Capital in the Twenty-First Century–The Major Conclusions

In the introduction to his masterwork Capital in the Twenty-First Century, the author Thomas Piketty, unlike in a murder mystery, tells us his conclusions right there in the introduction.

After discussion of the overly pessimistic conclusions regarding economic inequality of the nineteenth-century figures like Marx and Ricardo, and the overly optimistic conclusions of the twentieth-century writers like Kuznets, Piketty then discusses the major conclusions he reached in his work.

1.   There is no purely economic determinism with regards to inequalities of wealth and fortune

“The history of the distribution of wealth has always been deeply political, and it cannot be reduced to purely economic mechanisms.”    The period of reduction of inequality between the first and second World War was due to policies adopted to cope with the shocks of war.   The period of the increase of inequality after 1980 (which continues to the present) is due to rightward political shifts in the past several decades, and the policies adopted with those increasingly rightward administrations with regards to taxation and finance.

2.  Dynamics of wealth distribution reveal powerful mechanisms pushing alternatively towards convergence and divergence

The main forces for convergence are the diffusion of knowledge and investment in training and skills.   The law of supply and demand is not as powerful as these forces turn out to be.   This diffusion of knowledge depends in large part on educational policies, access to training and to the acquisitions of appropriate skills, and associated institutions.   That is why the anti-educational policies of the right wing in the United States are more troublesome than any of the other taxation and finance policies they may propose, because the damage they do is more widespread and will be longer lasting.

On the divergence side, it is worthwhile noting that the top decile share of US national income has returned to 45-50 percent in the past decade, returning to the level it was in the decade leading to World War I.   The spectacular increase in inequality reflects an unprecedented increase in the incomes received by the top managers of large firms.   In many cases, they have the power to set their own remuneration without limit and without any clear relation to their individual productivity.

This process will not stop by an “natural” economic counter-force but by a deliberate policy that limits this distorting influence.   This turns out to be consonant with the first conclusion.

One way to explain this trend for divergence is contained in the formula r > g, which I will explain in the following post on his book.


Six Sigma–Should Companies Train Black Belts or Hire from Outside?

In the eleventh chapter of their book SIx Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, the authors Mikel Harry, Ph.d., and Richard Schroeder discuss the role of the Black Belts, who are the project managers who run Six Sigma projects.

In the previous of this chapter the authors discussed, the training people need to become black belts, and how many belts a company needs.

But let’s say you have figured out your company, using the simple calculation given in the last post, has $10 million in annual revenues, and therefore needs 10 Black Belts, and 1 Master Black Belt.

Where do you get them?   Do you train them yourselves or do you hire from the outside?   That is the subject of this post.

The authors recommend that, if you are a large company and you need to get Black Belts from outside the company, that you consider setting up a training program for Black Belts within the company.   Here’s why:   hiring an Black Belt from outside is risky because the person will be conducting Six Sigma projects while simultaneously trying to familiarize him or herself with the company’s culture and history.

Someone who is already familiar with the company’s culture and history will then only need to concentrate on one thing:   completing Six Sigma projects.    The authors also recommend utilizing this person exclusively for Black Belt projects in order to get the maximum return on the investment of training that person.

But Master Black Belts can get involved in training as well as doing their job of selecting and supervising Six Sigma projects, forming a nucleus of a Six Sigma Project Management Office.   This last statement does not come directly from the authors, but is my interpretation of what I have read in their earlier chapters.

Just as the investment in Black Belts will yield benefits from the company, investment in the training of Black Belts will also yield benefits to the company.   In order to make sure any changes from Six Sigma projects are permanent, the company’s culture also needs to permanently change.    And that should be the goal of any company, no matter how large or small it is.

So far, the discussion in the book has focused on manufacturing, but some of the most impressive growth in Six Sigma projects comes from service industries, including health care.   How Six Sigma is applied in those types of industries is the subject of the 12th chapter, which I will go through next week.

