Book Club: The Code Economy: The DNA of Business

“DNA builds products with a purpose. So do people.” –Auerswald, The Code Economy

McDonald’s is the world’s largest restaurant chain by revenue[7], serving over 69 million customers daily in over 100 countries[8] across approximately 36,900 outlets as of 2016.[9] … According to a BBC report published in 2012, McDonald’s is the world’s second-largest private employer (behind Walmart with 1.9 million employees), 1.5 million of whom work for franchises. …

There are currently a total of 5,669 company-owned locations and 31,230 franchised locations… Notably, McDonald’s has increased shareholder dividends for 25 consecutive years,[18] making it one of the S&P 500 Dividend Aristocrats.[19][20]

According to Fast Food Nation by Eric Schlosser (2001), nearly one in eight workers in the U.S. have at some time been employed by McDonald’s. … Fast Food Nation also states that McDonald’s is the largest private operator of playgrounds in the U.S., as well as the single largest purchaser of beef, pork, potatoes, and apples.  (Wikipedia)

How did a restaurant whose only decent products are french fries and milkshakes come to dominate the global corporate landscape?

IKEA is not only the world’s largest furniture store, but also among the globe’s top 10 retailers of anything and the 25th most beloved corporation. (Disney ranks number one.) Even I feel a strange, heartwarming emotion at the thought of IKEA, which somehow comes across as a sweet and kind multi-national behemoth.

In The Code Economy, Auerswald suggests that the secret to McDonald’s success isn’t (just) the french fries and milkshake machines:

Kroc opened his first McDonald’s restaurant in 1955 in Des Plaines, California. Within five years he had opened two hundred new franchises across the country. [!!!] He pushed his operators obsessively to adhere to a system that reinforced the company motto: “Quality, service, cleanliness, and value.”

h/t @simongerman600

Quoting Kroc’s1987 autobiography,

“It’s all interrelated–our development of the restaurant, the training, the marketing advice, the product development, the research that has gone into each element of the equipment package. Together with our national advertising and continuing supervisory assistance, it forms an invaluable support system. Individual operators pay 11.5 percent of their gross to the corporation for all of this…”

The process of operating a McDonald’s franchise was engineered to be as cognitively undemanding as possible. …

Kroc created a program that could be broken into subroutines…. Acting like the DNA of the organization, the manual allowed the Speedee Service System to function in a variety of environments without losing essential structure or function.

McDonald’s is big because it figured out how to reproduce.

source: Statista

I’m not sure why IKEA is so big (I don’t think it’s a franchise like McDonald’s,) but based on the information posted on their walls, it’s because of their approach to furniture design. First, think of a problem, eg, People Need Tables. Second, determine a price–IKEA makes some very cheap items and some pricier items, to suit different customers’ needs. Third, use Standard IKEA Wooden Pieces to design a nice-looking table. Fourth, draw the assembly instructions, so that anyone, anywhere, can assemble the furniture themselves–no translation needed.

IKEA furniture is kind of like Legos, in that much of it is made of very similar pieces of wood assembled in different ways. The wooden boards in my table aren’t that different in size and shape from the ones in my dresser nor the ones in my bookshelf, though the items themselves have pretty different dimensions. So on the production side, IKEA lowers costs by producing not actual furniture, but collections of boards. Boards are easy to make–sawmills produce tons of them.

Furniture is heavy, but mostly empty space. By contrast, piles of boards stack very neatly and compactly, saving space both in shipping and when buyers are loading the boxes into their cars. (I am certain that IKEA accounts for common car dimensions in designing and packing their furniture.)

And the assembly instruction allow the buyer to ultimately construct the furniture.

In other words, IKEA has hit upon a successful code that allows them to produce many different designs from a few basic boards and ship them efficiently–keeping costs low and allowing them to thrive.

From Anatomy of an IKEA product:

The company is also looking for ways to maximize warehouse efficiency.

“We have (only) two pallet sizes,” Marston said, referring to the wooden platforms on which goods are placed. “Our warehouses are dimensioned and designed to hold these two pallet sizes. It’s all about efficiencies because that helps keep the price of innovation down.”

In Europe, some IKEA warehouses utilize robots to “pick the goods,” a term of art for grabbing products off very high shelves.

