.

    Your statement that hardly any software is produced in Seattle is simply incorrect.

  8. I avoid Seattle-derived software as much as possible, but Cupertino is also in the US 🙂

    My general argument is about services and I think works pretty well for software;large fixed costs combined with effectively unlimited scale economies.

  9. Peter McB, that’s a matter of definition. It is simply not true that the Microsoft work on Windows started from scratch. If nothing else, it piggybacked on MS-DOS, but it had other ancestors in source form that were outside Microsoft.

    I am not disputing that there are a lot of programmers at work in Redmond, just that theye are not generating software any more than the staff who load it onto the release media. What they are doing is, rendering it all proprietary and controllable. They are not and never have been putting any functionality in for the end user. What end users get from Microsoft – at a price in future opportunity cost – is a marketing and editorial service. I wish to clarify that this is distinct from “producing software”.

  10. P. M. —

    According to Wikipedia, QDOS was 4000 lines of code, not the 40 million lines of source code of Windows NT. That extra code had to come from somewhere, and Microsoft sure didn’t buy them from outside. In any case, QDOS itself was written in Seattle!

    I think you are right — We disagree on definitions — On the words “producing” and “software” (and also perhaps on “in”, although “Seattle” seems agreed). 🙂

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