Clay Shirky has a new article on micropayments, and the reason why past attempts in that direction have failed and why new ones - including bitPass - will fail. Here's an appetizer:

"...creators are not publishers, and putting the power to publish directly into their hands does not make them publishers. It makes them artists with printing presses."

Then Jeff Jarvis jumps in with a worthy commentary from his unique viewpoint of blogger/journalist/publisher under one hat. He starts out with micropayments, but ends up with a cogent argument why advertising revenues may actually be the butt of the joke. Go read that, too.

Update: And here's another excellent overview by Tom Coates -"(Weblogs and) The Mass Amateurisation of (Nearly) Everything", with some excellent follow-up discussion. (Via Ole Eichhorn)
4:37:41 PM    

Scott Loftesness, in a post regardng health insurance mandates by the state of California asks: "Venture investors, are you listening?" Yes, Scott, to this and a number of other acts of the state government that threaten to unravel the innovative fabric of Silicon Valley.

First, let me recount just a couple of the most egregious impositions on California business. As Scott mentions, there's an initiative to force all businesses with 20 or more employees to provide health insurance at a mandated level to all employees. Not only is this yet another unfunded mandate off-the-budget tax, but the sponsor, John Burton, is explicit that it is intended to coerce the business community's acquiescence to a socialized, single-payer state health care system in California. Then check out the state workman's compensation program, where costs and premiums are out of control. As Scott points out, and a state auditor's report confirms, we're dealing with a combination of inept bureaucracy and kowtowing to special interests that are exploding the costs to business.

Add up these and others, and what you're doing is increasing the fixed costs of employment. The cost burdens of health insurance and workman's comp are pretty much the same whether the base salary is $25,000 or $250,000, but the effect is loaded against the lower paid worker. On a percentage basis, the cost of keeping the senior exec around is not greatly impacted by a few thousand of additonal annual expenses. But the percentage shift in the costs of the lower paid workers is much higher.

Now, the general economic impacts of such policies are pretty well known. You can take up the discussion on econo-blogs such as this and this. But for everyday use, it suffices to observe their outcome in the EU:

• Higher structural unemployment
• Falling most heavily on the less compensated
• Diversion of low wage work into the informal economy
• Artificially constrained growth of new ventures
• Displacement of innovation elsewhere

Now off to where I'm really going - my humble home - freeways and all - Silicon Valley. As I've discussed before, the regional advantage of this place, that lets it keep innovating and paying the rent, is a complex trust network of investors, engineers, executives, and a huge cast of supporting characters. And if you don''t believe me, try a (gasp!) UC Berkeley sociology professor.

Two points to make about that network. First, it didn't grow overnight. It's been underway for something between 30 to 40 years. It was already well established when I arrived here in the mid-80's. A number of other states and countries that thought they were going to build their own 'Silicon Whatnot' have found out the hard way that it takes a lot of time and patience, and there's no single easy recipe.

Second point: The follies of the late-90's aside, the people that form the network don't just get there magically, right out of school. They serve their time in more junior positions in big or small companies, learn some hard lessons of their industry and function, and get put into high stress situations alongside others from diverse professional, class, and cultural backgrounds. That's where you learn whose integrity and judgement you can trust under fire, and that's what builds the trust network. Mind you, the companies that help generate the 'Apple mafia' and 'Intel alumni' networks don't get a direct benefit from doing so, it's one of those things economists call an externality.

As the costs of doing business in the Bay Area have escalated over the last 20 years, the picture of companies and employment in high tech here has changed. Hardware system assembly is long gone, except for prototypes. It's managed by Taiwanese outsourcers, and done on the Mainland. The big chip fabs are also long gone. There are a few in places like Arizona, Oregon, and Idaho, but a lot also moved to Singapore and Taiwan. Low-level technical support has largely moved away. Some will be found in the Midwest, a lot is now in India, where they replace the lovely local accent with flat Hoosier vowels so you won't know the difference. A lot of this was due to the local real estate (and hence salary) costs, but it's increasingly driven by regulation. But you will notice the pattern: it's the less skilled and lower compensated jobs that got moved away - economics in action. The pyramid was truncated at the bottom, but the engineers, product managers and marketers, financiers and executives stayed.

