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Illustration by Jasper Rietman

By ADAM DAVIDSON, The New York Times
Published: July/August 2013

 

Like a lot of accountants, Jason Blumer never really wanted to be an accountant; he wanted to play guitar in a hair-metal band. But like most guys who want to play guitar in a hair-metal band, Blumer eventually realized that there wasn’t much money in touring bars and being paid in beer-smeared $20 bills. So he changed gears and decided to follow his dad into what seemed like one of the more steady businesses around. After college, he bought some suits, joined a midsize firm in South Carolina and processed his clients’ payroll and tax returns. He billed them by the hour. He hated every second of it.

 

Deep thoughts this week:

1. Billing by the hour no longer makes economic sense.

2. But how else will we measure value?

3. In today’s economy, you can’t be a commodity.

Blumer, 42, wanted to infuse a bit more rock ’n’ roll into his industry. So when he eventually took over his father’s small firm, he made his own rules: There would be no time sheets, no dress code and, most radical of all, no billable hours. He was convinced, in fact, that the billable hour was part of a series of mistakes that took all the fun out of his profession. To him, it seemed like a relic of a dying economic age and one that was depriving his industry of billions in profit.

The notion of charging by units of time was popularized in the 1950s, when the American Bar Association was becoming alarmed that the income of lawyers was falling precipitously behind that of doctors (and, worse, dentists). The A.B.A. published an influential pamphlet, “The 1958 Lawyer and His 1938 Dollar,” which suggested that the industry should eschew fixed-rate fees and replicate the profitable efficiencies of mass-production manufacturing. Factories sold widgets, the idea went, and so lawyers should sell their services in simple, easy-to-manage units. The A.B.A. suggested a unit of time — the hour — which would allow a well-run firm to oversee its staff’s productivity as mechanically as a conveyor belt managed its throughput. This led to generations of junior associates working through the night in hopes of making partner and abusing the next crop. It was adopted by countless other service professionals, including accountants.

During the past few decades, as the economic logic of the United States has changed, global trade and technology have made it all but impossible for any industry to make much profit in mass production of any sort. (Companies like G.E., Nike and Apple learned early on that the real money was in the creative ideas that can transform simple physical products far beyond their generic or commodity value.) Similar forces have ripped through professional services, particularly accounting, a profession that, until recently, was little changed from its 16th-century roots. Software like Turbo­Tax has made the most basic work worth little. Cheaper accountants in India, Ireland, Eastern Europe and Latin America have steadily taken over the more routine types of business, though not quite as voraciously as once predicted.

Just as Apple doesn’t want to be in the generic MP3-player business, Blumer didn’t want to be just one more guy competing to charge a few hundred dollars an hour to do your taxes. A few years ago, he said, he realized that the billable hour was undercutting his value — it was his profession’s commodity, suggesting to clients that he and his colleagues were interchangeable containers of finite, measurable units that could be traded for money. Perhaps the biggest problem, though, was that billing by the hour incentivized long, boring projects rather than those that required specialized, valuable insight that couldn’t (and shouldn’t) be measured in time. Paradoxically, the billable hour encouraged Blumer and his colleagues to spend more time than necessary on routine work rather than on the more nuanced jobs.

But those complex problems were the ones that Blumer wanted to solve, and he also knew his insights were more valuable than the time it took him to conjure them. So he identified a niche — creative professionals who struggled to manage their finances as their start-ups became mature businesses — and he endeavored to help his clients make (and save) enough money that they would gladly pay a significant fee without asking about the hours it took him to figure out what to do. Blumer has been so successful in his approach that he has become a leading voice among a national band of accountants who call themselves the Cliff Jumpers. Many Cliff Jumpers have abandoned the traditional bill-by-the-hour approach to focus on noncommodity accounting solutions for specific client groups. One focuses on entrepreneurs hoping to sell their new businesses; several work with people who are terrified about starting a small business.

Perhaps without realizing it, the Cliff Jumpers are at the forefront of one of the great challenges of modern economics. Measuring productivity is central to economic policy — it’s especially crucial in the decisions made by the Federal Reserve — but we are increasingly flying blind. It’s relatively easy to figure out if steel companies can make a ton of steel more efficiently than in the past (they can, by a lot), but we have no idea how to measure the financial value of ideas and the people who come up with them. “Compared with the mid-1900s, goods production is not as important a part of our economy, but we continue to devote about 90 percent of our statistical resources to measuring it,” says Barry Bosworth, a Brookings Institution economist who is a leading thinker on productivity in the service sector.

