A PRESIDENTIAL AFFAIR

President Clinton's affair with Monica Lewinsky was the last sensation of the second millennium AD in the US. While it was an odd thing to do in White House, there was not much to it. But the American institution of internship is distinctive; I thought it was a great idea to expose bright young people to what went on in the highest echelons of power - though Bill went too far. Hence this column - the last one for 1999, on Christmas Day, in Business Standard.

WHO WAS MONICA LEWINSKY?

Everyone knows: Monica Lewinsky was an intern. Just what sort of a selection she went through I am not sure. At least three offices in the White House take interns: Office of Science and Technology Policy, Office of Management and Budget, and Centre for Environmental Quality.

Of these, the OMB runs  a programme called White House Fellows. President Johnson started it; in the thirty years since it began, over 500 young people have served as White House fellows. Some 11-19 fellows are taken every year out of 500-800 applications that are usually received. Usually it is young people early in their careers who get selected.

The application asks for details of the applicants’ achievements in four spheres – education, work, voluntary activities and professional activities. But they are not the only relevant ones: one is supposed to mention all achievements, such as in sports or arts. In other words, the organizers are looking for young people who would serve as special assistants to some high-level government official; but they are also looking for leadership qualities and a commitment to serve others. OMB staff screens the applications. Then 10 regional commissions interview the 100 or so short-listed candidates. The final selection is made by The President’s Commission on White House Fellowship, which consists of 36 eminent persons, such as Professor William Wilson of JFK School of Government, Dana Mead, CEO of Tenneco, General Wesley Clark (retd), and Robert Yazzie, Chief Justice of the Navajo Nation. The selected fellows are then placed in various departments of the government.

The selection process begins in February and ends in June; the winners are placed in office at the beginning of September for a year. There they write speeches, help draft legislation, answer Congressional enquiries, conduct briefings, and generally watch the government processes.

Thus 16 candidates were selected in 1999. Amongst them was Sunil Garg, 32, who works as assistant to Mayor Richard M Daley of Chicago. He is Master of Public Policy from Kennedy School of Government and is doing an MBA at Chicago University. In the Mayor’s office, he is working on setting up a new public-private partnership to attract and retain businesses in the city.

Khalid Azim, 34, grew up in Harlem, and was helped through studies by A Better Chance programme, a programme intended to harness talented students from disadvantaged neighbourhoods. He served five years in the US Navy, where he became the only minority officer in his submarine squadron and took part in the Desert Shield and Desert Storm campaigns. He got an MBA from Virgnia, and is serving as a Vice President at Morgan Stanley Dean Witter in Hong Kong. He mentors a 16-year-old boy and pays his tuition in a private school.

Juan Garcia III is Flag Lieutenant in London to the Deputy Commander in Chief of the US Naval Forces in Europe, and earlier served as ADC to the Director of the Joint Task Force for operations in Kosovo. He is a UCLA graduate; he got a Master’s degree from Kennedy School of Government and then joined the naval air arm. He flew 30 sorties in Desert Storm, including an emergency landing in the desert sand. He taught civics to candidates for immigration amnesty, and started a programme to introduce youths from troubled homes to naval aviation.

Melissa Goldstein has degrees from Virginia and Yale Law School and is consultant to the National Bioethics Advisory Commission; she is a post-doctoral fellow in Georgetown and Johns Hopkins universities. She served as a law clerk in the US District Court for New York South.

Christopher Moore is a 37-years-old police lieutenant in the San Jose Police department and an attorney in Pleasanton. He is a Berkeley graduate. He has served in patrol, street crimes, burglary, crime prevention, and field training units of San Jose Police and is the youngest command officer in the department. He created two programmes to prevent local school kids to turning to violence.

Timothy Wu is 36, and director of development at the Support Center for Nonprofit Management in San Francisco. He has a degree in politics from Princeton and in law from Harvard Law School. After graduation he joined CBS News, and became the youngest member of Princeton’s Board of Trustees. He is also a director of the International Lesbian and Gay Film festival.

