Changes in the Distribution of Income

Lately, the news has been full of the top-1%. The Occupy Wall Street movement and its various spin-off local movements purport to represent the rest of us. The GFC and its aftermath, particularly in the US and Europe, have brought the inequalities in income distribution to the fore. People the world over are suffering and more than a few of them are speaking out.

The shifts in income distribution in the developed world have been especially pronounced in America. The data support the widely held perception that the middle-class is being “hollowed-out”. Technological change, globalisation, immigration, tax reforms, the decline of union membership and several other factors have converged over the last 3 decades to a common effect: the rich getting much richer, the poor poorer and those in the middle going backwards. Perhaps its especially in the US that this has inspired the current debate. There, the middle-class have long been a pillar of their society, their economy and a centrepiece of post-war intergenerational socio-economic upward mobility.

Recently, the White House has come out with some stark and disturbing analysis of the relationship between income inequality and intergeneration upward mobility. None other than the Chairman of the President’s Council of Economic Advisors, Alan Krueger, has weighed into this issue with a definitive speech last week. He correlates the metric of income inequality (the Gini coefficient) with a measure of intergenerational mobility. The relationship between these two numbers is surprisingly good. It means that in today’s very unequal America, one’s parent’s economic situation is a strong predictor of one’s likely future economic situation. More disturbingly, the more recent data suggests that not only is America getting more unequal, but this intergenerational link is getting stronger. Upward mobility in America, it seems, is waning. Krueger styled this phenomenon “The Great Gatsby” curve. Miles Corak explains it well here:

More illuminating was some of the background to this conclusion. It seems the 1% have not done as well as they are today for almost a century. The last time they have had as large a share of the income pie was in the 20s. Since then there’s been almost a U-curve with the bottom of the U in the post-war reconstruction era.

The difference between the US and Australia is strikingly visible for almost the entire Post-War Era. Today, the top 1% in America have almost double the income share as they do down under. The numbers for Sweden, Japan and France are much more similar to the Australian experience than the one in the US. That doesn’t mean that the Swedish, Japanese, French & Australian rich aren’t getting richer at the expense of their compatriot poor; just not to the same degree as the American rich seem to be.

The situation is just as worrying for the top 10%. Although the difference between Australia and the US is only half as much again (rather than double), it’s clear that the richest tenth of Americans have almost half the income:

Top 10 Percent - US v AUS

Even more surprising, during the Clinton presidency, there was a significant revival in the much more equitable distribution of income in the US – something that can’t be said of the Reagan/Bush years or the last decade. Nevertheless, the news is that the hollowing-out of the middle class is not a new thing and it’s been going on for a long time.

A worrying question arises from all this. If greed for the few was followed by depression, war, social transformation and the Cold War last time, what lies ahead? Surely the world in 2012 is so different from the world in the 1920s, they bear no possible comparison. An interesting insight into this come from my new hero Niall Ferguson. His 2010 John Bonython Lecture in Sydney last year examined the popular view of how Empires rise and fall. The basic idea he presented in consummate Ferguson style was that Empires are complex systems that can and do fall very rapidly even as they appear robust and stable. Such was the fate of the British Empire in the 30s and 40s. His prediction is that this is what we’re seeing in the American Empire today. The parallels are deep, impactful and timely. As a financial historian, Ferguson’s data are also about money. The ones he presented in Australia last (southern) summer were macroeconomic – national debt and interest payments specifically. His case is compelling; the debt situation in America (and Europe) is particularly severe.

Has globalisation and the accompanying offshore outsourcing of jobs contributed to this mess? Certainly. Has technological innovation and its relationship with financial capital forever changed work and the distribution of income? Absolutely! Have taxes become less progressive and the social welfare state diminished? You bet. Have the very rich once again become the rulers of economic life? Sure looks like it. Has upward mobility in America become the last remnant of the American Dream? The data supports that.

The question from both Ferguson and his arch rival (self-confessed Liberal) Krugman is what to do about it. Strategic tensions between the US/EU alliance and the rising Chinese power and pan-Islamic powers are on the rise. China and America are locked in a kind of deadly embrace that Ferguson calls “Chimerica”. Krugman wants a return to Keynsian remedies. Ferguson wants debt control. Until very recently, we had 3 Christian armies in Muslim lands. Now we want budget cuts at the Pentagon and increases in military spending in an almost bankrupt Europe. It seems almost as if we are reliving the 30s all over again.

