The French word for entrepreneur

The Times reports that it's hard out there for an entrepreneur, especially so in France :-)

A related point worth emphasizing is that while the US NIH budget has doubled recently, support of physical science research has been flat to decreasing in real dollars. Yet, basic advances in physical science still underly many of the advances in biology and medicine. The product under development in the article is for cancer detection, but the inventor is a physicist.

NYTimes: AIX-EN-PROVENCE, France — Jacques Souquet had gone through several start-ups in Seattle, but he still was not entirely prepared for beginning a high-tech company in his native France.

Failure is still a no-no here, creating a challenge for any start-up. Not to mention the idea that difficulty here seems a contradiction in terms for, after all, the word “entrepreneur” is French.

And Mr. Souquet, 58, a compact man with a gentle manner, has a lot of rules to learn. When he once had to meet a deadline, he asked his colleagues to come in on a Sunday, which they did; but Mr. Souquet got a scolding from his lawyer, who lectured about the legal limits on the French workweek.

Now, Mr. Souquet’s company is up and running smoothly, and that is a testimony to recent changes in France and greater Europe: start-ups are no longer rare. Moreover, Europe’s new entrepreneurs are turning West to learn the start-up culture bred in Silicon Valley before coming back here to apply their learning.

After the Internet bust, the number of European start-ups in the computer and telecommunications sectors began growing again in 2003, according to the Center for European Economic Research, in Mannheim, Germany. And venture capital is pouring into start-ups, which last year attracted about $970 million, the highest level in a decade since the Internet boom ended in 2000.

...Mr. Souquet’s experience illustrates how far the Continent has to go if it hopes to match the United States. He was able to lure eight of his 27 employees back from the United States. And after two years, he is preparing to offer his product in 2008, a device that measures the elasticity of living tissue, to assist doctors in diagnosing and treating cancer.

Still, Aix is not Seattle. French attitudes are a bit rigid, compared with the American approach of if-at-first-you-don’t-succeed. And French law, which mandates a 35-hour week, still crimps entrepreneurial flair.

“In a start-up environment, you cannot work a 35-hour week,” Mr. Souquet said, referring to the time he asked his colleagues to work on a Sunday. “My lawyer was furious,” he said, fearing the company could be penalized.

Mr. Souquet also recounted that at Stanford University, where he got his Ph.D. in applied physics, one of his teachers, William Shockley, a pioneer in transistors who shared the 1956 Nobel Prize in physics, taught by discussing failed experiments.

“Then he would turn to another page, showing why the experiment failed,” Mr. Souquet said, recalling images of his professor’s Bell Labs notebooks. “He called them constructive failures.”

Mr. Souquet’s company began with a colleague’s fear that France was failing to retain its scientists. Georges Charpak, the winner of the 1992 Nobel Prize in physics, came to him.

“He told me, ‘It’s dramatic,’ ” Mr. Souquet said, describing how his French colleague begged him to help stanch a drain of French talent to the United States by promoting start-ups here. “He said his best laboratory talent was going to the United States, that he was about to lose 15 people who were being offered grants by U.C., San Diego.”

So two years ago, Mr. Souquet began gathering patents, including several from a Russian émigré, Armen Sarvazyan, whose own start-up, Artann Laboratories, in West Trenton, N.J., held key patents for working with shear waves crucial to Mr. Souquet’s device. A shear wave is so named because it moves through the body of an object, unlike a surface wave.

At his previous start-up, SonoSite, which is based in Seattle, Mr. Souquet helped develop hand-held ultrasound devices that were essentially conventional technology, drastically miniaturized.

Mr. Souquet’s latest device is “a new concept,” Mr. Sarvazyan said. “It opens an era, not only for elasticity, but for imitating the sense of touch, the feeling of a doctor,” which is now often crucial in diagnosing cancer.

Mr. Souquet had broad experience in ultrasound, having worked in the United States for Varian Semiconductor, before moving to ATL Ultrasound in Seattle. Together with a small group of ATL researchers, he founded SonoSite. When Mr. Charpak approached him, Mr. Souquet was the head of research in the medical division of Philips, the Dutch electrical giant.

Weary of the constant travel and the bureaucracy of a global giant like Philips, Mr. Souquet heeded Mr. Charpak’s cry for help. His idea, as outlined on the company’s Web site, is to develop a device that would use ultrasound to measure the elasticity of human tissue.

Since cancerous tissue loses much of its elasticity, such a device would be useful in helping diagnose and treat cancer in the breast, he said, but also the prostate gland, the thyroid and the liver.

SuperSonic Imagine, with headquarters in a glass-and-steel corporate park outside this southern French resort city, was floated with Mr. Souquet’s own savings, plus money from French government sources. Last March, a group of venture capital funds led by Crédit Agricole Private Equity pumped 10 million euros ($13 million), into the company.

Amounts of capital like this are still only a fraction of the money flowing into start-ups in the United States, but in Europe, their impact is widening. The European Private Equity and Venture Capital Association, set up in 2001, has seen its membership grow to almost 950 members. ...

Brin and Page

An interesting profile of Google founder Sergey Brin, emphasizing his family background. Both Brin and co-founder Larry Page are from Jewish academic backgrounds -- Brin's father escaped anti-semitism in Russia and became an applied math professor at Maryland, while Page's father is a computer scientist at Michigan. Brin was rejected by MIT but luckily got into the graduate CS program at Stanford :-)

“Don’t Be Evil” always did sound a bit to me like tikkun olam, or repairing the world.

By the way, Google are obsessed with IQ as well -- for a long time they've used SAT scores, tough interviews and a university GPA-cutoff in hiring decisions.

Several years ago, Sergey and Larry visited a high school for gifted math students near Tel Aviv. When they came onto the stage of the darkened auditorium, the audience roared, as if they were rock stars. Every student there, many of them immigrants like Sergey from the former Soviet Union, knew of Google.

Larry took the podium first, urging the students to maintain a “healthy disregard for the impossible,” a favorite Google phrase. When it was Sergey’s turn to speak, he began, to the crowd’s delight, with a few words in Russian, which he still speaks at home with his parents.

“I have standard Russian-Jewish parents,” he then continued in English. “My dad is a math professor. They have a certain attitude about studies. And I think I can relate that here, because I was told that your school recently got seven out of the top 10 places in a math competition throughout all Israel.”

The students applauded their achievement and the recognition from Sergey, unaware that he was setting up a joke. “What I have to say,” he continued, “is in the words of my father: ‘What about the other three?’”

It's all about the brainpower

Bill Gates is IQ-obsessed. These days you can add Google and a host of hedge funds and startups to Goldman as the main competitors for Bill's coveted brainpower.

WSJ: (Rich Kaarlgard) Eleven years ago, while editing a tech magazine whose future would include boom and bye-bye, I caught a fantastically lucky break. I got to spend a week on the road with Bill Gates. ...

I'll never forget flying with him on the 11:30 p.m. shuttle from Logan to LaGuardia. Mr. Gates sat unrecognized, row 27, a lank-haired fellow in a rugby shirt and khakis. His eyes were glued to a book. His new friend Warren Buffett, you see, had lent him a copy of "The Intelligent Investor," Benjamin Graham's classic. Not only was pupil Gates reading it on a midnight flight, he was tapping notes into his laptop! F. Scott Fitzgerald was right. The rich are different.

Halfway through the flight, Mr. Gates closed the book, shut his computer off and we talked. Out of nowhere, he told me that he had recently figured out who his competition was. It was not Apple, Lotus or IBM. He waited a couple of beats. "It's Goldman Sachs."

"Is this a scoop? Is Microsoft getting into investment banking?"

"No," he said. "I mean the competition for talent. It's all about IQ. You win with IQ. Our only competition for IQ is the top investment banks." During that trip, I must have heard Mr. Gates mention "IQ" a hundred times.

The obsession with smarts is embedded deep in Mr. Gates's thinking and long ago was institutionalized at Microsoft. Apply for a job and you'll face an oral grilling that probes for IQ. It is oral and informal because of Griggs v. Duke Power, the 1971 Supreme Court ruling that banished written IQ tests and "tests of an abstract nature" from job applications. But Microsoft knows what it wants. It wants IQ. And Microsoft always has been savvy at getting what it wants.

The most underpaid man in America?

David Swenson, who has achieved average annual returns of 16.3 percent over the last 21 years for Yale's endowment, may be earning a full 100 times less (his compensation last year was $1.3 million) than he could running his own hedge fund. Interestingly, he's a former student of Jim Tobin and an admirer of Warren Buffet's investment philosophy.

Hmm... I do know some theorists or professors making $100k who might make $1M per year in the private sector (after some retooling), but $10M is a stretch. Swenson is definitely a special case.

NYTimes: NEWS of windfalls on Wall Street have become as common and unsurprising as rain: traders collect $50 million bonuses, top hedge fund managers haul in more than $100 million in a single year. In such gilded company, annual compensation of $1.3 million looks paltry. Yet that was how much David F. Swensen took home in 2005 for supervising Yale University’s endowment, now worth $20 billion.

Mr. Swensen, one of the most well-regarded investors in the country, never appears on lists of the most highly paid money managers. Nor has he made headlines by buying expensive homes in New York or Palm Beach or by frequenting cocktail and charity circuits. But in the competitive, performance-driven world of money managers, Mr. Swensen can boast of an extraordinary record.