Six Sigma–How Many Black Belts does a Company Need?

In the eleventh chapter of their book SIx Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, the authors Mikel Harry, Ph.d., and Richard Schroeder discuss the role of the Black Belts, who are the project managers who run Six Sigma projects.

In the last section of this chapter the authors discuss what training people need to become black belts.   But how many black belts does a company need?

This is based on discussions about how much Black Belts can save a company for each Six Sigma project.   Companies can reap at least $150,000-$175,000 and, on average, around $230,000 per project.    A fully trained Black Belt will be able to do one project every two to three months.   So if you multiply the range per project times the number of projects per year (four to six), you can an range of a minimum of $400,000 to well over $1,000,000 in direct cost savings and productivity improvements.

Thus, a company can use the following simple calculation to figure out how many black belts a company needs:

Revenues / $1,000,000 = # of Black Belts


# of Black Belts / 10 = # of Master of Black Belts

So a company with $100 million in annual revenues would need 100 Black Belts and 10 Master Black Belts.

Now this simple calculation can be adjusted by several factors, such as

  • geographic location of factories (are they in a small area or are they spread across the country)
  • how company is laid out (divided by product or by location)
  • why company is implementing Six Sigma (to remove defects, to improve customer satisfaction, and/or to improve delivery time)

In the next post, we discuss whether a company should train its own black belts or hire them from outside the company.

21 Days to a More Positive Life through using a Gratitude Journal

“If we study what is merely average, we will remain merely average.” Shawn Achor

Shawn Achor is a psychologist who is the CEO of Good Think, Inc. He gave a talk about positive psychology at a TED talk  in May 2011.  I outline his talk below which he concludes with a methodology on how to press the “reset” button for your mindset so that you are more optimistic.    One of the methods includes writing three things you are grateful for, so I thought it would be appropriate to post this on Thanksgiving Day.   However, the method goes far beyond simple gratitude…

1. Escaping the law of the average

Social scientists make pronouncements about trends based on averages within populations, but people have to realize that when you are dealing with the potential for individual happiness or creativity, you need to escape the “law of the average”. When psychologists strive to make people “normal”, then if they succeed, people will continue to remain merely average.

I can illustrate Shawn Achor’s point with a story.  A friend of mine who was taking economics in graduate school, and I saw him one day in a coffee shop looking a little glum. “What’s wrong?” I asked him. “Oh, it sounds silly, but I’m a little bummed. My statistics professor said that up to 50% of us in the class would end up doing below average on the test.”

Intellectually, he knew that this was of course true because it hinges on the technical definition of the word “average”. However, it was the implication that he had only a 1 out of 2 chance of escaping mediocrity that was a challenge to his self-esteem.

2. Studying outliers

Shawn Achor has studied those individuals who have higher than average potential to find out what their secret is in order to be see if some of those secrets can be passed on to the rest.  Instead of a psychology model that tries to drag everybody down towards being average by making them “normal”, he wants to have a positive psychology model that moves everyone’s average up.

3. Changing the lens

We view the world through the lens of the media, which selectively captures negative events and brings them to our attention, with the news hour occasionally ending in a positive story. This has an effect on us where we start to assume a false picture of the world where that same ratio of negative events to positive events is replicated throughout the world.

4. External circumstance does not determine inner attitude

Shawn Achor related how the students he counseled at Harvard University should have been happy to be at such an elite school, but they sought counseling because they concentrated on the negatives of the workload, peer pressure, etc. He realized that no matter how good the outer circumstances, there were some people who have a negative attitude internally. He found that the external circumstances only account for 10% of a person’s happiness over the long term; the other 90% are determined by the way in which that person views the world.

In the work environment, he found that only 25% of job successes are predicted by a person’s intelligence level. The other 75% are accounted for by your optimism levels, your social support levels, and your ability to see stress as a challenge rather than as a threat.