Jacqueline Lane is Assistant Director of Government Relations in the Texas Association of School Boards in Austin Texas.  She provides legal advice to members of school boards and pleads their case with the state legislature and regulatory bodies.

Lance Wyatt is a surgeon in the UCLA hospital. He graduated from Howard University and got his MD from UCLA. He worked on projects focusing on bone development, repair and regeneration; now he is taking training in plastic surgery. He runs Health Relief International, a nonprofit organization to provide health care to the poor.

Esther Benjamin, a Sri Lankan, is a management consultant. She was the youngest officer in the UN relief programme in Somalia. She is co-founder of a fund which finances the education of victims of the civil war in Sri Lanka.

Ariel Zwang, 35, is a graduate of Harvard Business School; while there, she started a programme in which students helped recent immigrants find jobs. She works in the Women’s Housing and Economic Development Corporation in the Bronx, which provides job training, low income housing and social services in the Bronx. She was special assistant to the Chancellor of the New York City Board of Education. She is active in the United Jewish Appeal of New York.

Of the 16 fellows, only 4 did not belong to some minority group; all the rest were either black, Asian, Hispanic or Jewish. Drawing members of minorities into the innermost circles of government and exposing them to administrative processes seems to me to be a far better encouragement than giving them reservations in administrative services.

MANUFACTURE OF BEAUTY

Since I spent two years in Germany as a student, I was familiar with Nazis - a handful survived into the 1960s - and their efforts to breed pure Aryans. So I was a bit shocked by the sale of supermodels' eggs in the US. It also seemed to be inconsistent with feminism, one of America's dominant ideologies. This column in Business Standard of 11 December 1999 was the result.

THE EGG AUCTIONEER

I have no doubt that eggs are auctioned in many places. But this auction is different. Ron Harris has advertised an auction of the eggs of supermodels. He has posted the photographs of some of them; not bad at all. Harris has been called a “soft-porn entrepreneur”. He regards himself differently. He says he is a fashion photographer – that he has published over 10,000 photographs of models in fashion magazines, and over 5,000 advertisements, and won over 450 awards. He has run a syndicated exercise show for television, shown in 57 countries over 15 years. He bred Arabian horses; more recently he was producer and director in Playboy Television. The eggs are pretty pricy; $100,000 is not a high price for one. So the trade is not likely to be booming at this stage. But words are much cheaper; Harris’s auction has unleashed a voluble debate in the United States.

There are those who scoff at the whole idea: what is the guarantee that the child of a supermodel will be beautiful? There is the famous exchange between George Bernard Shaw and Lady Astor, in which Lady Astor admired the beauty and intelligence of their potential offspring. “And what if it had your intelligence and my beauty?” Shaw is reputed to have asked. People’s children do not necessarily look like them; they often look like grandparents or ancestors even further removed. Some look like nothing at all. Some combine their parents’ features in innovative ways; the combinations of the nose, lips and ears can by themselves be myriad.

But the biggest worries in the US hinge on how much of a model’s body is her own. She may have had silicone implants, she may have her hips remodelled, her nose reshaped. It is unlikely that these cosmetic changes will be passed on to the egg, however much one may pay for it. The remedy suggested is that the buyer should ask for the model’s parents’ photographs. The history cannot be taken too far back since the photograph was invented only 150 years ago. Besides, whereas a model cannot fake her own looks, she can her parents’.

It is not a matter of looks alone; the mind enters the picture too. The model’s intelligence quotient can, of course, be measured, and there is some evidence that intelligence is inherited. But what about psychological abnormalities? Is the willingness to sell her eggs itself evidence of some kink? And how does one make sure that the egg came from the purported model? Verification of that face would require some elaborate rituals.

Some commentators, on the other hand, oozed sympathy and commiseration. USA Today thought the models were struggling actresses, who thought  selling eggs was better than prostitution. And potential buyers were infertile couples trying to conceive. Others worried about the child. If it turns out to be much prettier than the parents, it may be estranged from them. If she turns out to be a stunner, her parents may force  her to become a beauty queen against her will. She may attract the wrong kind of people, and have unhappy experiences. Just look at what happened to Marilyn Monroe.