During his 21 years as steward of the Yale endowment, Mr. Swensen has generated an annual compound growth rate of 16.3 percent, beating the performance of Harvard’s endowment and that of every other major school in the country over the same period, according to data compiled by Yale. Over the years, he has also routinely rebuffed lucrative offers to leave Yale and to cash in on his expertise in a much grander fashion.

“People think working for something other than the most money you could get is an odd concept, but it seems a perfectly natural concept to me,” says Mr. Swensen, a slender, soft-spoken man who looks and dresses like a high school teacher. “When I see colleagues of mine leave universities to do essentially the same thing they were doing but to get paid more, I am disappointed because there is a sense of mission,” in endowment work.

Amid outsize and often unimaginable paydays for financiers and corporate chieftains, Mr. Swensen’s philosophy may be more than simply anachronistic; in an era when many people commonly equate “successful” with the size of one’s salary, Mr. Swensen runs the risk of being dismissed as a dinosaur. Even so, he is an example of someone who has found a vibrant métier that seems to suit him perfectly, for which he is comfortably — even handsomely — paid, and from which he has absolutely no desire to leave.

“People like David who run endowments are already managing a business where their skills could be immediately transferred to the for-profit sphere at multiples of what they earn,” says Bruce Greenwald, a finance professor at the Columbia University Graduate School of Business.

Multiples, indeed. Mr. Swensen’s preference for his work at Yale means that he has given up at least tens of millions — if not hundreds of millions — of dollars in personal compensation over the last decade alone. But the 53-year-old economist, who has spent most of his adult career at Yale, said in an interview in the endowment’s nondescript campus office that he plans to stay at the university “as long as they are willing to have me.”

Yale has every reason to want him to stay. After joining the university’s investment office when he was just 31, Mr. Swensen moved Yale’s portfolio away from a strict menu of stocks and bonds, favoring instead more diverse instruments like hedge funds, commodities like oil and timber, and private company investments.

That strategy revolutionized endowment investing, and other schools have followed suit. Mr. Swensen’s track record and his growing cachet have helped Yale attract donors who believe that their gifts to the university will be well deployed. Although his two books, “Pioneering Portfolio Management” and the more recent “Unconventional Success,” have helped raise his profile as an investment guru, he remains ambivalent about promoting himself. He notes that there are thousands of university professors who have also forgone more lucrative careers to put their skills to work in the academic world.

Two years ago, Yale’s president, Richard C. Levin, brandished a chart at a party celebrating Mr. Swensen’s 20th anniversary at Yale; during those two decades, the university’s endowment had grown to $14 billion from $1.3 billion. The chart showed a list of those who had made the most significant financial contributions to Yale, and included names like Harkness, Beinecke and Mellon. The name at the top of the list, however, was Swensen, with a $7.8 billion contribution — Yale’s calculation of the amount by which Mr. Swensen had outperformed average university endowments during his tenure.

“Yale is the bellwether and the benchmark against which every endowment measures itself,” said J. Ezra Merkin, who runs the investment committees for Yeshiva University and the UJA-Federation of New York.

A number of high-profile endowment chiefs have recently bolted academia for the more lush pay packages offered by private funds in the for-profit sector. When Jack R. Meyer, who racked up stellar returns as the head of the Harvard endowment, gave up his post in 2005, for example, he and his team easily raised $6 billion for their new hedge fund. But Mr. Swensen says he has no desire to do something similar.

“I just had an e-mail from a friend who manages money for a wealthy family,” he said in an interview in the endowment’s plain campus office. “He was troubled by it: making wealthy people wealthier. I feel privileged to be in a place where the resources that we generate are applied to the world’s problems.”

He adds: “On one level you could always imagine some greater creature comfort or having more toys or more houses. That would be nice. But it certainly does not drive me.”

While Mr. Swensen has no say about how Yale spends the proceeds from its endowment, he is eager to note the beneficiaries. “One of the things that I care most deeply about is that notion that anyone who qualifies for admission can afford to go to Yale, and financial aid is a huge part of what the endowment does,” he says.

But some people think that he exaggerates the virtues of managing money for a nonprofit versus investing on behalf of private interests.

“If you are making money for the parents and in turn for their kids, why is that any less admirable than making it for Yale University?” asks Alan Reynolds, senior fellow at the Cato Institute, a libertarian research group. “For all you know the guy you are running money for is giving it all away. The presumption that it is all going into a lavish lifestyle is just a presumption.”

Mr. Swensen bristles at that observation. “I think it is extraordinarily different,” he says. “There is a clear link between the resources we generate here and doing research and providing financial assistance.

“Public service was something that always interested me when I was growing up,” he adds. “I thought that nothing would be better than to be a United States senator from Wisconsin. I could not imagine a higher calling.”

Mr. Swensen grew up in River Falls, Wis., where his father and grandfather were chemistry professors at the University of Wisconsin-River Falls. His mother, Grace, became a Lutheran minister after raising six children. His brother Stephen is a doctor at the Mayo Clinic, and one of his three sisters is also a minister.

His family’s pursuit of callings found its way into Mr. Swensen’s own thinking as well. “When I see colleagues of mine leave universities to do essentially the same thing they were doing but to get paid more, I am disappointed because there is a sense of mission,” he says.

That sense of mission has rubbed off on his apprentices at Yale, with the result that some major nonprofit organizations in the United States are now run by men and women who once worked for him: Seth Alexander at M.I.T., Andrew K. Golden at Princeton, D. Ellen Shuman at the Carnegie Corporation, Donna Dean at the Rockefeller Foundation and Paula Volent at Bowdoin College.

“He has this love of investments that is contagious,” says Ms. Volent, who spent four years at Yale’s investment office and now runs the investment committee at Bowdoin. “He taught us that we were in the business of making money for financial aid for students. If there was a dip in grants and you had a good endowment, you could continue on.”

After earning an undergraduate degree in economics at the River Falls campus, Mr. Swensen headed to Yale, where he received a doctorate in economics. His decision to head east surprised his family. To the Swensens, “it was as if there was something out there beyond Lake Wobegon, and David was conquering that frontier for us,” his brother Steven recalled.

At Yale, he also became close to James Tobin, a Nobel laureate in economics who believed that investment volatility was best reduced by diversifying across a far wider range of asset choices than only stocks and bonds.

Mr. Swensen then worked briefly on Wall Street, at Lehman Brothers and Salomon Brothers, an experience he describes as “intellectually fabulous but ultimately unsatisfying.”

“In the finance world it is very easy to measure winning and losing in dollars and cents,” he says. “That has always seemed to be an inadequate measure. The quality of life is a better way to measure winning and losing. Money is only one element of that.”

In 1985, Yale recruited Mr. Swensen to manage its endowment. “I took an 80 percent pay cut,” he recalls. “I was married, without kids. I was worried that I would miss the money, but then I didn’t. So I worried over nothing.”

Today, Mr. Swensen, now a divorced father of three, rides herd on about 100 money managers whom he entrusts with Yale’s money. Some of them say he is unyielding in seeking the best deals for Yale. One manager described him fondly as a real “stiff-backed Midwesterner.”

But within the clubby money management world, a Yale investment is akin to a seal of approval, and managers avidly court Mr. Swensen. They describe him as a thorough researcher who, with his team, scrutinizes his choices intensely before committing money.

One of his early investments was with Chieftain Capital Management, a firm run by Glenn Greenberg, a Yale graduate who met Mr. Swensen at a Yale fund-raiser.

“After he came to see us, he called up the chief executives at some of our largest holdings and asked them. ‘Who really knows your company well?’ ” Mr. Greenberg recalls of his first encounter with Mr. Swensen. “He wanted to know who did the best research. No other investors did research like that.”

When it comes to hedge funds, with their hefty fee structures, Mr. Swensen can be particularly tough. Tom Steyer, a Yale undergraduate, approached Mr. Swensen in 1987 to raise money for Farallon, his diversified hedge fund. “They turned us down flat,” Mr. Steyer recalled.

Like many hedge funds, Farallon charged a 1 percent management fee and took 20 percent of the profits. “David told us: ‘I don’t see why we would give you any money. You might shut down after a bad year,’ ” Mr. Steyer recalled.

It was only after Mr. Steyer swore that he wouldn’t shut down — and that he wouldn’t immediately charge Mr. Swensen 20 percent of his profits and other fees — that Mr. Swensen gave Mr. Steyer some of Yale’s money.

“If you make money personally by gathering a huge pile of assets, it is great for the management company because they make bigger fees,” Mr. Swensen says. “But if the fund goes from $2 billion or $3 billion to $20 billion, they are inevitably going to reduce their ability to generate investment returns. Size is the enemy of performance. What we need is people who define success by generating great investment returns, not by making as much money as they possibly can.”

Years ago, when Yale considered investing with ESL Partners, the hedge fund run by Edward S. Lampert, Mr. Swensen says Mr. Lampert refused to tell him what stocks ESL owned. An ESL spokesman declined to comment.

Ms. Swensen says: “If you are sitting in my position, how can you responsibly give money to a fund that won’t tell you what they are invested in? If I went to my investment committee and told them we are invested in this fund but we don’t know what the positions are, they should fire me.”

Yale did not even consider giving money to Steven Cohen, the money manager who takes 50 percent of his hedge fund’s profits. Mr. Cohen’s $12 billion fund has had a 43 percent average annualized return since 1992, but “the fees alone are enough to say I don’t want a meeting and there are enough people who put together fair deals,” Mr. Swensen says. A spokesman for Mr. Cohen declined to comment.