5. How can you change your mindset?
Here’s the kernel of what Shawn Achor came to talk about. Most schools and workplaces have the mindset “if you work hard, you will be successful. If you are successful, then you will be happier.”  This theory of motivation is backwards.  If you have a success, then the workplace or school simply changes the goalposts and you have to achieve even better success the next time. If happiness is thought to be on the other side of success, your brain never gets there, it pushes happiness over the cognitive horizon.   Just remember that one of the definitions of a horizon is “an imaginary line that gets farther away from you the closer you get to it.”

The problem with this method of motivation is that our brains work in the opposite order:  if you raise a person’s happiness in the presentthen their brain experiences a happiness advantage, meaning that performs better than if it is negative, neutral, or stressed.  Every business outcome improves for an employee who has this happiness advantage: people are 31% more productive, they produce 37% more sales, doctors are 19% more accurate at diagnosis, etc.  So if our brain is more positive in the present, than it becomes more successful.

If people do the following 21 days in a row, it can rewire their brains to be more optimistic and therefore more successful.

Activity Explanation
1 3 Gratitudes Write 3 new things you are grateful for each day
2 Journaling positive experience … in a journal, along with one positive experience you have had in the last 24 hours.
3 Exercise 15-20 minutes of vigorous exercise, 3-6 days a week.
4 Meditation 15 minutes of meditation, 1-2 times per day.
5 Random Acts of Kindness Write down one random act of kindness you have done in the past 24 hours to someone you did not know.
6 Lessons Learned Write down how you will take a negative experience you have had in the past 24 hours and turn it into a learning opportunity for the future.

Here Shawn gives an explanation of these 5 factors; I have added a sixth factor which I explain below

1. Writing down the 3 gratitudes changes you mind so that it starts scanning the world for the positives rather than the negatives. It doesn’t change the ratio of positives to negatives in the outside world, but it does change which factors you focus on as being the most significant.

2. Writing about a positive experience you’ve had in the past 24 hours allows you relive it.

3. Exercise teaches your brain that behavior matters.

4. Meditation allows you to detach from the cultural pattern of ADHD which we are creating through the constant attempts at multitasking, and increases the ability of the brain to focus on the task at hand.

5. You can write in your journal about a random act of kindness which you performed in the last 24 hours for someone, meaning that you did it without consideration of being paid back by the person whom you helped.  Alternately, perform a conscious act of kindness by sending a note of support to someone in your social support network.

6. To these activities, I have added a sixth of my own to Shawn’s list, which is to take a negative experience which you had in the past 24 hours, and created some lessons learned from it so that you will experience it in the future not as a threat, but as an opportunity to overcome a challenge.

I have to tell you that Shawn Achor’s method WORKS! I did try it for 21 days and found that I do see live in a more positive way than I did a month ago. The interesting thing for me was that, at first I thought I was just changing the way things were appearing for me, that is, the same ratio of negatives to positives happened out there in the external world, but I was gradually starting to focus on the positives.  The negatives were seen as less and less threatening and more and more as opportunities.

However, by the end of the 21-day period, I was starting to experience more and more positives on the outside. I think that the positive attitude I took with me while networking, for example, automatically drew people towards me and made them more helpful to me than they would have previously precisely BECAUSE I had a positive attitude.  So it does change your interior “weather” first, but that sunnier internal weather will gradually become reflected in your exterior circumstances.  I don’t know if it will work for everybody, but I recommend that you at least try it, because you have literally nothing to lose, and we could all stand to win a little more, right?

UPDATE:   I am writing this update in 2014, and I can tell you that this has become part of my daily ritual throughout the preceding year, with my gratitude journal also doubling as my planning journal.  I have to caution people against thinking that the gratitude journal will change someone’s brain chemistry who is clinically depressed.   Stephen Fry, in describing his struggle with bipolar disorder (what used to be called manic depression), said that when you are in the “depressed” part of the cycle, it doesn’t matter how good the internal weather should be, you find yourself living under a metaphorical cloud.    For people whose brain chemistry has severe challenges, just having a gratitude journal will not be enough–you will need professional guidance and medication to alter your brain chemistry to the point where you can live a productive life.