Still others fear the success of the enterprise. Suppose the rich all acquire models’ eggs and produce stunning offspring. A time may come when all the rich are handsome and all the poor ugly. In multiracial societies, race alone can bless or condemn a human being. In South Africa till recently, it was lucky to be white, and unlucky to be black. Things are not so extreme in other societies, but all those where Africans were taken as slaves, whites tend to be richer and more privileged. This sort of difference would be greatly magnified if the rich were bred to be beautiful.

What is striking is how far the debate on models’ eggs has veered from the one on Nazis’ plans to breed Aryans. It was pilloried, and because of it, eugenics became somewhat of a forbidden subject in the western society. There is a fair amount of evidence that intelligence is inherited; but to work on this issue is to enter a dead end, and actually to assert it is academic suicide. Yet the same society is quite unshaken by eugenics of beauty. The assumption is hardly challenged that beauty is inherited. I guess it is everyone’s personal experience that children look like parents. When a child is born, the game begins of speculating whether it looks like its father or its mother; a third party is never considered. It may well be that we find resemblances between parents and children because they are the only ones we are considering and there is only a limited range of variations in human features.

Nor is there national concern about the breeding of beauty. The outrage against the breeding of blonde, blue-eyed Aryans by the Nazis was based on the implicit assumption that good looks could be bred. And yet, when the breed of supermodels is to be extended to the community of the rich, it does not evoke the same indignation.

This shows how beauty has been downgraded in the United States. Forty years of feminism has made it unfashionable to be beautiful. So few get upset if beauty is going to be auctioned and propagated: so what? Who cares for beauty but the rich and the spoilt?

Fashions may change on beauty and breeding, but I place my faith in a more durable rule of human societies: from rags to rags in three generations. A bold young man – pardon, person – makes his – pardon, her fortune. The next generation lives well on his or her inheritance; the third generation blows it all up and sinks back into the dregs. So beauty will return where it comes from. The great-great-great-grandchildren of supermodels will turn out to be supermodels, for they will no longer have the riches.

MICROSOFT ON TRIAL

I watched the trial of Microsoft from Stanford; what struck me was the quality of the judgment of a district court judge - such a refreshing contrast to the rambling, unfocussed, poorly argued judgments of Indian judges that I was used to. This is what I wrote in Business Standard of 27 November 1999.

THE MICROSOFT CASE

On 5 November, Judge Thomas Penfield Johnson of the District of Columbia district court made public findings of facts in the case filed by the US government and a number of State governments against Microsoft for abuse of power. This was not a judgment; the judgment will follow a couple of months later – unless something else happens in between. This judgment has been widely reported as being hostile to Microsoft. Actually, it is a model of drafting.

The 207-page statement begins by giving definitions and describing the contours of the software industry. It defines the personal computer, an operating system, the internet, internet service providers, internet access providers, etc etc. I had been reading about internet for years, but this statement gave me for the first time a complete and reliable picture of the industry.

It then defines the relevant market in relation to which Microsoft’s monopoly power must be judged. The test of the market is whether a consumer would substitute another product for a Microsoft product; the judge shows why other operating systems – for instance, software of server systems, Intel-incompatible systems, information devices like palmtops, browsers etc – cannot be counted as substitutes for Windows. Nor is a substitute likely to emerge, because of the enormous volume of software designed on the Windows platform – 70,000 programmes. The closest rival is Macintosh Apple, on which 12,000 programmes are based. Judge Johnson then lists the players who have tried to create competing operating systems – IBM, Mac, Be, Linux – none of which have succeeded. Given the variety of Windows-based programmes available, a consumer is bound to prefer Windows to other software platforms. Given his preference, every original equipment manufacturer installs Windows in his PCs. Judge Johnson calls this the applications barrier to entry.