But once he likes an investor, Mr. Swensen tends to hang in, even in tough times. Yale weathered a 13 percent loss one year on funds invested with Water Street Capital, a hedge fund run by Gilchrist Berg. “I was a little bit shaky but David said to me, ‘We really value the relationship and we want to put more money with you,’ ” Mr. Berg recalls.

Other investors describe Mr. Swensen as an “extremely rational” contrarian. “He tries to think through what is the best opportunity,” Mr. Greenberg says. “He doesn’t care about being popular. And he is not afraid to go where other people don’t.”

Mr. Swensen considers trying to time the market a “fool’s errand.” Other managers say that his primary expertise involves spotting growth sectors in the economy and finding the best people to manage Yale’s investment in those sectors.

It is work that he loves. “You get to choose those investments that are the right fit,” he says. “I think Warren Buffett said it: It is like playing baseball when they don’t call the balls and strikes. You can wait and wait until it is a pitch you want to hit.”

Like Mr. Buffett, Mr. Swensen has developed a following. “In the endowment world, going to see David for advice is like going to the pope,” says a board member of an Ivy League university who insisted on anonymity because his board does not want him to comment on such matters publicly.

MR. SWENSEN clearly relishes how tenaciously some money managers court him. “We get lots and lots of unsolicited please and p-l-e-a-s,” he says, smiling. He also relishes the quality of people he has been able to recruit to work with him at the Yale endowment.

Mr. Swensen says he trolls for apprentices among Yale graduates because they care about the university’s mission, and he sometimes finds them in the economics course he teaches.

“I love the idea that undergraduates have this opportunity to study whatever they want,” he says. “Students will say to me, ‘What do I need to take to be attractive to an investment bank?’ I say: ‘Don’t do that. Take great classes that you like.’ “

Those who have worked with Mr. Swensen say he has successfully blended the notion of pursuing a calling with the raw mechanical discipline needed to be a winning steward of an endowment.

“I think that the success of many of the people who worked there related to this participating in seeing how good decisions were made and what constitutes good due diligence,” says Ms. Volent at Bowdoin.

In the end, Mr. Swensen says, successful investing — in fact, success in any profession — comes down to doing your job well and loving what you do.

What he demands of himself is exactly what he demands of the custodians of Yale’s capital: “People who define success by generating great returns, not by making as much money as they possibly can,” he says.

National character?

Social scientist Geert Hofstede of the University of Maastricht has done cross cultural surveys concerning attitudes about egalitarianism, individualism, risk aversion, etc. The results are quite interesting and can be found here.

The characteristics are as follows:

Power Distance Index (PDI): the extent to which the less powerful members of organizations and institutions accept and expect that power is distributed unequally. Higher means less egalitarian.

Individualism (IDV) (versus collectivism): Higher means more individualistic.

Masculinity (MAS): the distribution of roles between the genders. Higher means more chauvinistic.

Uncertainty Avoidance Index (UAI): tolerance for uncertainty and ambiguity. Higher score means more risk averse.

Long-Term Orientation (LTO) versus short-term orientation.


Here are two sample comparisons:





So, Americans are more egalitarian, more individualistic, more chauvinistic and less risk averse than their French cousins. They are also more egalitarian, more individualistic, similarly chauvinistic, more risk averse, and more short-term oriented than their Chinese counterparts. (Did I get all that right?)

It's just a small step to define a "metric on the space of national characters" :-)

Nobel data

Some interesting Nobel data found here. The author of the study is a professor of evolutionary psychology in the UK.

To improve the analysis I propose we remove the economics prize and replace it with the Fields Medal, and also normalize the number of winners to the size of the country/institution :-) It seems that US dominance is actually *increasing* (at least over 20 year timescales; perhaps we're past the peak by now). See related posts here.

Note that Stanford + Berkeley (the bay area, not even counting UCSF, which won 3) beats any other country over the last 20 years.

Why there should be more science Nobel Prizes – and why proportionate credit should be awarded to institutions

Charlton BG
Medical Hypotheses 2007; 68: 471-3 – doi:10.1016/j.mehy.2006.11.003

Abstract

The four science Nobel prizes (physics, chemistry, medicine/ physiology and economics) have performed extremely well as a method of recognizing the highest level of achievement. The prizes exist primarily to honour individuals but also have a very important function in science generally. In particular, the institutions and nations which have educated, nurtured or supported many laureates can be identified as elite in world science. However, the limited range of subjects and a maximum of 12 laureates per year means that many major scientific achievements remain un-recognized; and relatively few universities can gather sufficient Nobel-credits to enable a precise estimate of their different level of quality. I advocate that the Nobel committee should expand the number of Nobel laureates and Prize categories as a service to world science. 1. There is a large surplus of very high quality prize candidates deserving of recognition. 2. There has been a vast expansion of research with a proliferation of major sub-disciplines in the existing categories. 3. Especially, the massive growth of the bio-medical sciences has created a shortage of Nobel recognition in this area. 4. Whole new fields of major science have emerged. I therefore suggest that the maximum of three laureates per year in the categories of physics, chemistry and economics should always be awarded, even when these prizes are for diverse and un-related achievements; that the number of laureates in the ‘biology’ category of physiology or medicine should be increased to six or preferably nine per year; and two new Prize categories should be introduced to recognize achievements in mathematics and computing science. Together, these measures would increase the science laureates from a maximum of 12 to a minimum of 24, and increase their coverage. The Nobel Prize committee should also officially allocate proportionate credit to institutions for each laureate - both in retrospect for past prizes, and in the future.


...Nobel laureates nations and research institutions were measured between 1947-2006 in 20 year segments. The minimum threshold for inclusion was 3 Nobel prizes. Credit was allocated to each laureate's institution and nation of residence at the time of award. Over 60 years, the USA has 19 institutions which won three-plus Nobel prizes in 20 years, the UK has 4, France has 2 and Sweden and USSR 1 each. Four US institutions won 3 or more prizes in all 20 year segments: Harvard, Stanford, Berkeley and Caltech. The most successful institution in the past 20 years was MIT, with 11 prizes followed by Stanford (9), Columbia and Chicago (7).

Table 1 – Number of Nobel laureates by Nation – twenty year segments from 1947-2006. A minimum of three prizes in one time segment is required for inclusion.

Nation - 1947-66 - 1967-86 - 1987-2006

USA -50 - 88 - 126
UK - 20 - 25 - 9
Germany - 8 - 7 - 9
Switzerland - 3 - 7 - 7
Sweden - 3 - 7 - 1
Japan - 2 - 1 - 3
USSR/Russia - 7 - 2 - 2
France - 4 - 3 - 5

Table 2 - Number of United States Nobel laureates by Institution – twenty year segments from 1947-2006. A minimum of three prizes in one time segment is required for inclusion.

Institution - 1947-66 - 1967-86 - 1987-2006

USA

Harvard - 9 - 13 - 5
Univ. California Berkeley - 7 - 3 - 4
Stanford - 4 - 5 - 9
Caltech - 4 - 4 - 5
Columbia - 4 - 1 - 7
Rockefeller Inst. & Univ. - 3 - 6 - 3
Chicago - 2 - 4 - 7
Princeton - 1 - 2 - 6
MIT - 1 - 5 - 11
Cornell - 1 - 4 - 2

Murder, Mystery, M-theory?

Particle theorist Nick Evans has written a murder mystery novel set at a physics institute. The institute, modeled after Perimeter, seems to have been funded by a former physics student who becomes a tech multi-millionaire. Nick was a postdoc in our group when I was a professor at Yale. We wrote papers on topics ranging from quantum chromodynamics of dense matter to N=2 supersymmetry. He's now a professor at Southampton University in the UK. (I don't know if there's much M-theory in the novel, but it sounded better than "meson" or "mirror symmetry" :-)

I notice little diagrams of quarks, Higgs particles and neutrinos embedded in the page-turning prose. Hey, it's gotta be better than anything Dan Brown ever wrote. As Bill Cosby used to say on the Fat Albert cartoon show, "if you're not careful you may learn something!"

A younger researcher, Andreas Born, is found dead at the particle physics institute where he works. A policewoman is assigned the job of penetrating the intellectually charged atmosphere his colleagues work in. She is forced to unravel the mysterious world of subatomic particles to understand the dead man's motivations.

Meanwhile, Carl, one of Andreas' collaborators embarks on an exploration of Andreas' murky life outside physics including sex, drug dealing and bizarre alchemical experiments. Carl is followed by a mysterious stranger and must fight to preserve both his life and the relationship with his girlfriend.

Learn about the frontier of particle physics within a fast paced crime adventure.

Location, location, location

The Sunday Times on innovation and Silicon Valley. It's all true, although the author is a bit too sanguine for my taste -- he's ignoring Skype, Baidu, and a host of others. Nevertheless, if you're starting a tech company, consider moving it to the bay area. Otherwise, be prepared for the sickening feeling that you're running a race in the outside lane on a circular track.

NYTimes: In our celebrity-studded world, where we make a cult of genius and individual achievement, the mind rebels at the notion that geography trumps personality. Yet the inescapable lesson of the iPod, Google, eBay, Netflix and Silicon Valley in general is that where you live often trumps who you are.

Just ask Sim Wong Hoo. About seven years ago, I met Mr. Sim in Singapore, where he was born and was then living. He talked about the rising creativity of Singaporeans and with a flourish, as if to dramatically make his point, he pulled out a prototype of a hand-held music player that he insisted would replace Sony’s famous Walkman.