Perhaps this time, the difference will be that technology and globalisation will make the transition from denial to declaration of war to despair more rapid. If the Mayans are right, it’ll all end just before Christmas. Then we can get back to reconstructing the world and everyone can benefit more broadly. Let’s then see if the 99% have what it takes to deserve the bigger piece of the pie they all say they want. What their grandparents went through to get their share was pretty tough.

Update: Income inequality is becoming very important, according to the WEF Global Risk 2014 report…

Income Inequality

Update 2: HBR has an interesting blog post entitled “We Can’t Afford to Leave Inequality to the Economists” from Justin Fox.

Update 3: A visualisation of the Global Risk Matrix for 2014

Global Risk Matrix

Advertisements
Posted in Globalisation | Tagged , , , | 6 Comments

Changing of the Guard at Apple

Steve Jobs’ death last week has been mourned by so many of us. It was especially sad for me. It’s taken me days and days to be able to write this piece. Despite the interminable news of his heath issues for the last several years, it’s still hard to grasp that he’s gone. His life and times were an example to us all. What he stood for was particularly meaningful to me.

Steve was more than Apple. His extraordinary life and the body of work he leaves behind will astonish and fascinate future generations for centuries. His spirit will live on in the creation of much of the modern world. More than a visionary, he brought so many of his visions to fruition. More than an inventor, his inventions were honoured by that highest flattery – imitation. More than a businessman, his innovations transformed whole industries. More than the iconic rebel, he refused to accept anything less than ‘insanely great’.

The Apple that Steve rebuilt in the last 15 years of his life is much more than Steve. It’s unlike any modern enterprise. It’s a corporation without the corporate. It’s a tech firm without the technocracy. It’s a design studio without the studio system. It’s retail chain without the chain retailing. It’s a sense of cool that never leaves you cold. It’s a lifestyle company that let’s you pick your own sense of style. It’s a consumer electronics brand whose products and services make your heart sing. It’s the world’s largest online music store and the biggest seller of music of any kind. Before Steve came back, Apple was none of these things. It was 90 days away from bankruptcy.

Steve leaves behind this very different and inordinately better Apple led by one of the best teams in business- period. It’s not just Tim Cook or Jony Ive. It’s not just Phil Schiller or Craig Federighi. It’s the team. It’s a bunch of guys that have played an A-game together, with and without Steve. It’s a top-flight bench of industry-veterans who know what they’re doing. The world has seen them, on and off, without Steve at the helm. This team have earned the confidence of both Wall Street and Main Street, which is more than most leadership teams in the US have done in the recent past.

There’s a deep pipeline at Apple. Steve saw to that before he left his job there and moved on to the next world. The team knows what to do with it. For the last few years, Apple has been capturing the essence of what Steve brought back to Cupertino so that other may follow in his footsteps. Leading and teaching others by example and continuous education will preserve The Apple Way for years to come. Steve knew that writing a book, like Hewlett and Packard did in “The HP Way”, just wouldn’t be enough. He never wanted to see what John Sculley and his successors did to Apple ever happen again.

Apple is destined to become something more than a great American company. It shares many characteristics with a religion or a cult. It is a living culture, a way of life, a philosophy as well as a global brand and a set of products and services. It comes from their marriage of technology and liberal arts. It comes from function melded with feelings. Several times, this unusual and rare blend of the left- and right-brain resulted in a breakthrough experience for Apple’s customer: iMac, iPod, iTunes, iPhone and iPad. The results are undeniable. Unlike so many others, I judge the art, not the artist.

Steve’s impact on the world wasn’t limited to Apple. Without Pixar, the movie business wouldn’t have been the same. Without NeXT software, there would be no OS/X or iOS. Without Steve’s irrepressible showmanship, there would not be the messianic euphoria at the product launch keynotes. Without his decade outside of Apple, there would be no CEO of the Decade. Steve’s grasp on humanity is best summed up in his 2005 Stanford Commencement address.