Netscape Navigator and Sun Microsystem’s Java first seriously threatened this barrier. Navigator, Netscape’s web browser, was ported to fifteen operating systems; and Sun has designed programmes called Java virtual machines which permit Java programmes to run on other operating systems. Netscape Navigator was a hugely successful web browser, and it, together with Java, posed the first serious threat to Microsoft, especially since Navigator exploited the fast-expanding internet market.

Before Netscape Navigator was launched, Microsoft tried in 1995 to ensure that it, so to speak, joined the Windows family. Netscape was interested in making Navigator compatible with Windows; for that it needed access to a certain application programming interface. But the two sides could not agree on division of functions. Microsoft did not give the relevant API. That held up Netscape only for a while. Once it became clear that Netscape would not compromise, Microsoft launched its competing browser, Explorer; from 1995 onwards it spent over $100 million a year developing it. By 1999, over 1000 engineers were working on it; they had improved Explorer enough to whittle down the distance between it and Navigator. Throughout, Microsoft gave away Explorer free to all buyers of Windows. It introduced a term in the contracts of OEMs whereby they could no longer remove an installed icon from MS Windows. Compaq and Hewlett Packard had introduced booting sequences and tutorials which would make their PCs more user-friendly; Microsoft introduced a condition preventing the disturbing of the Windows booting sequence.

Compaq finally decided that discretion was the better part of valour, and came to an arrangement whereby it would use only Windows software in its PCs. In return, Microsoft signed a “frontline partnership” agreement with Compaq, and was believed to have given it the best terms of all hardware manufacturers as well as considerable technical and marketing support. IBM, on the other hand, had developed its own system called OS/2, and was consequently treated less generously. In Summer 1994 it asked Microsoft for the same terms as were being given to Compaq. Microsoft offered IBM a “frontline partnership” agreement if it mentioned only Microsoft products in its advertisements and preinstalled Windows 95 on at least half the PCs it shipped two months after Windows 95 was released. IBM refused; it vigorously advertised its own operating system; and in June 1995 it acquired Lotus and started promoting Lotus Smartsuite as a product competing with Windows. At the same time, it asked for a licence for Windows 95 in March 1995. Microsoft waited till July. Then on 17 July, it issued the mastercode for Windows 95 to all OEMs except IBM; on the 20^th it told IBM that it would have to wait till Microsoft completed an audit of royalties due from IBM – a process which might take months, certainly far beyond autumn which is the peak marketing season for PCs in the US. IBM offered Microsoft a bond of $10 million. In a meeting on 9 August, Joachim Kempin, who was in charge of Microsoft’s OEM sales, asked IBM for a bond of $25 million, and said it could be reduced if IBM postponed installing Smartsuite on its PCs for six months to a year. IBM refused to accept the deal. Windows 95 was launched on 24 August; IBM was given the licence 15 minutes before the launch event, after giving a bond of $31 million. As a result it failed to cash in on the back-to-school sales in September.

In the following two years, Microsoft went berserk. First it made it impossible to uninstall Explorer. Every operating system, including Windows, has a button for uninstalling a programme; Windows provided one for every programme – except Explorer. Further, even when another browser was installed, Windows made Explorer the default browser; so users using Netscape would suddenly find that they had strayed into Explorer.

This massive evidence marshaled by Judge Johnson constitutes a damning indictment of Microsoft. Microsoft still hopes to avert an adverse verdict by arguing that it was all done to benefit the consumer. But that is not the only defence it is planning. It has already given $13 million to Presidential candidates last year, and $6 million this year. For next year there will be another President.

THE HARDWARE INDUSTRY

Indians were aware only of the IT software industry, which employed thousands of Indian programmers and paid them well. But behind the software industry was a hardware industry, whose challenges were different. I reviewed them in this article in Business Standard of 13 November 1999.

THE STRESS OF HIGH TECHNOLOGY

All that we see in India is the high-flying software industry; we think that the sky is its limit, and reward its companies with enormous valuations. But how does it look from inside? It is easier to get a close look sitting here in Silicon Valley.