Mr. Sim’s device was breathtaking, possessing all the elements of what we now know as the MP3 player. Yet today, a Silicon Valley icon, Apple, dominates the market for MP3 players with the iPod. In recognition of its emergence as a music powerhouse, last month Apple dropped the word “computer” from its name.

Some months after my Singapore encounter, I visited the thriving code-writing communities in Tallinn, Estonia; Reykjavik, Iceland; and Helsinki, Finland, three Nordic cities that were being transformed by advances in cellphones, mobile computing and the Internet. Their tight-knit network of engineers seemed poised to create the tools required to make good on a much-hyped prediction: the death of distance. After all, if necessity is the mother of invention, no one had more need than the hardy Estonians, Icelanders and Finns, living on the frozen edge of Europe, when it came to killing distance as a barrier.

Yet these Nordic innovators were blindsided by two Silicon Valley engineers whose tools we experience whenever we “Google” the Web. Their company, Google Inc., posted a quarterly profit of $1 billion on Jan. 31.

Google’s astonishing rise and Apple’s reinvention are reminders that, when it comes to great ideas, location is crucial. “Face-to-face is still very important for exchange of ideas, and nowhere is this exchange more valuable than in Silicon Valley,” says Paul M. Romer, a professor in the Graduate School of Business at Stanford who is known for studying the economics of ideas.

In short, “geography matters,” Professor Romer said. Give birth to an information-technology idea in Silicon Valley and the chances of success seem vastly higher than when it is done in another ZIP code.

No wonder venture capitalists, who finance bright ideas, remain obsessed with finding the next big thing in the 50-mile corridor between San Jose and San Francisco. About one-quarter of all venture investment in the United States goes to Silicon Valley enterprises. And, according to a new report from Joint Venture: Silicon Valley Network, a regional business group, the percentage has risen, to 27 percent in 2005 from 21 percent in 2000.

Many times in the past, pundits have declared an end to Silicon Valley’s hegemony, and even today there are prognosticators who see growing threats from innovation centers in India and China. Certainly, great technology ideas can come from anywhere, but they keep coming from Silicon Valley because of two related factors: increasing returns and first-mover advantage.

These twin principles, debated in head-scratching terms by professional economists, essentially explain why Intel maintains a lead in high-performance chips, why Apple sustains a large lead in music players and why Google’s search engine remains a crowd pleaser.

On a gut level, we all can understand how these two factors work. Who wouldn’t want to play for a perennial contender? For the same reason that Andy Pettitte signs with the Yankees, the best and the brightest technologists from around the world make their way to northern California.

“All that venture capital attracts a lot of ideas — and the people who are having those ideas,” said Stephen B. Adams, an assistant professor of management at the Franklin P. Perdue School of Business at Salisbury University in Maryland who has studied the rise of Silicon Valley.

Newcomers plug into an existing network of seasoned pros that “isn’t matched anywhere else in the world,” says AnnaLee Saxenian, dean of the School of Information at the University of California, Berkeley, and author of “Regional Advantage,” a book about the competitive edge held by tech centers like Silicon Valley and the Route 128 suburbs near Boston. “That allows people to recombine technical ideas much more quickly here than anywhere else,” Professor Saxenian added.

“In terms of creativity, the Valley remains as far ahead of the rest of the world as ever,” she said. “People in the Valley generate new ideas and test them much more quickly than anywhere else. They aren’t a super race; it’s their environment.”

Silicon Valley is not invincible. The logic of increasing returns and the first-mover advantage can be overdrawn. Other clusters in the United States and around the world will commercialize great ideas, and the Valley will endure down cycles again, as it has in the past. Remember how the Japanese conquered memory-chip manufacturing in the 1980s, until then a staple of the Valley’s business? And, of course, the dot-com bust of five years ago remains a painful reminder of how success breeds hubris and humiliating failure.

Americans naturally harbor many fears about losing their edge, especially with the nation mired in war, the dollar’s value sliding and the health care system strained. Rivals, notably in India and China, see Silicon Valley’s pre-eminent position as a prize that they will inevitably take. Yet they face an elusive foe. Every time Silicon Valley recovers from failure, it seems to grow more durable, almost in the same way a person becomes “immune” to a disease after a brush with it.

Fifty years ago, chips were the engine of Silicon Valley. In the late 1970s came the personal computer and data-storage drives, then software, and more recently the dynamic vortex of the Web, new media and online commerce. (EBay, Netflix and, of course, Google and Yahoo are among the names that come to mind.)

These serial renewals are a marvel.

SIR PETER HALL, the British scholar of urban clusters, asks in “Cities in Civilization,” his history of geography and business innovation: “What makes a particular city, at a particular time, suddenly become immensely creative, exceptionally innovative? Why should this spirit flower for a few years, generally a decade or two at most, and then disappear as suddenly as it came?”

Sir Peter’s words highlight an enduring human mystery. In the case of Silicon Valley, the world rightly waits for the flame of creativity to burn out. That’s fair enough. To each, a season (or maybe a few). Living long and large, Silicon Valley surely will wither like a dead flower someday. My advice, though, is: Don’t hold your breath.

G. Pascal Zachary teaches journalism at Stanford and writes about technology and economic development.

See the future, build the future, be the future

I'm back from RSA, and boy am I tired. But, there's no better and faster way to keep tabs on what's happening in information security than to attend this zoo of a conference. I was pleased to see that SSL VPN (using secure sockets layer to build a browser-based virtual private network) is now a big mainstream market, with most security vendors, from Cisco to Juniper to Checkpoint, offering a product in that space. When we came up with the idea, everyone thought we were nuts!

After walking the expo (boy do my feet hurt), going booth to booth from the tiny startups to the huge public companies (VeriSign had their own espresso lounge), I'm increasingly confident that at Robot Genius we've also seen and built part of the future. Whether we'll BE part of the future depends on luck and business factors beyond my control.

There's no doubt in my mind that next-generation desktop security suites will incorporate new capabilities like those of our Spyberus client: they will have deep operating system behavioral monitoring, create process sandboxes, and store enough file-system and OS data to reverse infections and installations.

I am also sure that next-generation search will incorporate security-related data in their results and rankings. Our crawler farm has downloaded and tested all the Windows executables on the internet -- about a million unique applications (terabytes of data, all in storage now!) ranging from screensavers, to games, to complex applications -- and has determined which ones are dangerous malware or malware vectors. The only question is how this data will be used to protect individual users -- it can be used to improve/filter search results, in any firewall or gateway appliance, or even upstream at the network level. One major ISP we met with has already built the infrastructure to block user connects to dangerous urls.

RSA

Sorry for the lack of posts. I'm at RSA right now, the big annual information security conference. This year it's at Moscone center in SF, and it's a zoo.

Anatol Rapoport, 1911-2007

Economist's View notes the passing of Anatol Rapoport, a mathematician turned game theorist and political theorist. I first discovered Rapoport from his introduction to an edition of von Clausewitz's On War. I found the introduction far more lucid and useful than von Clauswitz's own presentation. You can often detect a first rate thinker from a relatively short piece of work, and this brief introduction piqued my interest in Rapoport many years ago. As noted here,

I read some of his 1984 book "Mathematical Methods in the Social and Behavioral Sciences" and it's a great book. There are not many people who have a strong and original mathematical mind and yet know how to apply it with wisdom, but Rapoport's reach and depth in the book is hugely impressive.

Rapoport was the author of Tit for Tat, the benevolent strategy for prisoner's dilemma that won the earliest tournaments conducted by Axelrod at Michigan.

Globe&Mail: That year also saw publication of political scientist Robert Axelrod's seminal book, The Evolution of Co-operation, which asked a simple, yet age-old, question: If living things evolve through competition, how can co-operation ever emerge? A computer tournament was organized to study the relationship of game theory to evolution -- a variation on the Prisoner's Dilemma. Entries came from the world's top theorists.

Dr. Rapoport entered a program he wrote called Tit-For-Tat, consisting of four lines of code. It was by far the simplest entry, and it won. Betraying the retributive implications of its name, the program opened by co-operating with its opponent. Thereafter, it played exactly as the other side had played in the preceding game. If the other side had defected, Tit-For-Tat also defected for that one game. If the other side had co-operated, it co-operated on the next round.

"In effect, Tit-For-Tat punished the other player for selfish behaviour and rewarded her for co-operative behaviour -- but the punishment lasted only as long as the selfish behaviour lasted," observed Metta Spencer, editor of Peace Magazine, on the occasion of Dr. Rapoport's 90th birthday. "This proved to be an exceptionally effective sanction, quickly showing the other side the advantages of co-operating. . . . It also set moral philosophers to proposing this as a workable principle to use in real life interactions."

Group differences galore

Kari Stefansson of deCode genetics interviewed (podcast and stream) on Biotech Nation. He discusses published and unpublished results on genetic variation between continental groups, with emphasis on disease resistance. deCode uses genetic and medical data from the homogeneous population of Iceland to find disease-related genes.

See related post here.

The wisdom of Ponzi

I bring you the wisdom of Ponzi Q. Globalization, lifted from the comments on DeLong's blog.

Beloved corporations like Microsoft and Intel have already learned that they can get good technology R&D cheaply by outsourcing to places like China and India. These are American companies benefiting from innovation abroad. Why is it such a benefit to America to have the R&D and innovation done by Americans in America?

