Management Advice From 1797

Yesterday I went to see Elizabeth: The Golden Age….not a great movie, but worth seeing, and better than you would think from reading the reviews. The battle scenes with the Armada reminded me of something written by a Spanish government official, which I posted about a couple of years ago. Don Domingo Perez de Grandallana was writing about the battle of Cape St Vincent, in 1797, but the factors he discusses were likely also major influences on the fate of the Armada, 200 years earlier. And they are also major influences today, 200 years later, on the fate of many efforts in business and government.

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The CTA

A few weeks ago I was riding a bus to work (usually I walk, but sometimes I take the bus if it is right there). The bus had a canned announcement saying that if the CTA didn’t get a funding increase, the CTA was going to discontinue this route.

There were a large number of routes at risk. Most of the routes that only run during rush hours, like the 125, were “on the block” to be cut.

As I looked around the full bus, it really hit me what the CTA’s problem is – they can’t figure out if they are trying to make money or if they are trying to provide a public service.

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Cook County – An Amazing Quote

A couple of years ago I thought I had heard the most ridiculous quotation when Putin said that the collapse of the Soviet Union was “the greatest geopolitical catastrophe of the century.”

While activities in Cook County, Illinois, have little historical importance compared to the end of the USSR that quote was what leaped to mind when recently, the County Board President Todd Stroger was discussing the county’s huge deficit of $307 million and said:

“Do I think that there could be fat somewhere… there could be up to a million dollars worth of fat, maybe.”

Only the Putin quote rivaled Mr. Stroger’s quote for sheer banality.

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Chicago Sales Tax Hike Proposed

It is sad when two of my more depressing prophecy-type posts intersect…

Cook County is the vast county within which the city of Chicago resides, along with a large number of affluent suburbs. Cook County has a population of over 5 million and is the 2nd largest county in terms of population in the United States.

In this post from March of 2007 I discussed how a succession movement could be in the future of Cook County. Specifically, I noted how the huge expenses of maintaining hospitals was burdening the county and killing their ability to live within a balanced budget.

In this post from December 2006 I went through sales taxes, which are among the most regressive taxes in the arsenal of tax tools and the fact that Cook County and the City of Chicago have one of the highest and most unfavorable sales tax regimes in the country.

Now, in a single article in the Chicago Tribune titled “County Urged To Boost Sales Tax – City Total Would be 11% Under Plan” dated September 25, 2007 shows the likely intersection of these negative trends. Todd Stroger, the epitome of political nepotism, who campaigned on a plan to streamline the bloated Cook County work force, has done nothing of the sort and is now looking about for a revenue boost to cover the inevitable annual increases in expense growth.

The line from Mayor Daley says it all – “A sales tax is a hard pill, but how do we fund three hospitals?”

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Health Care and Fixed Costs

There are many health care plans being proposed to “fix” the growth in medical costs in the United States. Each of these plans has different elements but I haven’t really seen the particular linked issue addressed that I am going to speak of in this blog post.

I make a point of reviewing my medical bills. When you have surgery, for example, you receive an itemized bill. In that bill you can see services from each provider and also the cost for the room, medicine, etc… Frequently the costs seem far out of line from reality (outside the walls of medicine); a room could cost hundreds or thousands of dollars a night; an aspirin or readily available over-the-counter medicine could cost many dollars per pill.

The real issue is that the medical industry is primarily a “fixed cost” business, with very low “marginal costs”. For example, if you look at the Northwestern Hospital facility downtown, a vast series of interconnected buildings, and asked yourself this question:

How would costs vary on a given day if the facility was full of patients vs. having NO patients?

The answer is that the costs for that day would be virtually identical whether or not the hospital had patients. You still need to pay for the facility, the doctors, the electricity, and all the support workers and nurses. Virtually the only “variable” costs that would be avoided are the cost of medicines and food, but the medicines are inventoried and they need to hold stocks in advance and the food must be purchased based on planned demand and the spare food would just be thrown away (the costs would be pretty much the same).

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