These factories, Marston said, are dark, since no lighting is needed for the robots, and run 24 hours a day, picking and moving goods around.

“You (can) stand on a catwalk,” she said, “and you look out at this huge warehouse with 12 pallets (stacked on top of each other) and this robot’s running back and forth running on electronic eyebeams.”

IKEA’s code and McDonald’s code are very different, but both let the companies produce the core items they sell quickly, cheaply, and efficiently.

In The Code Economy, Chapter 8: Evolution, discusses the rise of Tollhouse Cookies, McDonald’s, the difference between natural and artificial objects, and the development of evolutionary theory from Darwin through Watson and Crick and through to Kauffman and Levine’s 1987 paper, “Toward a General Theory of Adaptive Walks on Rugged Landscapes.” (With a brief stop at Erwin Shrodinger along the way.)

The difficulty with evolution is that systems are complicated; successful mutations or even just combinations of existing genes must work synergistically with all of the other genes and systems already operating in the body. A mutation that increases IQ by tweaking neurons in a particular way might have the side effect of causing neurons outside the brain to malfunction horribly; a mutation that protects against sickle-cell anemia when you have one copy of it might just kill you itself if you have two copies.

Auerswald quotes Kauffman and Levin:

“Natural selection does not work as an engineer works… It works like a tinkereer–a tinkerer who does not know exactly what he is going to produce but uses… everything at his disposal to produce some kind of workable object.” This process is progressive, moving form simpler to more complex forms: “Evolution doe not produce novelties from scratch. It works on what already exists, either transforming a system to give it new functions or combining several systems to produce a more elaborate one [as] during the passage from unicellular to multicellular forms.”

Further:

The Kauffman and Levin model was as simple as it was powerful. Imagine a genetic code of length N, where each gene might occupy one of two possible “states”–for example, “o” and “i” in a binary computer. The difficulty of the evolutionary problem was tunable with the parameter K, which represented the average number of interactions among genes. The NK model, as it came to be called, was able to reproduce a number of measurable features of evolution in biological systems. Evolution could be represented as a genetic walk on a fitness landscape, in which increasing complexity was now a central parameter.

You may remember my previous post on Local Optima, Diversity, and Patchwork:

Local optima–or optimums, if you prefer–are an illusion created by distance. A man standing on the hilltop at (approximately) X=2 may see land sloping downward all around himself and think that he is at the highest point on the graph. But hand him a telescope, and he discovers that the fellow standing on the hilltop at X=4 is even higher than he is. And hand the fellow at X=4 a telescope, and he’ll discover that X=6 is even higher.

A global optimum is the best possible way of doing something; a local optimum can look like a global optimum because all of the other, similar ways of doing the same thing are worse.

Some notable examples of cultures that were stuck at local optima but were able, with exposure, to jump suddenly to a higher optima: The “opening of Japan” in the late 1800s resulted in breakneck industrialization and rising standards of living; the Cherokee invented their own alphabet (technically a syllabary) after glimpsing the Roman one, and achieved mass literacy within decades; European mathematics and engineering really took off after the introduction of Hindu-Arabic numerals and the base-ten system.

If we consider each culture its own “landscape” in which people (and corporations) are finding locally optimal solutions to problems, then it becomes immediately obvious that we need both a large number of distinct cultures working out their own solutions to problems and occasional communication and feedback between those cultures so results can transfer. If there is only one, global, culture, then we only get one set of solutions–and they will probably be sub-optimal. If we have many cultures but they don’t interact, we’ll get tons of solutions, and many of them will be sub-optimal. But many cultures developing their own solutions and periodically interacting can develop many solutions and discard sub-optimal ones for better ones.

On a related note, Gore Burnelli writes: How Nassim Taleb changed my mind about religion:

Life constantly makes us take decisions under conditions of uncertainty. We can’t simply compute every possible outcome, and decide with perfect accuracy what the path forward is. We have to use heuristics. Religion is seen as a record of heuristics that have worked in the past. …

But while every generation faces new circumstances, there are also some common problems that every living being is faced with: survival and reproduction, and these are the most important problems because everything else depends on them. Mess with these, and everything else becomes irrelevant.

This makes religion an evolutionary record of solutions which persisted long enough, by helping those who held them to persist.