Isn't Summers an economist? If so, then why is he not for free trade? We need not innovate in any science here in America in order to prosper. Given our high living standards, it's a waste of money.

Economic orthodoxy states that it's an absolute good for all nations to focus on what they have a comparative advantage in. The U.S. is not exempt from this. Let the Chinese and the rest of the world do the scientific dirty work. We in America will do the work that suits us. And, as Alan Blinder has pointed out, the work that suits America is personal services, not innovation in biotechnology. Subsidies for innovation or R&D or whatever are a form of protectionism and must be shunned.

Amen.

...We Americans do not have a monopoly on brains. American multinationals can fund biotech innovation abroad and get more for their money. The innovation will be done, just not by Americans in America. American businesses will still get the rewards from the innovations. What's so bad about that?

...What's wrong with having America business funding R&D in biotech or whatever the next big thing is overseas? Giving the differences in living standards and labor regulations, they can get a bigger bang for their buck. What's not to like?

If Americans get screwed out of doing this type of work, so be it. They can go into the one line of work where Americans seem to have a comparative advantage, personal services, and I'm sure everyone will be better off. It's not a zero sum game, you know.

All this sounds like industrial policy to me. And being a good believer in those most perfect of human intellectual inventions, free markets and free trade, I am appalled at its promotion on this board.

...Economists are needed to provide an ideological framework that justifies the screwing of the weak for the benefit of the powerful. They are thus more important to those who matter than any scientist.

The economists most listened to already are established and thus can even promote policies that screw their own kind without fear. The economists who are not established must follow the orthodoxy. Apart from the pressure to conform, economic theory is very complicated and, thus, it is too difficult for a novice to deviate from the orthodoxy.

However, most economists are not masochists. When enough economists suffer sufficiently from extensions of the policies they promote today, then the economic theory will adjust to so that its implementation will ease their suffering.

...There is no market failure here. Given the high costs to do anything here in the good old U.S. of A., it is better if innovation and product development are done abroad if possible. And with each passing day, because of technology and the neo-liberal globalizationized regulatory regime, it becomes more possible.

Americans should stick to the types of work in which they have a comparative advantage. Here I agree with Alan Blinder that America should focus on personal services.

So to heck with biotechnology and science/technology research in general. Let them go the same way we let go of making televisions and other stuff. There's one big global labor pool now. Let us take advantage of it! Or should I say, let corporate 'America' take advantage of it! Because what's good for corporate 'America' is good for America. And we will all share in the prosperity that trickles down from the executive suites and brokerage firms someday.

This is Economics 101 people.

Summers on the biology century

Via Brad DeLong and Economist's View, Larry Summers argues for industrial policy favoring life sciences.

Gee, is there a market failure? If life sciences are so important to society, why doesn't the market reward researchers the way it does hedge fund managers? Does government really need to interfere? Obviously I agree with Summers, but I don't think strong believers in markets as resource allocators for society can do so without questioning some of their beliefs.

Note, though, it's a bit more complicated than Summers makes it out to be. Biologists who start companies can become rich, but it's a longer and riskier road than heading directly into business or finance.

See related posts here, here and here.

[Very nice discussion over at DeLong's blog, including explanation of market failure vs externalities, why the science track is for masochists, comparative advantage, etc.]

FT.com / Columnists / Lawrence Summers - America must not surrender its lead in life sciences: If the 20th century was defined by developments in the physical sciences, the 21st century will be defined by developments in the life sciences. Lifespans will rise sharply as cures are found for chronic diseases and healthcare will come to be a larger share of the economy than manufacturing. Life science approaches will lead to everything from further agricultural revolutions to profound changes in energy technology and the development of new materials....

It is natural to ask whether the US will lead in the life sciences in this century as it did in the physical sciences in the last. It is a profoundly important economic question, but one whose implications go far beyond to embrace issues of national security and moral leadership. At present, if one looks at levels of investment or at research output or at the prestige of leading institutions, the US is clearly leading in the life sciences. But past performance is no guarantee of future success. In the first third of the 20th century, Europe and Europeans were the dominant source of discoveries in physics....

If America is to maintain its leadership in life sciences in the 21st century, important steps must be taken. Most abstract but most important, there needs to be respect for the scientific method and its results. In sharp distinction to the situation in other industrial countries, there is an increasing move away from respecting the scientific method in US schools....

Second, funding.... During the past three years, when there has been more possible in the life sciences than there has ever been, when we are on the cusp of achieving important breakthroughs in everything from stem cells to the treatment of cancer, government funding for science research has been cut in real terms. This has been particularly hard on young researchers starting out in their careers....

In today's economy an outstanding graduate of a leading business school earns a substantially higher salary than a potential Nobel prize winner graduating with a PhD in biology. Several years after graduation the differences are even more pronounced. It should not be a surprise that in light of this economic reality more of our talented young people are not headed towards careers in basic research in the life sciences.

Third, we need to control the role of politics in allocating science dollars, which are currently tossed around like so many political footballs.... [I]t is not a step towards a healthier 21st century to allow the views of a vocal minority in effect to cut off funding for embryonic stem cell research -- which is likely to lead to revolutions in the treatment of Parkinson's disease, diabetes and cancer within the next generation.

Finally, we need to support clusters of extraordinary performance. If competition is individualistic, the US is going to have a very difficult time because salary levels adjusted for talent are going to be much lower in other parts of the world. Rather than focus on each individual as an island unto him or herself, the US needs to focus on fostering clusters of innovation such as Silicon Valley in information technology, Boston in the life sciences, New York in finance -- where each talented individual derives his or her strength from all that is around. Competing with that on price is much more difficult...

Intellectual honesty? in the eye of the beholder

PrawfsBlawg, a blog written by a collective of law school professors, recently ran a post entitled Princeton, Berkeley and Asians, about the Jian Li discrimination lawsuit against Princeton and Affirmative Action (AA). It links to an earlier post here on the same topic.

Posts on PrawfsBlawg seem to get anywhere from zero to ten comments. But traffic soared after Instapundit linked to the AA post. Over 50 comments appeared overnight, most soundly critical of the original (pro-AA) discussion. The result? "The comments to this entry are closed" despite PrawfsBlawg's motto "Where Intellectual Honesty Has (Almost Always) Trumped Partisanship Since 2005" :-)

Graduate admissions, human capital and globalization

I'm on the graduate admissions committee this year. We're in the middle of reviewing over 200 applications for about a dozen places in our PhD program. About 3/4 of the applicants are foreign, the vast majority of those from China, while less than a quarter are domestic. We're a middle-level PhD program at a flagship public university -- not ranked among the top 20 physics departments, but probably not very different from the next 20 departments, with several very strong research specialties.

Through some independent research, I've learned that the top 5% or so of students from the very best universities in China (e.g., Beijing University or Tsinghua University) can expect to be admitted to the top 10 programs in the US, so they might not apply at Oregon. A typical student admitted here from China will be in the top 10-20% of their class at one of the top 5-10 departments. The modal GRE quant score is a perfect 800 (>94 percentile) and a typical GRE subject score of an admitted Chinese applicant is above 90th percentile. Very few American applicants score above the 90th percentile on the subject test (the top ranks are dominated by foreigners), and those individuals usually end up at top US grad schools.

Our yield (ratio of students who enroll to those who are accepted) is about 10%, probably because most of these applicants are accepted at multiple programs of similar quality. Among our applicants I've already spotted winners of the Chinese national physics and math Olympiads (these teams often score 5 golds at the world competition) and numerous graduates of the "Special Youth" program which admits young talents to university early. One applicant is 19 and took general relativity at age 18. (As I mentioned already, the very strongest Chinese applicants are only applying to the top 5 or 10 US graduate programs, so we may not see them in our pool.)

How do these students perform in graduate school? Typically very well in the courses and on the comprehensive exams. The top scorers on the PhD candidacy exam, both here and when I was a professor at Yale, are disproportionately from China (and rarely Americans, although I think when I was a grad student myself at Berkeley there were often Americans at or near the top). The harder question is whether, in the long term, these Chinese students are as productive researchers as the domestic students. I haven't seen any systematic studies of this, but I suppose they are at least comparable since a lot of professors these days are PRC immigrants who went through graduate school here. I suspect that mastering English might be harder for many of these students than the physics itself.

One thing I am sure of -- without these foreign applicants the strength of US graduate programs in physics would be reduced significantly (I am sure the situation is the same in engineering and other sciences). We're reaping the benefits of a very well organized system for training students up to the BS and MS levels; most of these students want to stay in the US after finishing their educations. I suppose more and more good students are staying at home for their PhD, rather than coming to the US, but at the moment we can still draw on a huge pool of human talent from abroad.

China to diversify FX reserves

A lot of interest in this over the last few days. Someone sent me a UBS report which contains the following. I'm sure US banks and hedge funds are queuing up for a chance to manage some of these funds. Will we see Chinese FX reserves recycled into equities and other less liquid assets?

China’s inter-agency Financial Work Conference ended over the weekend, and we’ve started to see gradual information flow about the results. This was a rare occasion for the senior leadership to meet and decide on the direction of financial sector policies for the next few years to come.

The main issues included restructuring of state bank management, new bond market regulations, creation of a deposit insurance scheme, fostering rural finance – and, of course, potential changes in FX reserve management and portfolio allocation. With regard to the latter, we do expect to see changes ahead, but we don’t see any near-term implications whatsoever for US or other overseas asset markets.