Changing the guard at Apple is not the end of an era. Steve made sure of that this time. His brilliance and spirit have been captured. His successors know what to do now and for some years to come. The momentum in society is there. The fan club is only growing, particularly outside the US. Steve resigned as CEO only because his ill health would not let him do the job any longer – he said so in his resignation letter. I hope and pray that those who follow him fulfil their potential and seize the opportunity bequeathed to them by their fallen leader.

Posted in Uncategorized | Tagged | 3 Comments

Learning About Change by Learning About Change

Professor Niall Ferguson is my new favourite historian. His recent work “Civilisation” is both a landmark book and a great 6-part TV series. “The Ascent of Money” and “War of the World” were also turned into television series. The last episode of Civilisation aired on BBC Knowledge in Full HD here in Australia last week. It marked the end of an experiment in learning for me and many others in my circle of friends.

The themes of Ferguson’s work make longer-term historical influences relevant to current affairs. “Civilisation” talks about 6 killer apps – Competition, Science, Property Rights, Medicine, The Consumer Society and The Work Ethic – that allowed the West to dominate the rest for half a millennium. “The Ascent of Money” puts the GFC into a broad historical context spanning almost that long. “War of the World” looks at 20th Century warfare a single conflict based on racial discrimination and genocide.

They’ve been fascinating books to read and even more enthralling television to watch. “Civilisation” in particular has been one of the best pieces of documentary TV ever, not only for its content but for its production quality.
I’ve always read history. Before Ferguson, some modern historians like Paul Kennedy and Barbara Tuchman captivated my imagination with their scholarship and style. But none of these academics seemed to be able to harness the new media like Ferguson.

To start with, I read these 3 of Ferguson’s many books electronically, thanks to Amazon’s Kindle technology. I didn’t use the Kindle device – I read them on smartphones and computers from Apple. More importantly, I first read the books as books are meant to be read – sequentially from start to finish. Then, as the TV episodes appeared in my electronic program guides on the TV, computer and smartphone, I re-read the relevant chapter just before watching the corresponding TV episode for the first time. I recorded the TV episode on a hard disc in my set-top box. I re-read the chapters, sometimes out of sequence then watched the recordings again. Sometimes I’d mix and match reading and watching across the 3 books/series, as there are many intersecting themes.

This is a serious change in learning for me – a deeply immersive experience that deals with some very important content in a way that surprised me (and many others amongst my friends). It led me to chasing down supporting literature and television referenced in the electronic record, often with no more effort than a hyperlink-click. It opened up new perspectives and an intensity of inquiry I haven’t felt since my university days.

Economic history is a bit of a fad these days. The GFC brought The Great Depression of the 1930s back into the foreground of public affairs. Before Obama’s inauguration, there was a run on books about the Depression on Amazon that caused a big backlog on orders and long delays in deliveries. It seemed that everyone wanted to know about the ’20s and ’30s again.

My father’s library from his days studying economics in London in the 50s and his graduate-school days in New York in the early sixties has always been there. My own library has many volumes. Margaret Macmillan’s “Paris 1919” is the only standout work that was made into a TV program – a 2-part docu-drama miniseries that regrettably does not do the book justice. I recently gave a DVD copy of it to my Dad for review. His knowledge of this material far exceeds my mine.

My learning of economic history has been partly academic, partly econometric and partly recreational – a hobby rather than any serious historical interest.

  • The academic piece started in high school and ended in undergrad school, mostly to fulfill course requirements in what was otherwise a very practical curriculum around math, science and technology. I had a similar mix of philosophy, literature and debating during my schooling.
  • I learned my econometrics on the job from a brilliant polymath who was a classic Oxford tutor. For years, we were drilled in endless conversations over cups of Earl Grey tea and the whiff of his pipe talking about economic cycles over the centuries. My active role in that time was as a software developer, but he insisted I participate in the interpretation of the models and data as well. I learned, if nothing else, how much there was for me to learn.
  • For the 30 years since then, I’ve tried to narrow that gap. Reading history, especially economic history, has been part of that. Rewriting that software many times in several generations of technology has been part of that. Sourcing more and better data from a plethora of online resources has been part of that. Operating a private consulting organisation for many years dealing partly in that subject has been part of that. Engaging in continuous learning in the ICT profession for a quarter-century has helped. But nothing has approached the revelation about learning that I experienced this year with 3 of Ferguson’s works in print and on TV.