Many economists have tried to break professional “knowledge workers” down into their component parts. It’s fraught enough with lawyers and accountants, Bosworth says, but it’s all but impossible with other professions, like doctors and teachers. “We don’t even try with education,” he says. In the meantime, the Bureau of Labor Statistics directly measures the productivity of only 60 percent of U.S. industries, which means that nearly half of our economic activity is unknown, including almost all of the fastest-growing sectors. If education and health care are not becoming more productive, as many economists fear, it will be hard to know if government policies to improve those sectors are working without knowing what to measure in the first place.

During the 20th century, industry started out in small workshops that created unique handcrafted products. Over time, they morphed into massive plants that churned out a countless number of identical units. Now there’s a synthesis. In the era of mass specialization, companies are using high-tech efficiencies to make customized products that each consumer finds especially valuable. This has enormous advantages for both consumers and producers, but the big problem it creates is that we don’t know how to do the math. Blumer, who, after all, is an accountant, told me that set formulas and financial spreadsheets are just not compatible with this new approach to work. He can only figure out what to charge his clients after spending a lot of (unbilled) time talking to them about their needs. But now that it’s clear that the fundamental nature of work has changed, it is fitting that a bunch of rogue outliers from one of the world’s oldest professions are helping guide the way.

Adam Davidson is co-founder of NPR’s “Planet Money,” a podcast and blog.

 

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Published: July/August 2013
By Kristina Fiore, Staff Writer, MedPage Today

 

 

New York City’s campaign against super-sized sugary drinks continues to fizzle, with an appellate court upholding an earlier ruling that the ban is unconstitutional.

The New York State Supreme Court Appellate Division panel in New York City agreed with a lower court decision from March that the city’s Board of Health acted outside of its authority when it imposed the limits, which would prevent fast food restaurants from selling sodas and other sugary drinks in excess of 16 ounces.

The ban would have applied to stores regulated by the city health department, including chains such as Dunkin’ Donuts and Subway, but grocery stores and bodegas would have been exempt.

In its unanimous decision, the four-judge panel noted that the exceptions in the law were one thing that gave the court pause. “The regulatory scheme is not an all-encompassing regulation,” wrote Associate Justice Dianne T. Renwick.

“It does not apply to all food service establishments. Nor does it apply to all sugary beverages. The Board of Health’s explanations for these exemptions do not convince us that the limitations are based solely on health-related concerns.”

In a statement, Mayor Michael Bloomberg said the decision is a “temporary setback” and his office plans to appeal the decision to the state Court of Appeals in its continued “fight against the obesity epidemic.”

Bloomberg’s statement also dramatically detailed the effects obesity has had on the city since the March decision.

“More than 2,000 New Yorkers have died from the effects of diabetes,” the mayor said. “Also during that time, the American Medical Association determined that obesity is a disease, and the New England Journal of Medicinereleased a study showing the deadly, and irreversible, health impacts of obesity and type 2 diabetes — both of which are disproportionately linked to sugary drink consumption.”

In an emailed statement to MedPage Today, New York City Health Commissioner Thomas Farley, MD, called the decision “disappointing” and said it “does not change the facts [that] obesity and type 2 diabetes kill thousands of New Yorkers every year and are preventable. Sugary drinks are a leading contributor to these problems.”

Farley said that while the city appeals the decision, his department “will continue to address the twin epidemics of obesity and diabetes, including recommending clearly that New Yorkers reduce their consumption of sugary drinks.”

Several groups have criticized the measure, accusing Bloomberg of creating a “Nanny State.” Some research has also challenged its impact, with one recent study finding that the ban would actually increase sugary drink consumption.

The likelihood of the appeal being overturned — or even being heard — in the state appeals court is unclear, although Brian Malkin, a partner at Frommer Lawrence & Haug, said the City’s best strategy may be to start from square one.

“It seems that New York is taking a lead in certain public health issues, such as smoking and trans fats, and they tried to extend that to sugary beverages, but the lower court decision indicates some inconsistencies in how the proposed rule would be applied,” Malkin said.

“I would suspect that public health officials in New York would want to rethink those provisions to reduce or eliminate the inconsistencies and try again,” he added.