However, for those with “situational depression”, that is, a temporary state of hopelessness or helplessness brought about by traumatic circumstances, and not any particular imbalance in the brain itself, the gratitude journal can lessen the amount of time it can take to snap out of it.    I have a recent experience with this because my youngest brother passed away unexpected at the end of October, and after the week of preparations for his funeral, I had a chance to reflect back on my own life.    For about a week, I looked at the challenges I faced, and wondered if I could step back into the stream of life again, which suddenly looked as chaotic as whitewater rapids.

But my gratitude journal made me look at what lessons my brother, who had such an optimistic outlook on life despite his own challenges, could teach me.    Rather than seeing his passing away as a loss, I could see that his life only added to my own–a lesson reinforced by all the stories people told at his funeral and at the memorial service that was held later.   And finally, I realized that as his life was a gift, my own is a gift and I need to react to it as you would with a priceless gift–with gratitude.    Suddenly I looked at the challenges I faced in a positive light and I launched myself into the various projects I needed to accomplish.

In fact, that’s why I’m grateful for the Thanksgiving holidays, because it gives me a chance to work on my planning journal for the month of December in order to finish whatever projects need completing by the end of the year, and to reflect in my gratitude journal about the bounties I have received.    When you are thankful, your mind and spirit are opened, and life seems to expand to answer that openness.

So make it a promise to try a gratitude journal, if only for 21 days.   You will see a difference–and be thankful for it!

Six Sigma–Black Belt Training

In the eleventh chapter of their book SIx Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, the authors Mikel Harry, Ph.d., and Richard Schroeder discuss the role of the Black Belts, who are the project managers who run Six Sigma projects.

In the section of this chapter that discusses what training people need to become black belts, the authors emphasize the need for them to follow the Plan-Train-Apply-Review training cycle.

  • Plan–the potential Black Belts meet with the Deployment Champions and Project Champions to discuss which projects the training will be applied to
  • Train–the Black Belts learn the Six Sigma philosophy, the theory behind Six Sigma, and then the various breakthrough tools (statistics, quantitative benchmarking, process-control techniques, Design of Experiments) that form a scientific and repeatable process that can be used to solve an industrial or commercial problem
  • Apply–The Black Belts use the knowledge gained in the Train period to the projects identified by the Champions
  • Review–The Black Belts review the results gained by application of the knowledge gained in the Train period to the projects identified by the Champions

This cycle is repeated, as Black Belts receive new projects to work on, and deepen their understanding by teaching others in successive cycles (other potential Black Belts or Green Belts).

In this way, the learning is a constantly evolving process.

One of the comments the authors make that was very intriguing was that, as project managers of a Six Sigma project, learning leadership skills should be part of the Black Belt certification program, but isn’t.   The Train and Apply parts of the training cycle above contain the bulk of the Black Belt certification program.   You learn the theory and take a test, but you also must have a project which demonstrates the knowledge you have just learned.

However, if you consider the plan and review sections of the training cycle outlined above, you will see that there are plenty of opportunities outside of the formal Black Belt certification program to exercise leadership.   It should be the Champions’ job to make sure that these opportunities are taken advantage of.

The next posts after Thanksgiving will discuss the topics of “how many Black Belts does an organization need” and whether the company should train their own or hire from the outside.

Six Sigma–Black Belts and the Bottom Line

In the eleventh chapter of their book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, the authors Mikel Harry, Ph.D., and Richard Schroeder focus on the Black Belts, the lynchpin of any strategy implementing Six Sigma.

In the last post, I talked about the origin of the “black belts”, which were developed by one of the authors, Mikel “Mike” Harry, as a way of labeling the training of the project leaders trained in statistical problem solving, in parallel to the “black belts” in karate.