Until recently, as the costs kept rising. Here, a personal story may illustrate the issue. The first job I held on the West Coast was in 1984, writing assembly language graphics drivers (a kickin' Z80!) for Digital Research (RIP). It was hardly the sum of my ambitions, but I had fun, cooked some good code, and made the contacts that let me move on to more interesting and rewarding things. But, if I had it to do over again today, that job probably wouldn't exist. Because now the more routine, easily specified engineering tasks have also become uneconomic to do here, and are moving offshore, or elsewhere around the country.

Yes, it's that devil called outsourcing, and it's now beginning to gnaw into the part of the pyramid that counts. There weren't ever a lot of assembly line and bunny suit workers that moved on up. We lost a bit more when the first level support folks and a lot of the documenters were moved out of town. But, write some more H1-B's and crank up the brain drain machine and we'll soon be whole. We can exploit networks of people built up at IIT and in the IDF - just move 'em all here.

But there is a limit to that pattern. Once you start sending away the junior engineers and first line project manager jobs, you are really starting to eat the seed corn. It's there and in the product marketing trenches that you really learn to work as teams, how to face and serve the customer, and the delicate art of satisfying and necessarily subverting the management for their own good. That's where the networks must be built.

It will take a long time for the deep damage to show. It took 30 years to build the networks. Many of the old timers are still in there pitching. But if you cut off the in-flow, truncate too many layers of the pyramid, the outcome is inevitable. By the time it's obvious to even the politicians and journalists, there will be serious damage to the Valley and its ability to generate innovation, companies, and jobs.

And don't expect the companies to do a single thing to stop it. The big guys, the HPs, the Intels, the Suns, have already spread their presence around the world, and can easily readjust. For the startups that I deal with, the idea of having a chunk of the engineering overseas is already routine. If we see a plan with engineering in India, China or even Armenia, the question isn't whether that is wise, just whether you have the right team. A few funds are seriously positioning themselves as regional outsourcing experts, able to held the fledgling company deal with the local risk factors in their chosen geography. Some are even saying there's an 80% outsourcing rule from VCs (I haven't seen it yet). An increasing number of startup companies will be two part pyramids - senior execs, financiers, and sales teams here, the rest somewhere else. (The state is just helping us define how many people will be in the local team, that's all.)

Sounds a bit brutal and callous, huh? Refer back to that word 'externality.' That means a company that helps form the networks derives no direct benefit. It may actually be hurt in the short run, as a team takes a hike to do their own thing. It's one of those things you 'pay forward', whether you like it or not, and there's no measurable bottom line benefit. If you think a public company officer will compromise that bottom line, particularly under Oxley-Sarbanes, think again. If you think a startup squeezing down the burn rate will undertake the extra costs, think again. If you think I will compromise my investors' interests so that Senator John Bloody Burton can retire having socialized medicine in California, think again. It's one of those social capital things, and the state of California is taking it upon itself to expend that capital, and the Valley's regional advantage.

Update: Daniel Drezner, in a post about outsourcing in general, summarizes arguments that it may benefit the US economy as a whole. Both that view and mine can be simultaneously true. Historical case in point: At one time the auto industry centered on Detroit was seen to be a unique national treasure - "What's good for GM is good for America." That's long fallen apart, and automotive expertise and employment is widely dispersed around the globe and country. One can easily argue that we have better and cheaper cars for it.

Silicon Valley in particular, and the California economy in general, may be in the same position, faced with an inevitably eroding position as the markets and production capabilities for high technology spread through the world. I have no truck with protectionist policies, which are inevitably counterproductive, and pointless in an industry where such impediments can be rounted around with the speed of an IP packet. The question is whether we want to hasten any such decline by the self-inflicted wounds of bad government policy.

Update 2: Russell Beattie comments. Scott comments. And this seems to have provoked a lively discussion over at Joel's software shack. And Don Park has decided I'm part of Ahnuld's army. Not yet, Don, but my vote to recall Davis is a lock.
8:18:58 AM