Here’s why:

  1. The wars of last century changed the world. The GFC has rocked our present-day world to its foundations. The titanic battle between the West and the rest looks to dominate the next century of history. These are profound and impactful things.
  2. Ferguson puts them into context and into a stark perspective. His scholarship is world-class. His exposition is amazingly approachable. His TV appearances are both populist and learned. He makes the important understandable.
  3. Reading using Kindle technology on usable hardware and software from Apple enhances the experience. Watching Full HD television intensifies the experience. Doing both in sequence and repeatedly massively reinforces the message by leveraging the media effectively and efficiently. Getting a Kindle book online and reading it on a phone anywhere anytime and switching back to exactly where you were up to on a notebook or a big, hi-definition screen at home is a wonderfully easy thing to do.
  4. Bouncing off to the references at the tap of a finger is convenience itself. The TV content augments my mental imagery all the time, whether or not I’m watching it.
  5. Having first-hand experience of some of the many places in the world where the TV series were filmed enhances that imagery all the more. Strangely, I even have olfactory memories of that tea and the pipe-smoke coming into my head from time to time.
  6. Lastly, the room at home where most of this happened used to be my mentor’s study in the early 1980s.

This combined and repeated appeal to sensory dynamic memory (as the cognitive scientists call it) is a compelling factor in this issue. It takes the subject of dry book-learning and layers it with a rich and personal subtext. Experience augmented by someone else’s superb ability to communicate about something meaningful at the right time through new media.

I’m sure this is a harbinger of things to come – how learning can be changed to make education better and more impactful.

Posted in Uncategorized | 2 Comments

Generational Change

For a few short days almost 25 years ago, five generations of my family were alive. These were my great-grandfather Pete – a retired doctor from Canada, his son (my father’s uncle) – a college professor from New Jersey, my Dad – a sales & marketing executive, and my sister’s first daughter – a newborn infant. In the weeks before his death at 107 years old, my great-grandfather met my newlywed wife from Australia. Almost nobody else in my circle of friends has had that experience.

As children in America, Pete was the marvel of our family. He was a diminutive man at a mere 5 feet tall. His furniture was antique – not because he bought it that way or because it was handed down to him. It was because it had been with him for so long. He had a routine and rhythm to his daily life that came from another era. He awoke before dawn, played his mandolin and sewed to maintain his manual dexterity. He was what later became to be known as a health-food guy, an was since the 1920s. He walked 3 miles each way to work at a hospital every day, snow/rain or shine. He went to the same beach resort only a few miles away every summer for the same week in July. He loved the horse-races with a passion. He read every edition of Scientific American for almost 80 years and kept each magazine in an organised library. His television set in the 1970s had a round monochrome screen because it had been made in the 1940s. He submitted to family pressure just before his 90th birthday in 1969 and drove a 1940’s car down to the junk yard; Pete never drove again. I watched the Apollo 11 moon-landing with him on that old TV with my parents & grandmother. He was an adult when the Wright Brothers first flew.

Pete studied medicine by kerosene lamplight. He witnessed countless medical advances in the 75+ years he was a working doctor. He survived a stroke at 102 years old as a patient in the same hospital he worked in for over 60 years. For a year or two at the end of his career, the Guinness Book of World Records recognised Pete as the oldest practicing medico on earth. Pete was a practical man, a very hands-on doctor. He could take the spectacles off your face and tell you how much your prescription had changed since the last time he’d done that 5 years beforehand. He was a well-read man. He could talk about scientific and medical technology with the same ease as history, current affairs, economics, social change, religion or politics. During the 20th Century, all these things changed and did so at an accelerating rate.

All my life, Pete has been the benchmark by which I measure the changes one person can see in a single lifetime. He saw so many new things that would have boggled his father’s imagination – particularly in science and technology. He saw the very localised world of steamships, trains & telegraphs change into the globalised world of jet planes, rocketships and The Internet. What used to take days & weeks in the world Pete grew up in took seconds & hours in the world in which he died. His son flew for the US Army Air Force in China during WW II – a man who later became an accountant and a university professor who taught undergraduates how to use personal computers for financial modelling (using Lotus 123 spreadsheets on original IBM PCs). His nephews (my father and uncle) became global businessman in the manufacturing and mining industries on 4 continents. In my generation, we have an air-traffic controller, a psychological councilor, an MBA business-school instructor and an IT guy. In the next generation we have a biologist, a real-estate professional, an information manager and a fashion-industry person. Of those, all but two knew Pete’s son; 6 of us knew Pete. The sense of change in the family is deeply shared.