Why should a company invest in the training needed to create Black Belts?   Because companies can reap at least $150,000-$175,000 per Black Belt project, with many projects achieving a savings of closer to $250,000 per project.   That means with an average of four to six projects annually (or one project every two to three months), a fully trained Black Belt can deliver at a minimum of $600,000 to well over $1,000,000 in cost savings and productivity improvements.

Now, it does takes about twelve months of practice for Black Belts to become fully proficient in the Breakthrough Strategy, but they are the “gift that keeps on giving,” not just because of the cost savings they achieve on Six Sigma projects, but because they can guide others, called Green Belts, in applying the Breakthrough Strategy to selected projects.

So Black Belts can, once trained, bring a tangible cost savings to the company.   What does their training consist of?

That is the subject of the next post.

Six Sigma–The Origin of Black Belts

In the eleventh chapter of their book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, the authors Mikel Harry, Ph.D., and Richard Schroeder shift their focus from the various players in the strategy, which they discussed in the previous chapter, to a focus on Black Belts, the people who actually choose the Six SIgma projects and then are responsible for running them.

This first post covers the origin of Black Belts.   Mike (“Mike”) Harry coined the term “Black Belts” in the mid-1980s, when he was consulting to the printed circuit board operation at Unisys Corporation.   The term was used to designate project leaders who were trained in statistical problem solving.  He thought that the connection with Black Belts in karate was apt, not just in the fact that the black belt is a master of the art of self-defense, but also because it requires a certain mental agility in addition to the physical skills required.    Just like Black Belts in karate who have to recenter themselves as they move from position to position, Black Belts in Six Sigma have to be able to “recenter” themselves as they move from project to project.

But Black Belts are not just skilled users, they are like martial artists who go on to become senseii or teachers to the Green Belts, and they must also demonstrate to those who run the company that the cost of their efforts, although not inconsiderable, pales in comparison to the money that the results of their efforts are saving the company.

That is the subject of the next post.

Capital in the Twenty-First Century–Economic Fairy Tales from the Kuznets Curve to the Laffer Curve

In his masterwork on the subject of economic inequality, Capital in the Twenty-First Century, Thomas Piketty talks in his introduction about the pessimistic conclusions drawn by the nineteenth-century economists Marx and RicardoThe economic analysis of Marx and Ricardo concluded that income inequality would automatically increase in advanced phases of capitalist development.    Piketty discussed some of the reasons why their conclusions were incorrect, which I discuss in my previous post written on 11/9/2014.

Piketty turns his attention to the optimistic or fairy-tale conclusions drawn by a twentieth-century economist, Simon Kuznets, who believed that income inequality would automatically decrease in advanced phases of capitalist development, as summed up in the phrase “growth is a rising tide that lifts all boats.”   This optimism seems almost quaint during the present period of lopsided economic growth in the United States, where the rising tide only seems to be lifting yachts, whereas ordinary boats are left stranded.

The big difference between the nineteenth and twentieth-century economists was that the latter were able to rely on data sources (such as US federal income tax returns) rather than just arguing based on logical principles.   In 1953 Kuznets published Shares of Upper Income Groups in Income and Savings, which dealt with the United States over a period of thirty-five years from 1913-1948.   Based on the income tax data, he was able to measure inequality in income distribution and to gauge its evolution over time.

His findings were that there was a sharp reduction in income inequality in the United States between 1913 and 1948.   So the top 10 percent of US earners claimed 45-50% of the annual national income in the period right after World War I, but that share had decreased to 30-35% in the period right after World War II.

What was the cause of the compression of high US income incomes in the period between 1913 and 1948?   Although he recognized it was due in large part to the multiple shocks to the US economic system delivered by the Great Depression and World War II, he claimed that inequality would follow a “bell curve”, called the “Kuznets curve”, which showed that inequality should first increase and then decrease over the course of industrialization and economic development.

His reasoning was that in the early phases of industrialization, only a minority of people are prepared to benefit from the new wealth that industrialization brings, but that as a larger and larger fraction of the population partakes of the fruits of economic growth, inequality automatically decreases.