This is not saying “All religions are perfect and good and we should follow them,” but it is suggesting, “Traditional religions (and cultures) have figured out ways to solve common problems and we should listen to their ideas.”

From Ray Kurzweil

Back in The Code Economy, Auerswald asks:

Might the same model, derived from evolutionary biology, explain the evolution of technology?

… technology may also be nothing else but the capacity for invariant reproduction. However, in order for more complex forms of technology to be viable over time, technology also must possess a capacity for learning and adaptation.

Evolutionary theory as applied to the advance of code is the focus of the next chapter. Kauffman and Levin’s NK model ends up providing a framework for studying the creation and evolution of code. Learning curves act as the link between biology and economics.

Will the machines become sentient? Or McDonald’s? And which should we worry about?

Addendum on Fast Food and Race

Upon further reflection, I decided a discussion of the changing attitudes toward American Fast Food restaurants is incomplete without race.

Japan, as I’m sure you already know, is an extremely homogenous country. According to Wikipedia, Japan is 98.5% Japanese, with 0.5% Korean, 0.4% Chinese, and 0.6% other. I don’ t know if “other” includes the Ainu, or if they’re just numbered within the Japanese, (most of them are at least part Japanese anyway,) but even if we take the high estimate of Ainu population, they’re < 0.2% of the total. So, yes, Japan is very Japanese.

By contrast, America has a large, ethnically distinct underclass of blacks and Hispanics: 65% white, 5% Asian, 13% of black and 17% Hispanic.

By contrast, back in the 50s when McDonald’s began, America was 88% white, 10% black, and 2% Hispanic.

As a result, Japan’s underclass is still Japanese, while America’s underclass is ethnically and racially distinct from its upper classes. Japan is more homogenous, with a narrower wealth gap between its richest and poorest citizens and a much lower crime rate.

If SJWs have taught me anything, it’s that white people are always racist. Japan doesn’t have this problem, not only because it lacks white people, but also because it lacks different races for anyone to be racist against.

Just look at this family, all dressed up and having a fun time

Googling “vintage McDonalds ads” may not be the most scientific way to study historic advertizing campaigns, but we’ll do it anyway. Or here, have an article on the subject.

Around the mid-70s, McDonald’s (and Burger King and probably various other Fast Food brands) began explicitly targeting up-and-coming black customers with ads featuring happy black families, working class men getting breakfast before heading off to the construction site, black couples, etc. Interestingly, the ads aimed at white people tend to contain only one or two people, often with a closer focus on the food. (There are, of course, plenty of ads that only feature food.)

Now, far be I to disagree with the advertising decisions of the world’s most successful fast food chain–selling massive quantities of cheap food to black people has been a great strategy for McDonald’s.

But this has caused a shift in the racial composition of McDonald’s target demographic, affecting how it is perceived by the wider society.

Similarly, the demographics of people who work in fast food have changed radically since the 1950s. Most of my older (white) relatives worked at fast food restaurants in highschool or their early twenties. (Heck, I was just talking with an upper-middle-class white relative who used PICK STRAWBERRIES in the strawberry fields for money back in highschool, a job which we are now reassured that “white people won’t do.”) Unskilled jobs for young people used to be a thing in our society. It was a fine way for young people to start their lives as productive members of society, gain a bit of work experience, and save up money for college, a car, home, etc.

Today, these jobs are dominated by our massive, newly arrived population of Mexican immigrants, driving down wages and making it harder for anyone who isn’t fluent in Spanish (necessary to communicate with the other employees,) to get hired. Meanwhile, the average age of fast food employees appears to have increased, with people stuck in these jobs into middle age.

All of this has contributed, I’d wager, to America’s changing attitude toward fast food, and its poor/middle class people (of all races) in general.

 

Seriously, where would you even put more people?
Shibuya Station, Japan

You know, Americans talk a lot about how Japan needs more immigrants–generally citing the declining Japanese birthrates as an excuse. (Because what Japan really needs is higher population density + racial tension.) But despite its near total lack of racial diversity, Japan is one of the world’s most successful, technologically advanced countries. If anything, low Japanese fertility is actually fixing one of Japan’s biggest problems–density (which has long-term problems with Japan needing more food and natural resources to support its population than the archipelago can physically produce).