More importantly, we all seem to understand how Pete & his son adapted to the vast changes in their lives. They told us how they did it – more often face to face and more than once. Pete & his children were story-tellers. They made the message real and relevant for successive generations. They could put things into historical context and offer insight and guidance for the future. They did not preach, even if they wanted us all to go to Church. They did not lecture, even though they knew how. They did not dictate as they had all fought dictators in one way or another. They spoke from the heart as they spoke at the fireside – from a deep personal experience of adapting to changing times throughout their lives.

As children of the jet-age and space-age, my sister and cousins & I experienced more rapid change. Moving countries & houses frequently, we saw many parts of the world when they were very different from each other. Our relatives often visited with us from faraway lands and we visited them. We watched TV from childbirth onward. We never feared war and never wanted for anything, unlike the 2-3 generations before us. A wealth of education & opportunity was always before us. The best food & healthcare was a part of our North American way of life, regardless of where we lived. We all remember watching the moon landing with Pete as part of his extended family because he told us the story of the Wright Brothers right afterwards. We spoke about the Space Station and space-planes that night; most of us have seen that come true.

What Pete and his children would dare not imagine is an African American in The White House. What my grandparents could never understand is climate change. Few of them could have grasped the impact that telecommunications and computer technology would have in the years ahead. Even though everyone except Pete had spent time overseas, almost none of us would understand globalisation as it now exists. The social, healthcare, political and economic future of the world of the next 50 years changed far too much for anyone in that living room in July 1969 to fathom.

As my nieces have become adults, I sometimes wonder what their great-grandchildren will be like. I occasionally ponder what kind of world they will live in and how they will think about generational change. It seems they will live in a world of many more people – perhaps up to 10 times as many – as the world into which Pete was born (5 times more than the world into which I was born). It will be a smaller, more connected world. A world in which more will need to share in less of what we shared and will share in more and different things that I can imagine. I hope it will be a better world. Sometimes, I harbour fears of what kind of world it could become, but I think every generation does that in some shape or form. Mostly, I’m optimistic. The billions of starving Chinese & Indians of Pete’s lifetime seem to be on their way to a better life…

Posted in Uncategorized | Leave a comment

Catering for Change

The cataclysmic events in Japan on Friday have rocked the world. They serve to illustrate how even the best preparations are sometimes inadequate. Even the best early warning systems, the strictest building codes and world-leading nuclear regulatory schemes were overwhelmed by a huge earthquake and massive tsunami.

But this is only the latest example of our collective challenge by huge disruptive and discontinuous change. To be sure, violent geological and meteorological events grab the headlines immediately. The carnage and devastation wrought by them is horrifying. The sudden and seemingly unpredictable nature of these disasters makes them all the more terrifying. It’s true that nobody can predict and earthquake with any sort of precision. But they happen all the time and most of the worst of them happen on the Pacific ‘ring of fire’ – Indonesia, Chile, Alaska have all had events in the last 40-50 years similar to what’s going on this weekend in Japan.

The aftermath of this event off the Honshu coast is yet to be fully assessed. Many thousands are unaccounted for and a level 4 nuclear emergency has been declared at Fukushima. Hundreds of thousands have been evacuated in the surrounding area. One report has said 10,000 people are missing from a single town obliterated by the waves. This seems to be an event for which there are no possible precautions.

Building nuclear power stations on seismically active real estate seems, in retrospect, highly inappropriate. Densely inhabiting the eastern coast of Japan knowing the risks of tremors & tsunamis seems, after the fact, to be asking for trouble. But what about California? What about Indonesia? There are nuclear facilities on the Pacific coast near San Diego. 90 million people live on Java; 50 million of them in and around Jakarta.

In an age of increasingly severe natural disaster, it seems the rules have changed – with frightful consequences. Millions of lives hang in the balance with untold physical, social, economic and political ramifications for many, many more. While our hearts go out to the people around Sendai, I’m sure questions are being asked both in Tokyo and other places around the region – were the risks sufficiently appreciated and mitigated? Do they need to be reassessed in these times of much more severe events?