Behind the software industry is a hardware industry; without hardware, software would not exist, and the shape of hardware determines the design of the software for it. But no two industries could be more different. The building blocks of hardware are integrated circuits; they have been getting more and more complex, and differentiated. And as they increase in complexity, their process technology becomes trickier. The result is that if someone wanted to set up a fabrication facility – fab as they call it here – it is unlikely to cost less than $2 billion.

And it is not as if you invest $2 billion and then keep producing the chips for the next thirty years. The technology of ICs is being updated every day, and customers want nothing but the latest. So as soon as you have found the couple of billion and built a fab, the struggle starts – to turn out the latest custom-made chip for the yuppie customer. The pressure is not only to turn out tomorrow’s product today; it has to be made at a fraction of yesterday’s price. As Bruce Goldman reported, the price of storage disks was $3 a megabite not long ago; today it is 2 cents, soon it will fall below a cent. And in the meanwhile, storage density goes on increasing, and chips pack more and more memory.

So you can be sure that if you make today’s product and try to sell it next month, the market will have disappeared. Speed is the core of the matter. Computer manufacturers want deliver within hours; they may vary their order by 50 per cent, and you will have to bear it. And although the chips keep changing constantly, a computer manufacturer will expect absolutely standardized, uniform quality. He does not want to worry whether the chip came from one fab or another; they all have to give exactly the same performance.

This means that once the process has been set up for making one chip, it must be left completely unchanged; no tinkering with it. This is all right as long as the chip is coming out of one fab. But suppose you have a success, the demand soars, and you have to build another fab. The only way of making sure that it will give the identical chip is that it must be an exact copy of the first fab. Engineers find it heart-rending to build an identical fab; they would have thought up lots of improvements since the last fab was built and would want to incorporate them in the new one. But that is banned; improvements are too risky if they change the performance of the chip.

Fabs are costly; to be competitive, they have to be built and run cheaply. Take Komag, which has two fabs close to San Francisco. It has another four in Malaysia, one in Japan and one in Thailand. Three-quarters of its production comes from Malaysia, which has the lowest labour costs. Why not India? Too much bureaucratic hassle; a fab would take years to build, not weeks. The product cycle has come down to nine months; India could never permit such fast reaction times.

Designing, manufacturing and selling chips has become a risky business; companies have been looking for less hazardous strategies. One is to buy chips. Many chip manufacturers source chips from other makers if the orders do not fit into its production schedule. Cisco makes internet equipment; it contracts out PCBs to half a dozen manufacturers across the world. And contracting out has created another type of manufacturer – one that does not design chips at all, but makes chips on designs given to it by its customers. This is what Taiwan Semiconductor Manufacturing Corporation has done; as a result, it controls over a third of global foundry work. It has been such a success that it is today the third most valuable semiconductor company in the world, behind Intel and Texas Instruments. The converse of TSMC is a company that only designs chips, but does not manufacture them.

Still, hitherto there has been one constant in this constantly changing industry – the giant manufacturer-suppliers of chips for standard PCs and workstations. They stand between the computer manufacturers at one end and the fabs at the other. The mass manufacturers of computers do not yet go directly to the fabs. Maybe that will happen next. If it does, the giants of the hardware industry, those market valuations have zoomed up and up for a decade, may well be doomed.

So what can they do? They have to run their vast operations with the same nimbleness, the same flexibility as the small internet companies or software designers. Therein lies the riddle – a riddle which so many American companies, and not only the ones in the information technology industry, are trying to unravel. GE owes its success to the solution it has developed – setting its engineers the clear goal of getting close to customers and helping them make better profits year after year, and letting them alone as long as they are performing this core function well. Something similar is happening to the automobile industries. Car manufacturers are letting individual factories design and market their own models, encouraging them to tailor the models to the customers’ requirements, introducing flexibility in an industry characterized by assembly lines. The problem is the same in all engineering industries – where investment in plant and equipment is high but the products demanded by the market are changing. The IC industry is an extreme example: the pace of change there is many times faster, hence organizational solutions are that much more urgent. What this industry does today, other industries will be doing tomorrow.