They actually hire people to shove passengers into the trains to make them fit.
Rush hour on the Tokyo Subway

Only an idiot could take the Tokyo subway at rush hour and think, “What this country needs is more people!” I therefore recommend that the Japanese ignore us Americans and do keep their society the way they like it.

The Death of American Equality

Obligatory Hibiki reference

I. I was recently chatting with a friend who lived for some time in Japan. I asked them what they liked best about her experience, and received a surprising answer–not the cartoons or the music, the fabulous city of Tokyo or the tasty food, neither the ancient culture nor the attractive people (though I am sure they appreciated all of these things)–but the equality.

In Japan, they said, there is much more of a sense of community harmony, of everyone being in the same boat. There is much less explicit class consciousness and people are more willing to help each other out. It’s not uncommon to see little old ladies out sweeping the street in front of their houses to keep their neighborhoods looking nice.

Remember when getting your daily nutritional needs met was considered a good thing?

II. In Where Have all the Fast-Food Playgrounds Gone, Lawrence writes:

On a Saturday afternoon at a McDonald’s in Brooklyn… The Playplace, during what should be prime Saturday afternoon birthday party hours, is empty and locked. … this McDonald’s looks like it stopped trying to attract kids in 1995. …

Today, these standard modular play structures — padded floors, platforms, polyurethane foam piping, a single plastic slide — are probably considered boring after age 9. At another McDonald’s, on Brooklyn’s Rockaway Beach, the indoor playground has been removed and replaced by more seating. At a Chuck E. Cheese’s near Brooklyn’s Barclays Center, a place where playgrounds are admittedly secondary to a casino of kids’ games, the usually standard play area is gone, too. …

According to Technomic, a food-service research and consulting firm, families with kids going to McDonald’s fell from 18.6 percent in 2011 to 14.6 percent in 2014.

Darren Tristano, president of Technomic, thinks that we’re unlikely to see fast-food restaurants focusing on playgrounds again anytime soon. “I’m not sure that they’re becoming a thing of the past, but we clearly don’t see growth in the opportunity for restaurants,” Tristano says. “Brands like Chick-fil-A and McDonald’s, who have indoor play places — we’re not necessarily seeing them expanding and, in some cases, when stores are being rebuilt, they’re no longer including these play places.”

There are multiple reasons for this shift, including people having fewer kids and more kids opting to play video games at home rather than head to the playground, but one of the biggest is classism.

Back when we were kids, McDonald’s was simply seen as a tasty, affordable restaurant that catered to families with small children. I’m almost certain I attended birthday parties there.

McDonald’s still offers birthday parties, but today the idea seems… declasse. Not that the kids wouldn’t enjoy it– kids today have about the same opinion of McDonald’s as I did–but their parents would disapprove. On parenting forums you often hear moms proudly proclaim that the dreaded “fast food” has never passed her offspring’s lips. Fast food is roundly excoriated as unhealthy crap, unsuitable for children–even though a Happy Meal is probably better for you than an organic, cruelty-free Whole Foods cupcake.

"I'd rather have humans do back-breaking labor in the tropical sun to grow, harvest, and refine sugar can than steal an egg from a chicken!"
Not actually a health food.

III. The folks over at Modern Mom.com have some recommendations for “Healthy Halloween Candy Alternatives,” like:

Snack bars – Some snack bars taste so good they can be confused for candy. KIND bars, made with all natural ingredients, are not only healthy but also available in indulgently delicious flavors like KIND Dark Chocolate Nuts & Sea Salt, Dark Chocolate Cinnamon Pecan and Healthy Grains Bars in flavors like Peanut Butter Dark Chocolate and Vanilla Blueberry (which are also gluten-free!).

Guess what. If it tastes like candy and is covered in chocolate, it’s candy.

Fruit covered in caramel/chocolate – Freeze bananas and drizzle with a tad of melted dark chocolate or cover apples in homemade, low-sugar caramel.

Again, chocolate is chocolate. It doesn’t stop being chocolate just because you throw a banana at it.

Natural fruit snacks/wraps – Trader Joe’s Organic Fruit Wraps are a perfect example of a flavorsome snack that is good for you and your kids. These wraps are 100% fruit and low in sugar.

Do you know what chemical makes fruit taste so good? Fructose. Fructose is sugar; (-ose is a suffix meaning “sugar.”) Your body metabolizes it into glucose just as easily as it metabolizes table sugar (sucrose) into glucose. These are not low in sugar; they are low in sucrose. You are not fooling your body with this verbal trickery.

