In the January, 2012, issue of The Atlantic Monthly, there is a lengthy article on the future of American manufacturing entitled “Making it in America”.  In profiling an individual company called Standard Motor Products and a few employees performing manufacturing operations, particularly a 22-year-old single parent named Maddie Parlier, reporter Adam Davidson concludes that the company will continue to perform manufacturing operations in the United States, but it will do so only if it can continually compare the cost of employees versus automated technology, and extract the best economic value from the process.

Employees who do not have high levels of education and technical skill will be continually insecure and will be displaced if they are not continually keeping ahead of the marketplace.  The most painful point the reporter makes is that anyone who starts his or her work career with major family or other responsibilities will have difficulty keeping current with the skills needed.  Maddie Parlier is 22 years old, has completed high school, but has not gone beyond it, is a single mother, and has no spare time or money to take courses and upgrade her skills.  She will be vulnerable to a future replacement by technology.

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I love the New York Post headlines.  One of my favorites was in the Sunday, December 11, 2011, issue.  The headline was “E-Z CASH: Change he can believe in: Toll collector makes $100K.” On page 5, the story to which headline refers is entitled “High-Pay PA Crew Taking Their Toll.”  It describes what we have learned is an all-too-common rip-off of taxpayers, the use of what is called “pension spiking” to give people making a certain level of income the chance to get an even larger pension by awarding them a huge amount of overtime pay opportunity in their last year of employment, the only year that counts for pension calculations in many public-sector collective bargaining agreements.

In this case, the employer is the Port Authority of New York and New Jersey, an entity created by a contract between New York and New Jersey and jointly owned by the two states.  This entity is not accountable to elected officers or voters, except for the indirect influence that elected officials from the two states sitting on its board of directors have on the entity’s operations.  Oddly enough, entities like the Port Authority were created over several decades in the 20^th century because elected officials believed that they would operate in a more business-like fashion and not be subject to the corrupting influences of elected officials trying to “buy” votes by bestowing favors on constituents. However, the lack of public accountability means that the customers of the Port Authority, namely those who travel in the New York Metropolitan area, will bear the brunt of the abuses of the pension system.

In one sense, it should be easy to solve this problem: abolish this “pension spiking” scheme in the next collective bargaining session.  However, we get a hint of why these kinds of schemes are so hard to uproot. A toll collector named Princesella Smith is quoted as saying: “I’m blessed. I have a great job, and, in this economy, it’s great that I can cover everything with my eight hours a day and overs.”

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One of the biggest causes of higher health care costs is “supply-driven demand.”  As Niko Karvounis wrote in a 2008 blog in Healthbeat:

“High consumption of care is driven by the crowd of academic medical centers, specialists, and equipment needed to perform tests. The Bay State has one doctor for every 267 citizens — versus one doctor for every 425 people in the nation as a whole. Supply drives demand. “

Supply-driven demand happens for two reasons, often overlapping:

• Healthcare providers believe in a particular treatment or therapy, and try to maximize the number of people who access it.  This is often reduced to the saying that “If you have a hammer, every problem is a nail.”  Supply-driven demand occurs when people who should not be customers for a particular service become customers because the provider of that service force it beyond its natural market.
• Healthcare providers have excess capacity, and try to get that capacity in use.  This happens with expensive diagnostic imaging equipment, hospitals, and outpatient centers.  It is even arguable that physicians react to reduced usage of their services by patients who become healthier by increasing the frequency with which they see other patients.

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There are so many subjects about which to write a blog every week, but, this week, the retirement of Steve Jobs has spawned two separate blogs.  The first was a celebration of his many successes. This will be about his many failures.  The Wall Street Journal quoted an article written by Nick Schulz in The National Review on August 25, 2011.

Unlike Walt Mossberg, whom I quoted the other day, or the many other commentators who celebrated Jobs’ successes, Schulz focused on the fact that Jobs had many major failures along the way, including the Apple I computer, the Lisa computer and the NeXt computer.  He was asked to leave Apple in 1985 and did not return until 1997.  Steven Jobs failed repeatedly and publicly, and he paid in the short run.  However, today, the Apple employees and shareholders are more secure and richer than they ever could have imagined.  He invested repeatedly for the longer term.