Going into the conference, the issue of management and allocation of China’s US$1 trillion of FX reserves was clearly one of the biggest policy issues on the table. Needless to say, popular proposals over the past few months have run a wide gamut, including diversification of the PBC’s own portfolio, transferring reserves to the existing Central Huijin Investment Company, allocating reserves to a new State Investment Corporation, creation of a new energy-related private equity vehicle, recapitalizing the National Pension Fund, etc.

At the conclusion of the meetings, it is clear that policymakers did agree on some form of restructuring – however, it is also clear that there has been no detailed decision as to what form that restructuring might take. Premier Wen Jiabao announced that China will “actively explore and broaden the channels and manner of using its foreign exchange reserves”, but that is the only statement we have from the senior authorities on the topic. While we could see further announcements over the next few quarters, as we argued in last week’s note (Big News on Chinese Reserves?, UBS Asian Economics, January 18), we don’t see any significant near-term implications for the US dollar or US treasury market.

China anti-satellite capability and nuclear deterrence

There seems to be quite a bit of confusion over the recent demonstration of Chinese anti-satellite capability using medium range ballistic missiles. It's certainly true that this capability raises tremendous headaches for US military planners, who have become reliant on GPS and satellite intel for precision strikes and use of advanced weaponry. In any conflict over Taiwan, the US now has to factor in what might happen to its satellites. Certainly, it would have been in US interests to negotiate a treaty on anti-satellite weapons before the Chinese had a chance to test their capabilities.

But there's another aspect to this issue which I've not seen discussed. Because China's arsenal of ICBMs is quite limited (their longest range missiles are still liquid fueled, perhaps numbering less than 20, and their submarine-launch capabilities remain limited), any US missile defense system is a potential threat to Chinese nuclear deterrence. The US has continued to spend billions on a Star Wars program, ostensibly motivated by N. Korea, but such a system impacts the Chinese as well. The planning scenario for PLA strategists goes like this: (1) US first strike against Chinese ICBMs causes significant losses, (2) US missile defense system may be sufficient to stop a second strike consisting of only a handful of ICBMs. The Chinese anti-satellite capability helps guarantee their second-strike capability. They certainly have enough medium range missiles to do serious damage to the US spy satellite infrastructure, perhaps enough to disable any missile defense system.

Most scientists will tell you that the current US system is far from capable of (2), and that the whole thing is essentially military welfare for defense contractors and the aerospace industry, but nevertheless foreign strategists have to take the system seriously -- just as the Soviets took Reagan's original Star Wars efforts seriously. So, Chinese planners need to make sure they have a counter-counter measure against our missile defense system.

Incidentally, those credulous folk who believe the proponents of the current anti-missile system might want to ask themselves how credible the Livermore/Star Warrior/Reaganites were 25 years ago when they claimed they could actually build something to defend against the entire Soviet arsenal. The current system is much more limited in scope -- meant to stop one or a handful of incoming missiles -- but still hasn't been convincingly tested. If the Star Warriors were exaggerating then, they're quite likely exaggerating now.

Callow youth at Columbia and the benevolence of financiers

If you want a cynical but amusing take on finance and Wall St., I suggest the tabloid blog DealBreaker. A recent article there highlights some interviews with Columbia University seniors bound for glory and treasure in investment banking. I don't detect much benevolence or altruism in their motivations :-) Related posts here and here.

DealBreaker: Do you know anything about investment banking? If you answered ‘yes,’ hold on to your seat, because today’s top story in Columbia’s The Eye, “Wall Street Indiscreet,” is going to blow you away. Writer Dan Haley interviewed the pseudonymous “Paul Owen,” a senior with plans to work on the Street after graduation and the results are pretty eye-opening. You should obviously check it out for yourself, but here are a few highlights:

The majority of students who find employment in investment banks come from Ivy League-caliber schools. In the banking industry, these are referred to as “target” schools. Columbia is one. So is Cornell—but less so. Middlebury is not a target school. Don’t even think about Binghamton.

“Investment banking isn’t this advanced math, these advanced quantitative techniques. There’s Excel for that,” he tells me. “Investment banking is really just critical thinking. They way I put it, if you’re good at Sudoku, you’ll be a good investment banker.”

When you get a job in I-banking, it doesn't matter if you were previously the biggest tool at school; the guy who always got picked last for gym, always got stuffed in his locker. You are now a certified badass.

With $145,000 in his pocket—projected earnings, it is not all actually in his pocket at the moment—Owen tells me that senior year has been “an absolute shitshow.” ... “The best description of it I can give,” said Owen, “is that the third week of school I took Monday and Tuesday off from class to go to Puerto Rico.”

At first, it’ll be a lot of late hours and hard work, for sure. But once you pay your dues, it’ll be pussy, pussy, pussy. “At first, as an analyst, you’re doing grunt work,” he said. “But then, as you go on, as you get to the vice president and managing director levels, it’s all about client relations. Expensive dinners, golf trips, schmoozing. I can’t say I would mind that at all.”

When you work in I-banking, you can, like, make people do shit for you. “I was 21 and my secretary was about 15 years older,” Chan [who interned in Hong Kong last summer] said. “I could ask her to fax stuff for me, or get me coffee, or pens, or even ask her to bring me my bank account statement.”

If you work at a good enough firm, they’ll pay for your prostitutes. Of course, it wasn’t all work in Hong Kong. On Friday and Saturday nights, with no work the next day, the bankers would cut loose. This meant hitting up one of the three big expatriate bars/clubs in the city. These clubs were usually filled with two groups of people: bankers and “models.” The “models” would get in without paying the cover charge and drink for free while the bankers would have to cough up $1,000 for a table, although sometimes the firm paid for them.

Brutal, just brutal

Via Gene Expression, three essays on intelligence and education by Charles Murray. Yes, I know they appeared on the WSJ editorial page, and yes, I know what book Murray co-authored back in the 90's. However, he's willing to raise some important issues that others dare not. Some excerpts below.

Warning, not for the politically correct ability egalitarians who think anyone can play basketball like Michael Jordan or compose music like Mozart if they just try hard enough.

If you don't like his continued use of IQ as a measure of intelligence, just pretend you have your own measure (or even measures) and substitute it each time he writes "IQ", keeping in mind your measure will have an average - let's call it "100" for simplicity - and probably be roughly normally distributed, as most human traits are.

1) What fraction of the population is capable of absorbing a university education or mastering college-level material? It might be smaller than the proportion attending college today.

To have an IQ of 100 means that a tough high-school course pushes you about as far as your academic talents will take you. If you are average in math ability, you may struggle with algebra and probably fail a calculus course. If you are average in verbal skills, you often misinterpret complex text and make errors in logic.

These are not devastating shortcomings. You are smart enough to engage in any of hundreds of occupations. You can acquire more knowledge if it is presented in a format commensurate with your intellectual skills. But a genuine college education in the arts and sciences begins where your skills leave off.

In engineering and most of the natural sciences, the demarcation between high-school material and college-level material is brutally obvious. If you cannot handle the math, you cannot pass the courses. In the humanities and social sciences, the demarcation is fuzzier. It is possible for someone with an IQ of 100 to sit in the lectures of Economics 1, read the textbook, and write answers in an examination book. But students who cannot follow complex arguments accurately are not really learning economics. They are taking away a mishmash of half-understood information and outright misunderstandings that probably leave them under the illusion that they know something they do not. (A depressing research literature documents one's inability to recognize one's own incompetence.) Traditionally and properly understood, a four-year college education teaches advanced analytic skills and information at a level that exceeds the intellectual capacity of most people.

There is no magic point at which a genuine college-level education becomes an option, but anything below an IQ of 110 is problematic. If you want to do well, you should have an IQ of 115 or higher. Put another way, it makes sense for only about 15% of the population, 25% if one stretches it, to get a college education. And yet more than 45% of recent high school graduates enroll in four-year colleges. Adjust that percentage to account for high-school dropouts, and more than 40% of all persons in their late teens are trying to go to a four-year college--enough people to absorb everyone down through an IQ of 104.

2) On the highly intelligent fraction and their contributions to society.

If "intellectually gifted" is defined to mean people who can become theoretical physicists, then we're talking about no more than a few people per thousand and perhaps many fewer. They are cognitive curiosities, too rare to have that much impact on the functioning of society from day to day. But if "intellectually gifted" is defined to mean people who can stand out in almost any profession short of theoretical physics, then research about IQ and job performance indicates that an IQ of at least 120 is usually needed. That number demarcates the top 10% of the IQ distribution, or about 15 million people in today's labor force--a lot of people.

In professions screened for IQ by educational requirements--medicine, engineering, law, the sciences and academia--the great majority of people must, by the nature of the selection process, have IQs over 120. Evidence about who enters occupations where the screening is not directly linked to IQ indicates that people with IQs of 120 or higher also occupy large proportions of positions in the upper reaches of corporate America and the senior ranks of government. People in the top 10% of intelligence produce most of the books and newspaper articles we read and the television programs and movies we watch. They are the people in the laboratories and at workstations who invent our new pharmaceuticals, computer chips, software and every other form of advanced technology.

Combine these groups, and the top 10% of the intelligence distribution has a huge influence on whether our economy is vital or stagnant, our culture healthy or sick, our institutions secure or endangered. Of the simple truths about intelligence and its relationship to education, this is the most important and least acknowledged: Our future depends crucially on how we educate the next generation of people gifted with unusually high intelligence.