Fresh fruit – Always the perfect, healthy treat to offer.

Oh, sure, because you want to be that parent. The one with the apples on Halloween. Why not hand out toothbrushes while you’re at it?

Pumpkin and yogurt parfait – Kids love parfaits, so simply layer fat-free vanilla yogurt with canned pumpkin mixed with pumpkin pie spice and a teaspoon of brown sugar. Top with a few chocolate chip morsels.

“Fat free” yogurt has as much sugar as ice cream, and this thing has a spoonful of added sugar. Guys, sugary yogurt topped with sugar doesn’t stop being sugary just because you mash in some pumpkin. (Even if you’re trying to avoid “fat” for some reason, most candy doesn’t have much fat in it.)

And don’t get me started on the notion that “kids love parfaits.” Maybe your kids love parfaits. Mine prefer foie gras topped with Cheerios.

I’m not saying you should feed your kids a bunch of candy. I’m saying don’t be classist about what is and isn’t healthy. It’s not healthy just because it comes from Whole Foods, and it isn’t unhealthy just because it comes from McDonald’s. (For goodness’s sakes, they serve salads.)

The folks who make their kids sugar-drenched organic parfaits in order to keep them away from the dreaded M&Ms in their Halloween bucket are the same folks who denigrate fast food.

This isn’t my picture and I don’t know where it came from, but wow that could totally be me and my friends.

IV. I have a certain fondness for old-fashioned playgrounds. Modern ones have their advantages (plastic slides won’t burn your legs,) but they feel incomplete without see-saws or merry-go-rounds. When it came to McDonald’s, I loved that guy with the giant hamburger head you could climb inside (mostly I tried to figure out ways to get through the bars and get on top of it.)

To tell the truth, I am not that fond of McDonald’s food–I mostly like them for their playground. In the midst of winter, I am thankful to have a warm, dry place where my kids can play and we can all get something to eat. We once celebrated and appreciated such places, just as we once celebrated the manufacturing jobs that once allowed Americans to enjoy the greatest economic boom the world has ever seen.

Today the middle class is shrinking and the working class is destined to be poor than its parents. Global poverty has plummeted, but American wealth inequality has been steadily increasing since the 70s. (Coincidentally, average wages have been stagnant ever since the beginning of mass, low-wage immigration from 3rd world countries.) And politics has become more divisive and dived as we’ve turned into a nation of snobs, turning up our noses at people once considered brothers.

V. The article on disappearing fast-food playgrounds speaks positively of efforts to pass playground-cleaning regulations:

Dr. Erin Carr-Jordan, a playground sanitation vigilante and, more formally, the founder of Kids Play Safe, a research organization “committed to protecting the health, safety and well-being of children,” was banned from eight Phoenix-area McDonald’s in 2011 presumably for swabbing play areas for germs. A cross-country journey during which she tested the playgrounds of six national chains in both high and low socioeconomic, rural, and urban areas turned into a crusade. …

Surprisingly, there are no state or federal regulations for playground cleanliness or maintenance, and they’re not regulated in many counties and cities. Carr-Jordan has been working to change that, successfully doing so in her home state of Arizona. Kids Play Safe recently partnered with Chuck E. Cheese’s to, according to a press release, “collaborate on common goals to provide a safe healthy play environment for kids.” Chuck E. Cheese’s is the first major brand to work with Kids Play Safe, which could be a small step forward to improving the reputation of restaurant playgrounds.

Just look at this family, all dressed up and having a fun time

I am extremely sympathetic to the desire for clean playgrounds. Nothing ruins a lovely afternoon like vomiting all evening. But legal regulations aren’t going to get you there. Faced with a choice between risking fines if their minimum wage barely-English-speaking employees incorrectly clean the playground or just not having a playground, restaurants will opt to go without.

I propose an alternative solution: return to the simpler playgrounds of my youth. Free-standing structures exposed to the wind, rain, and sun do not harbor germs in the same way as humid, enclosed tubes and pits. The older playgrounds were probably cheaper, as well, and had more personality.

Finally, I’d like to note that I am not really trying to shill for fast food, but examining a change in the way society approaches food marketed to middle and lower-class people.