If there does need to be an escalation in how we cater for these kinds of events, then where to we go for guidance? It’s clear that quakes & waves, fires & floods, droughts & storms are happening all around the world with ever-increasing ferocity. The episodes, when they occur, are very fluid and change from minute-to-minute and hour-to-hour, sometimes for extended timeframes. Where to we go to to learn how to cater for such changing situations?

The answer is not obvious nor clear to many, but mankind does have some rather remarkable capabilities in this regard. They are in the military-intelligence community. The mechanisms, both technical and economic, are already there in the global military-industrial complex. What’s not in place are the political governance structures – the laws and institutions – to deploy what spies, armies, navies & air-forces can do for the greater good in civil emergencies. That has to change as a matter of extreme priority.

An earthquake and a tsunami are like a surprise attack. The scenario needs to be war-gamed beforehand and the responses rehearsed in full-scale exercises. A big forest fire, like the one in Australia a couple of years ago and the one in Russia more recently, are like a probable attack. The conditions for fire arise more slowly and build up over time. The weather is somewhat predictable. Storms are similarly foreseeable, albeit in the short-term. Floods, like the ones in Queensland and Victoria this summer, are also like an attack that can be foretold to some extent. The La Nina rains that brought the floods this year that ended the long drought in Australia. These were hugely destructive, partly because there was little preparation and the response was carried out by civilian emergency services resources that were stretched to the limits.

On the other hand, nation-states and regional alliances have enormous standing defence forces. They have unmanned space and aerial surveillance and monitoring platforms permanently on station. A huge intelligence apparatus monitors these sensors combined with human assets to form assessments for national and alliance command structures, military & civilian. In almost every case in the richer developed world, the national commander-in-chief is an elected civilian political leader. In the more mature alliances, like NATO, the command structure includes diplomatic, legal, political and other civilian figures in shared leadership roles with their military counterparts. In short, the existing institutions have many of the key elements needed to apply them to non-warfare situations, like natural disasters.

So, I can hear people saying, the army gets involved with the rescue and reconstruction phase of many disasters already! That’s true. But their assets and capabilities are not ready either before the fact or during the fact as they are now needed. Emergency services doctrine needs to shift from its civilian legacy towards a new, more rigorous and intensely military-intelligence grade of service. These recent disasters are much more like battle than they are like a flood, a fire, a storm or a quake is assumed to be from an operational point of view. Many more people and many more assets are under threat. The nature of large-scale, high-density modern urbanisation situated in high-risk geographies demands military-intelligence grade doctrine, assets and resources to prepare and protect them (as well help them rescue & recover them).

The legal intricacies of this shift in doctrine, assets and resourcing are mind-boggling. How does intelligence-sharing between and within jurisdictions and alliance frameworks happen? Why would the smaller poorer nations of the world even want to help the larger richer ones? How does a national government allow the state-based emergency services organisations to access national defence force information, assets and personnel. Does martial-law or some less draconian form of it need to be declared pre-emptively to make this all work? What kinds of laws would need to be passed so that our war-fighting expertise, equipment and people could even engage based on a forecast of a disaster, let alone the occurrence of one? Is this the start of a slippery slope toward extreme state-intervention?

Some of the answers to these questions are surprisingly simple and already with us today. In the US, the Federal Emergency Management Agency (FEMA) already has the power to suspend the Constitution in certain dire circumstances. In some countries, the army is significantly integrated into the the emergency management community infrastructure. In others, if not most, they have the capacity and capabilities to deploy in-country after a officially-declared state of emergency. But some answers to some of these questions will be difficult. There is no doubt that the space-based and unmanned aerial vehicles would greatly assist the management of long campaign fire or a great flood or even big storm events. But the thing that makes those tools useful in battle are not in place for civilian emergency services. Things like whole-of-situation command centres that integrate large amounts of real-time information from many sources into a single picture of what’s going on as it happens on the ground. Things like simulations of scenarios that have been prepared in advance in minute detail. Things like the war-game exercises that have been played out in real life time and time again.