How assiduously does our federal government work to see that this precious raw material is properly developed? In 2006, the Department of Education spent about $84 billion. The only program to improve the education of the gifted got $9.6 million, one-hundredth of 1% of expenditures. In the 2007 budget, President Bush zeroed it out.

Just to clarify for Murray: he's not proposing a hard cutoff in IQ for any particular achievement (becoming a chip designer, writing a senior thesis in French Literature), but merely that the fraction of people capable of that achievement with IQ below the value he gives is very small (e.g., very few medical researchers with IQ less than 120). Therefore, we can use the estimated value as a way to guess what percentage of the general population is sufficiently capable. There are of course other factors involved in success at a particular task than raw cognitive ability (motivation, organization, communication skills, ...). See earler post on success vs ability.

For more on theoretical physicists, see here. This will sound terribly arrogant (so shoot me), but Murray's estimate of few per thousand is way too high. That's about the ability level of the average Caltech undergrad, and I would guess only the top 5-10% of students there could be theoretical physicists.

Podcast roundup

For fans of Borges, an hour long discussion on the BBC radio program In Our Time.

Scott Kriens, CEO and Chairman of Juniper, speaking at the Stanford Entrepreneurial Thought Leaders lecture series, emphasizes the role of dumb luck in startup success. Stanford students are lucky to have the opportunity to attend these lectures; thanks to podcasting we can all enjoy them. Other lectures in this series I found particularly good (available at the link above): Marissa Mayer (Google), Chong-Moon Lee (Ambex), Carol Bartz (Autodesk), Mark Zuckerberg (Facebook), Jeff Hawkins (Palm). All of these people are smart and have valuable insights to offer.

Another podcast series I recommend is Bloomberg On the Economy, which is a mix of academic and "market" economists (the latter work at banks and investment funds) and the occasional portfolio manager like Bill Gross. I find it very amusing that one can easily find two "market" economists confidently stating completely contradictory predictions on the same day (e.g., right before an employment report or Fed meeting). Sometimes I listen to the podcast a day or two late, so I actually know the outcome already as I listen to the poor guy (sometimes it's a woman) laying out their case for a prediction that turned out completely off the mark. These people must be selected for lack of Socratic self-examination, because the models they play with are so obviously lacking in predictive power, yet they never figure this out. (I suppose it's possible they do realize this, but then they all deserve Oscars for Best Actor or Actress, since they project sincere belief in their predictions.) The academics are typically more thoughtful and, being tenured, aren't under pressure to predict the next tick :-)

I know I'm belaboring the point, but if you forced one of these guys to give error estimates, I am sure you would find them making 3 sigma errors with regularity: e.g., my model says the jobs number is going to be low, only 90k new jobs created last month, with standard deviation of 30k -- gulp, the real number is 180k! And this guy is a Sr. VP or MD at Bear/Merrill/CS/Goldman, whatever. But they never subject themselves to this discipline -- if they did, they'd realize their actual one sigma error is so big that their central value is useless.

You might get the impression I'm only listening to the Bloomberg podcast for comedic value, but I find the reasoning and intuition of the various guests interesting, even if they can't predict anything. At least it helps you understand what a sizeable fraction of market participants are actually thinking.

Finally, if you're interested in recent progress in biotech, I suggest Futures in Biotech with Marc Pelletier (a postdoc at Yale). They cover topics ranging from protein folding to microarrays to neuroscience through interviews with leading scientists. The only problem with this show is that sometimes the real scientist being interviewed forgets the target audience is supposed to be kind of sophisticated and they resort to the usual pop science cliches.

I listen to this stuff when I'm running or at the gym. Thanks to Steve Jobs, instead of fighting boredom or replaying 80's hits from my youth, I can learn something while sweating.

Asians at Berkeley

The Sunday Times had an interesting long article in on diversity at Berkeley. Asians comprise 12% of California's population, but now make up almost 50% of the student body at Berkeley and several other UC campuses. Nationally, they are 5% of the population, but make up 10-30% of student bodies at elite private universities (Caltech has the highest percentage at 33%, whereas Princeton has one of the lowest at 13%).

I like the use of language in the article - they refer to UC admissions in the wake of Prop 209 (which removed race-based preferences) as a strict meritocracy, as opposed to what is practiced at most other public and private colleges. In fact the lead-in to the article on the web site says:

With a mandate that says merit trumps all, Berkeley finds itself looking across the Pacific for its identity. Is this the new face of higher education?

The usual diversity double-speak refuses to acknowledge that race-based preferences are not meritocratic.

Our heroes Jian Li (Yale student suing Princeton over anti-Asian admissions policies) and Daniel Golden (WSJ writer whose recent book The Price of Admission exposes the ugly side of elite admissions) both appear in the article. The Princeton spokesperson quoted in the article provides an excellent example of politically correct obfuscation. How is awarding preference to certain ethnic groups not discriminatory towards other non-preferred groups, given that the number of students admitted each year is fixed? Innumeracy strikes again!

For earlier related discussion, see here. For the Princeton study that showed statistically how affirmative action hurts Asians (being Asian is equivalent to a 50 point penalty on the SAT), see here.

NYTimes: Little Asia on the Hill

...Spend a few days at Berkeley, on the classically manicured slope overlooking San Francisco Bay and the distant Pacific, and soon enough the sound of foreign languages becomes less distinct. This is a global campus in a global age. And more than any time in its history, it looks toward the setting sun for its identity.

The revolution at Berkeley is a quiet one, a slow turning of the forces of immigration and demographics. What is troubling to some is that the big public school on the hill certainly does not look like the ethnic face of California, which is 12 percent Asian, more than twice the national average. But it is the new face of the state’s vaunted public university system. Asians make up the largest single ethnic group, 37 percent, at its nine undergraduate campuses.

...But 10 years after California passed Proposition 209, voting to eliminate racial preferences in the public sector, university administrators find such balance harder to attain. At the same time, affirmative action is being challenged on a number of new fronts, in court and at state ballot boxes. And elite colleges have recently come under attack for practicing it — specifically, for bypassing highly credentialed Asian applicants in favor of students of color with less stellar test scores and grades.

...This is in part because getting into Berkeley — U.S. News & World Report’s top-ranked public university — has never been more daunting. There were 41,750 applicants for this year’s freshman class of 4,157. Nearly half had a weighted grade point average of 4.0 or better (weighted for advanced courses). There is even grumbling from “the old Blues” — older alumni named for the school color — “who complain because their kids can’t get in,” says Gregg Thomson, director of the Office of Student Research.

...Asians have become the “new Jews,” in the phrase of Daniel Golden, whose recent book, “The Price of Admission: How America’s Ruling Class Buys Its Way Into Elite Colleges — and Who Gets Left Outside the Gates,” is a polemic against university admissions policies. Mr. Golden, a reporter for The Wall Street Journal, is referring to evidence that, in the first half of the 20th century, Ivy League schools limited the number of Jewish students despite their outstanding academic records to maintain the primacy of upper-class Protestants. Today, he writes, “Asian-Americans are the odd group out, lacking racial preferences enjoyed by other minorities and the advantages of wealth and lineage mostly accrued by upper-class whites. Asians are typecast in college admissions offices as quasi-robots programmed by their parents to ace math and science.”

...To force the issue on a legal level, a freshman at Yale filed a complaint in the fall with the Department of Education’s Office of Civil Rights, contending he was denied admission to Princeton because he is Asian. The student, Jian Li, the son of Chinese immigrants in Livingston, N.J., had a perfect SAT score and near-perfect grades, including numerous Advanced Placement courses.

“This is just a very, very egregious system,” Mr. Li told me. “Asians are held to different standards simply because of their race.”

To back his claim, he cites a 2005 study by Thomas J. Espenshade and Chang Y. Chung, both of Princeton, which concludes that if elite universities were to disregard race, Asians would fill nearly four of five spots that now go to blacks or Hispanics. Affirmative action has a neutral effect on the number of whites admitted, Mr. Li is arguing, but it raises the bar for Asians. The way Princeton selects its entering class, Mr. Li wrote in his complaint, “seems to be a calculated move by a historically white institution to protect its racial identity while at the same time maintaining a facade of progressivism.”

...Admissions officials have long denied that they apply quotas. Nonetheless, race is important “to ensure a diverse student body,” says Cass Cliatt, a Princeton spokeswoman. But, she adds, “Looking at the merits of race is not the same as the opposite” — discrimination.

Elite colleges like Princeton review the “total package,” in her words, looking at special talents, extracurricular interests and socioeconomics — factors like whether the applicant is the first in the family to go to college or was raised by a single mother. “There’s no set formula or standard for how we evaluate students,” she says.

...Historically, Asians have faced discrimination, with exclusion laws in the 1800s that kept them from voting, owning property or legally immigrating. Many were run out of West Coast towns by mobs. But by the 1970s and ’80s, with a change in immigration laws, a surge in Asian arrivals began to change the complexion of California, and it was soon reflected in an overrepresentation at its top universities.

In the late 1980s, administrators appeared to be limiting Asian-American admissions, prompting a federal investigation. The result was an apology by the chancellor at the time, and a vow that there would be no cap on Asian enrollment.