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In the Thursday, July 21, 2011, issue of The Wall Street Journal, reporter David Wessel wrote an article entitled “What Derailed the Economic Recovery?” in which he attempts to describe the different theories for why the economic recovery has been both weak and short-lived.  He immediately dismisses the theory that external events, like the Japanese tsunami and nuclear disaster, have simply delayed the recovery. He gives more credence to two other theories: excessive uncertainty caused by government over-regulation and by a poorly designed stimulus package; and the fact that we are seeing a long-term pullback from a credit-driven economy.

These theories are certainly part of the explanation, but I would offer another explanation: that we are in the midst of a long-term redefinition of the skills and capabilities our economy needs, as well as the way we govern ourselves as a society, and that, as a result, there is a serious mismatch between the skills our economy needs and the skills and capabilities available within our country.

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We are at the stage at which a new health plan paradigm needs to be adopted by governments and insurance companies.

The Old Paradigm: Healthy people subsidize those who get sick or injured through no fault of their own.

Throughout the history of U.S. health insurance, the prevailing paradigm was that everyone paid for health insurance, with the healthy people paying higher premiums to subsidize those who became sick through no fault of their own.  State insurance regulators authorized the issuance of health insurance policies with three rating frameworks:

• Community rating: everyone paid the same premiums;
• Adjusted community rating: differences in premiums are allowed, based on population demographic factors like gender, age, and geographic differences in health care delivery costs; and
• Experience rating: those with pre-existing conditions either were denied coverage, paid more, or had coverage exclusions.

All these systems assumed that insured people had no control over their health.  Therefore, adjusting premiums based on individual behavioral risk factors, such as smokers’ penalties, allowed in life insurance policies, or premiums based on taking a drivers’ education course, part of automobile insurance ratings, were not allowed in health insurance policies.

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Upton Sinclair, the author of The Jungle, and a renowned journalist from the early 20^th century, once said that “it is difficult to get someone to understand something when the continuation of his livelihood depends on him not understanding it.” This is a profound, but simple, truth.

Whole industries and marketplaces, and often political and social paradigms, depend on people willfully denying reality.  In health care, the stubborn myth is that more care is always better care.  This myth enables health care providers to make more money, not have to make tough end-of-life decisions, and appear to be giving the patient what he or she wants.

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Every once in a while, an article about the economy cuts through conventional thinking and gets right to the heart of a critical issue.  One such article is Andy Kessler’s Op-ed piece in the Thursday, February 17, 2011, Wall Street Journal, entitled “Is Your Job an Endangered Species?”

What makes this article insightful is that it takes apart batches of job tasks and looks at the skills required for each one, and their replaceability by technology or self-service solutions.  Beyond the obvious example of toll takers, which, thankfully for all drivers, are rapidly disappearing, he points out that jobs which exist because of the need to move physical items or information, jobs which exist solely because supply is artificially limited or restricted, or which exist because of artificial or gimmicky price and value differentiations, or because of government-conferred monopolies will disappear over time.

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Within the past week, I was asked to take on a more active executive role in Dossia, the combination of the for-profit service corporation and the not-for-profit foundation which has a mission of deploying and managing a patient-controlled, private, portable, personal health record system.  Dossia has been in place for four years, and I began serving as the Chairman of the Board in February, 2007.

In early 2009, the Obama Administration included significant funding in the ARRA stimulus legislation for the upgrading of medical records in physician offices, and directed the U.S. Department of Health and Human Services and the Federal Trade Commission to issue regulations, which would implement a transition process over a multi-year period.  Those regulations are largely in place and the legislation and regulations have enabled Dossia and the other players in the market, including Microsoft and Google, to get anchored in a relatively stable, coherent regulatory environment.

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Reporter David Segal of The New York Times wrote a piece in the Sunday, September 19, issue entitled Just Manic Enough: Seeking Perfect Entrepreneurs – The New York Times which really resonated with me.

I am producing a feature film, and many have said to me, in one form or another, what one investor said in the article about starting a new company:  “You need to suspend disbelief to start a company, because so many people will tell you that what you’re doing can’t be done, and if it could be done, someone would have done it already.”  Segal describes entrepreneurs and people like me who are engaged in entrepreneur-like activity as having to be “just crazy enough.”

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