Which leaves us with the most difficult of all the questions – why? Historically, war has been a very well-funded human endeavour. National security seems to be a very popular reason for raising and spending money on all sorts of things. Emergency services has traditionally never attracted that kind of funding either from the public or private sector. The military-intelligence community has all those thing because the people want them to have it. Consequently, they can afford it. Perhaps the pain of not affording tighter integration between the military-intelligency folks and the emergency services folks will become high enough so that this will change before too long. But the idea needs currency and people in the right places need to get behind it before it will happen.

Here too, there are some signs for optimism. One of the most powerful political lobbies in the free world is starting to sit up and take notice – the insurance industry. Natural disaster is starting to cost them, big time! The events in Japan this weekend are likely to carry very hefty repair bills, upwards of $100 billion. The last time they had anything like that was during the Kobe earthquake in 1995. The US actuarial community who know the insurance numbers well are starting to get very active through the extended financial services community on this matter. After all, through re-insurance, these risks are spread internationally and it’s in a lot of interests that this issue get resolved. It’s also the case that denying insurance to very high-risk is highly unpopular, both commercially and politically. So both financiers and governments need to jump on this one with some urgency. In the wake of the Queensland floods, there’s even some talk about the public and private sectors getting together to work out some form of shared insurance going forward.

Managing and mitigating the risks involved in sudden, profound and discontinuous change are all around us. The example of a tremor and tsunami originating off north-easter Honshu gets the world’s attention, much as Hurricane Katrina did in 2005. Systemic risk is not just about natural disasters, although they illustrate the point. If change is trending towards these sudden, big, deep and impactful events – like the Arab uprising in North Africa – perhaps catering for that kind of change can help us deal with many very practical things. It seems like it’s the doctrine and institutions that need to change to accommodate this first. Life-threatening change doesn’t always come in the form of a natural disaster. Mankind has a pretty grim track record of causing them also.

Posted in Uncategorized | 10 Comments

The Pain of Change

A colleague of mine in a big retailer once told me, “Until the pain of staying the same exceeds the worst imagined pain of change, nothing changes”. He was right. Recent events around the world have certainly borne out the pain of staying the same. Now, it seems we’re up for some big changes. They too will be painful but I’m very optimistic about the road ahead.

The media has been full of bad news from around the world. Economically, the situation for the last few years has been extraordinarily dark. Earthquakes, tsunamis, storms, droughts & floods have brought hardship to many worldwide. Climate change consciousness has finally become part of the mainstream for many. Institutions like the Church, Government, corporations and the family are all being challenged around the world. The pain of staying the same seems to be approaching the threshold for change.

Over recent years, transformative changes are everywhere. In place of age-old established ways of life, new ones are arising. People seem to belong more to their professions & their social networks than to their communities, companies, countries or churches. They also seem more akin to their friends than their relatives.

What is it about family, neighbourhoods, firms, nations and congregations that’s so painful? Why are people around the world choosing Facebook, Twitter and LinkedIn (even over email and instant messaging) as a primary communications & collaboration forum? Was the kitchen table conversation at home really so bad? Is the office not working as a place to work? Have parliaments and the bureaucracy failed to serve the people they govern? Have organised religions stopped fulfilling people spiritually?

There’s probably some “yes” in the answers to all these questions. But like all generalisations such as these, there’s always some truth in there somewhere. But there’s also lots of non-truth. There’s still billions of people who subscribe to one of the major religions. Nationality and being governed is still hugely prevalent. Many, many people work for big and medium sized companies or government departments. People still spend time with their families. So, what’s going one?

It seems like the last several generations have widened their horizons. People travel much more. Almost everyone sees some other part of the world on TV, the Internet. They’ve been reading about it in the media for a long time. The institutions of yesteryear – Church, State, Family, Employer – are being challenged by more globalised institutions. And this is no coincidence. It’s entirely predictable as a consequence of the rise in global transportation and communication.

The last ten years has been called “The Digital Decade” by some (including luminaries like Gates). Things that have been around for decades – like maps, music, photography, the press, telephony, radio and TV – have all been substantially digitised. Existing digital things – like email and instant messaging – have been supplanted by social networks and (micro-) blogs. Digital search has made these digital assets much more accessible than their analogue counterparts. New business models have made a lot of there resources either free or cheaper. Booming emerging economies – like China, India and Brazil – have now become the growth engines of a world where global titans like the US, EU and Japan have stalled. All of this has enabled the rise of more global institutions.