...One leading critic of bringing affirmative action back to Berkeley is David A. Hollinger, chairman of its history department and author of “Post-Ethnic America: Beyond Multiculturalism.” He supported racial preferences before Proposition 209, but is no longer so sure. “You could argue that the campus is more diverse now,” because Asians comprise so many different cultures, says Dr. Hollinger. A little more than half of Asian freshmen at Berkeley are Chinese, the largest group, followed by Koreans, East-Indian/Pakistani, Filipino and Japanese.

He believes that Latinos are underrepresented because many come from poor agrarian families with little access to the good schools that could prepare them for the rigors of Berkeley. He points out that, on the other hand, many of the Korean students on campus are sons and daughters of parents with college degrees. In any event, he says, it is not the university’s job to fix the problems that California’s public schools produce.

Metric on the space of genomes and the scientific basis for race

[Note: the science has advanced considerably since I wrote this post. See here for a nice picture of clustering by ethnicity. I've added some comments at the bottom.]

Suppose that the human genome has 30,000 distinct genes, which we will label as i = 1,2, ... N, where N = 30k. Next, suppose that there are n_i variants or alleles (mutations) of the i-th gene. Then, each human's genetic information can be described as a point on a lattice of size n_1 x n_2 x n_3 ... n_N, or equivalently an N-tuple of integers, each of whose values range from 1 to n_i. For the simplified case where there are exactly 10 variants of each gene, the number of points in this N dimensional space is 10^N or 10^{30k}, one for each distinct 30k digit number. It's a space of very high dimension, but this doesn't stop us from defining a metric, or measure of distance between any two points in the space. (For simplicity we ignore restrictions on this space which might result from incompatibility of certain combinations, etc.)

Note that the genomes of all of the humans who have ever lived occupy only a small subset of this space -- most possible variations have never been realized. For this reason, the surprise expressed by biologists that humans have so few genes (not many more than a worm, and far less than the 100k of earlier estimates) is no cause for concern -- the number of possible organisms that might result from 30k genes is enormous -- far more than the number of molecules in the visible universe.

To define a metric, we need a notion of how far apart two different alleles are. We can do this by counting base pair differences -- most mutations only alter a few base pairs in the genetic code. We can define the distance between two alleles in terms of the number of base pair changes between them (this is always a positive number). Then, we can define the distance between two genomes as the sum of each of the i=1,2,..,N individual gene distances. It is natural, although perhaps not always possible, to choose the n_i labeling of alleles to reflect relative distances, so variants n_1 and n_2 are close together, and both very far from n_10.

The exact definition of the metric and the allele labeling are somewhat arbitrary, but you can see it is easy to define a meaningful measure of how far apart any two individuals are in genome space.

Now plot the genome of each human as a point on our lattice. Not surprisingly, there are readily identifiable clusters of points, corresponding to traditional continental ethnic groups: Europeans, Africans, Asians, Native Americans, etc. (See, for example, Risch et al., Am. J. Hum. Genet. 76:268–275, 2005.) Of course, we can get into endless arguments about how we define European or Asian, and of course there is substructure within the clusters, but it is rather obvious that there are identifiable groupings, and as the Risch study shows, they correspond very well to self-identified notions of race.

From the conclusions of the Risch paper (Am. J. Hum. Genet. 76:268–275, 2005):

Attention has recently focused on genetic structure in the human population. Some have argued that the amount of genetic variation within populations dwarfs the variation between populations, suggesting that discrete genetic categories are not useful (Lewontin 1972; Cooper et al. 2003; Haga and Venter 2003). On the other hand, several studies have shown that individuals tend to cluster genetically with others of the same ancestral geographic origins (Mountain and Cavalli-Sforza 1997; Stephens et al. 2001; Bamshad et al. 2003). Prior studies have generally been performed on a relatively small number of individuals and/or markers. A recent study (Rosenberg et al. 2002) examined 377 autosomal micro-satellite markers in 1,056 individuals from a global sample of 52 populations and found significant evidence of genetic clustering, largely along geographic (continental) lines. Consistent with prior studies, the major genetic clusters consisted of Europeans/West Asians (whites), sub-Saharan Africans, East Asians, Pacific Islanders, and Native Americans. ... We have shown a nearly perfect correspondence between genetic cluster and SIRE [self-reported ethnicity] for major ethnic groups living in the United States, with a discrepancy rate of only 0.14%.

This clustering is a natural consequence of geographical isolation, inheritance and natural selection operating over the last 50k years since humans left Africa.

Every allele probably occurs in each ethnic group, but with varying frequency. Suppose that for a particular gene there are 3 common variants (v1, v2, v3) all the rest being very rare. Then, for example, one might find that in ethnic group A the distribution is v1 75%, v2 15%, v3 10%, while for ethnic group B the distribution is v1 2% v2 6% v3 92%. Suppose this pattern is repeated for several genes, with the common variants in population A being rare in population B, and vice versa. Then, one might find a very dramatic difference in expressed phenotype between the two populations. For example, if skin color is determined by (say) 10 genes, and those genes have the distribution pattern given above, nearly all of population A might be fair skinned while all of population B is dark, even though there is complete overlap in the set of common alleles. Perhaps having the third type of variant v3 in 7 out of 10 pigmentation genes makes you dark. This is highly likely for an individual in population B with the given probabilities, but highly unlikely in population A.

We see that there can be dramatic group differences in phenotypes even if there is complete allele overlap between two groups - as long as the frequency or probability distributions are distinct. But it is these distributions that are measured by the metric we defined earlier. Two groups that form distinct clusters are likely to exhibit different frequency distributions over various genes, leading to group differences.

This leads us to two very different possibilities in human genetic variation:

Hypothesis 1: (the PC mantra) The only group differences that exist between the clusters (races) are innocuous and superficial, for example related to skin color, hair color, body type, etc.

Hypothesis 2: (the dangerous one) Group differences exist which might affect important (let us say, deep rather than superficial) and measurable characteristics, such as cognitive abilities, personality, athletic prowess, etc.

Note H1 is under constant revision, as new genetically driven group differences (e.g., particularly in disease resistance) are being discovered. According to the mantra of H1 these must all (by definition) be superficial differences.

A standard argument against H2 is that the 50k years during which groups have been separated is not long enough for differential natural selection to cause any group differences in deep characteristics. I find this argument quite naive, given what we know about animal breeding and how evolution has affected the (ever expanding list of) "superficial" characteristics. Many genes are now suspected of having been subject to strong selection over timescales of order 5k years or less. For further discussion of H2 by Steve Pinker, see here.

The predominant view among social scientists is that H1 is obviously correct and H2 obviously false. However, this is mainly wishful thinking. Official statements by the American Sociological Association and the American Anthropological Association even endorse the view that race is not a valid biological concept, which is clearly incorrect.

As scientists, we don't know whether H1 or H2 is correct, but given the revolution in biotechnology, we will eventually. Let me reiterate, before someone labels me a racist: we don't know with high confidence whether H1 or H2 is correct.

Finally, it is important to note that group differences are statistical in nature and do not imply anything definitive about a particular individual. Rather than rely on the scientifically unsupported claim that we are all equal, it would be better to emphasize that we all have inalienable human rights regardless of our abilities or genetic makeup.

[See here (Economist's View blog) for more comments.]

[See Gene Expression for more discussion and references.]

Note added: See related Risch article which discusses H1 and H2: Assessing genetic contributions to phenotypic differences among 'racial' and 'ethnic' groups (Nature 2004), and also these 2013 comments in an interview with Ta-Nehisi Coates for The Atlantic:

Q: One last question. Your paper on assessing genetic contributions to phenotype, seemed skeptical that we would ever tease out a group-wide genetic component when looking at things like cognitive skills or personality disposition. Am I reading that right? Are "intelligence" and "disposition" just too complicated?

A: (Risch) Joanna Mountain and I tried to explain this in our Nature Genetics paper on group differences. It is very challenging to assign causes to group differences. As far as genetics goes, if you have identified a particular gene which clearly influences a trait, and the frequency of that gene differs between populations, that would be pretty good evidence. But traits like "intelligence" or other behaviors (at least in the normal range), to the extent they are genetic, are "polygenic." That means no single genes have large effects -- there are many genes involved, each with a very small effect. Such gene effects are difficult if not impossible to find. The problem in assessing group differences is the confounding between genetic and social/cultural factors. If you had individuals who are genetically one thing but socially another, you might be able to tease it apart, but that is generally not the case.

In our paper, we tried to show that a trait can appear to have high "genetic heritability" in any particular population, but the explanation for a group difference for that trait could be either entirely genetic or entirely environmental or some combination in between.

So, in my view, at this point, any comment about the etiology of group differences, for "intelligence" or anything else, in the absence of specific identified genes (or environmental factors, for that matter), is speculation.

To repeat, I think it is fair to say that we don't know*** whether H1 or H2 is correct, even though we do know that populations cluster (genetically) by ancestry. Clustering makes it possible that H2 is correct, because the alleles (genetic variants) affecting a particular phenotype will tend to have different frequencies in different groups. The average value of the trait might or might not be the same in different groups. In the case of height, enough is known to suggest that variants which lead to increased height are more frequent in northern Europe than in the south, and there is evidence that this is due to selection, not drift.

*** I think it's especially important to be epistemologically careful in thinking about these matters, because of our difficult history with race. I would much rather live in a world where H1 is true and H2 false. But my preference alone does not make it so. (I would also much rather live in a universe created by a loving God, and in which I and my children have eternal souls; not a cruel Darwinian universe in which our species arose merely by chance. But my preference does not make it so.)