In retrospect, however, Piketty believes that the “magical” Kuznets curve theory reflects an optimistic faith in the promise that all social groups would continue to share in the fruits of growth.   This stopped happening in the US in the 1970s for reasons which will be discussed later in the book.   The sharp reduction in income inequality that occurred between 1913 and 1948 was due to an “accident of history”, or actually two accidents, namely, the economic shock of the Great Depression and the military shock of World War II.

A similar fairy tale is found in the “Laffer Curve”, which was used in the Reagan administration to give an excuse to lower taxes on the rich, in the belief that rather than a rising tide lifting all boats, that the water lifting all boats would trickle down from above.   As Bill Murray’s homeless character remarked in a sketch on Saturday Night Live, optimism meant standing next to the gutter and waiting to be trickled on.    Such optimism is faith-based economics, as was Kuznets’ curve.   Liketty is trying to bring back the subject of income inequality to a reality-based study.

In the last part of his introduction, he previews what the conclusions are of his study.   This will be the subject of my next post on 11/30/2014.

Six Sigma and Suppliers

In their book called Six Sigma: The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, the authors Mikel Harry, Ph.D. And Richard Schroeder talk about the importance of adopting Six Sigma to improve the quality of a company’s processes, and consequently the quality of the products that they make.

As the authors remind the readers, most companies don’t make all the components that go into their products or services.    One approach to making sure suppliers improve the quality of their components is to put in penalties for delays or low quality as conditions in their supplier contract.   However, they say the best way to improve quality of one’s suppliers is to work with one’s suppliers by undertaking their Six Sigma training.

The authors recommend that a company spend at least two years getting its own processes under control before they begin training key suppliers.   This is because a lot of the supplier error is caused by poor drawings and specifications provided to them.

Another recommendation is that rather than focusing on all components of a product, to first focus on those parts or components that are critical to quality.

When you approach a supplier about Six Sigma training, the supplier should be enthusiastic about the training because they should be as concerned about the quality of the product as the customers, and a good-quality product requires good-quality components.

Key suppliers are the only ones that need to be trained in the Six Sigma method.   This is because other suppliers, once that realize that your company is measuring the quality of the components with Six Sigma, will want to start correcting its problems itself, and may become interested in having its own personnel undertake Six Sigma training.

They will be interested in delivering quality components to their customer, i.e., your organization, to the extent that you show you are willing to deliver your customer a good product with the assistance of Six Sigma methodology.

In the next chapter, the authors discuss the importance of the Six Sigma Black Belts, who implement the methodology on a project basis.    They will discuss the numbers of Black Belts they recommend a company have, and what kind of training and indeed what kind of compensation they should receive.

Six Sigma–Master Black Belts, Black Belts, and Green Belts

In the tenth chapter of their book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, by Mikel Harry, Ph.D., and Richard Schroeder, the authors get around to discussing in detail who the various players are in the implementation of the Breakthrough Strategy.   In the last post, we discussed the champions–the Senior Champion, the Deployment Champion, and the Project Champions.

This post covers the three levels of “belts” or expertise levels, within the Six Sigma implementation strategy.

1.  Master Black Belts

Master Black Belts assist the Champions in the identification of improvements projects, and they negotiate with Champions for resources for Six Sigma projects.  They then coach and train Black Belts and Green Belts to conduct those projects.

2.  Black Belts

Black Belts work under a Master Black Belt and they apply Six Sigma tools and knowledge to specific projects.   They are the “project managers” of Six Sigma projects.

3.  Green Belts

These are the team members of project team’s conducting Six Sigma projects, working under Black Belts.

The greatest quote I read from the authors describing the various levels of people involved in the implementation of Six Sigma Breakthrough Strategy is the following:   “Champions … decide what gets done, Master Black Belts and Black Belts work full time figuring out how to get it done.”   I can add to that quote the Green Belts, who get it done!