But the problems have also become more global. Climate change and other geophysical phenomena are clearly affecting many, if not most, parts of the world. The Great Recession of the last few years impacted many world regions to the extent that you feel lucky to have remained relatively untouched. Capital slips between nations and regions with almost no barriers. World religions have become globally destabilised by great shifts in demographics and adherence. Work has moved to where cost & capability dictate in the last 10 years at an unprecedented rate. Transport economics & capacity has accelerated globalisation of production and consumption. Even war has become more off-shored as the conflicts in the Middle East have shown. An election in Iran sees more activity on Twitter than a major football game in the US or Europe.

The striking things about these developments is their speed, scale and impact. After 30 years of giving “the slide show”, Al Gore made a movie of the same presentation and ignited an instant global phenomena. The numbers living in storm, flood, wave and quake prone locations have skyrocketed. The disaster events have become all the more pronounced because their causes have become more intense. A mortgage practice in the US impacts the entire world financial system at a ferocious rate. There are now more Christians in South America and Africa than in Europe or North America. There are now more information & communications technology jobs in India and China than in the rest of the world. Apple’s statement “Designed in California, Assembled in China” is emblematic of so many things in today’s world. This Christmas, due to currency movements, offshore online shopping was at an all-time high. The floods in Queensland seem as interesting to the British as to the Australians.

The old institutions seem powerless before these challenges. The UN has been active in global climate change for decades, always in the same way, with extremely disappointed effect. Nation-states or intra-national government agencies simply cannot cope with emergency management. Central banking and world-regional governance fails to manage fast-moving economic crises. The headquarters of worldwide religions or corporations fail to recognise the globalised nature of their own organisations, let alone their suppliers’ suppliers or their customer’s/adherents’ customers/adherents. The almost total offshoring of ICT product-manufacturing & service-provision to Asia has a fundamental impact in many other places in the world. All of this change is extremely painful.

So, why am I so optimistic? For centuries, the West – Europe and latterly America – has dominated most of the rest of the world. Now demographically and increasingly economically, the centre of gravity in the world is shifting. The “American way of life” that President George HW Bush said “… was not subject to negotiation” in the early 1990s in reference to the Rio Earth Summit, is certainly up for change. European dominance of trade and commerce has shrunk to the point that they can only go forward together as the EU. Japan’s post-war domination ended some years ago. Russia’s suffering of the twentieth century is diminishing. India’s on the road back after centuries of colonial repression. South America – led by Brazil – is making its way out of the US shadow. Resource rich Africa is earning its way out of poverty & sickness. For many, rather than the few, the future looks rosier.

There are threats. China’s on the way to regional hegemony. Some Middle Eastern states, like Iran, are fanatical. The situation in North Korea is frightening. Terrorism still hasn’t been defeated after almost a decade-long war on it. The status quo of the the post-cold-war era – one in which the US, EU and a few allied nations thrived – is unlikely to return for a generation. The damage done is just too deep and too fundamental.

Finding a place in this new world will be challenging for many in the old order. Surprisingly, here in Australia, we’ve seemed to find our place – supplier to China, customer of China & India, friend to the US and deeply linked to Europe. Lucky country indeed! That’s a huge reason for optimism…

Posted in Uncategorized | Leave a comment

Changing Television

When I was a boy, we had a lot of different TVs. A black & white mono one in NYC in the early-to-mid 1960s, another one in Switzerland & Holland in the late 60s & early 70s, a colour one in London for a couple of years. When we got to Australia, they were transitioning between B&W and colour, so we had one of both. By the time I moved in with my then-girlfriend (now my wife), we got a second-hand colour TV from a pawn shop for about $200. TVs were commodity items.

Then things changed – video, cable, digital, DVD, Blu-ray, HiDef. Many people seemed to spend a lot of money on TV hardware and associated accessories. We bought a nice German TV in 1985 with a nice German VCR for about $3000. We rented a lot of videos, but didn’t buy any more hardware. We got an analog cable set-top box in 1996 and a digital one in 2001, but no new TV. We spend a lot on content – over $1000/year.

We recently upgraded to a Full HD TV, a Blu-ray player and a Full HD set-top box. It’s great! Total cost was $1600. The set-top box plugs simultaneously into the cable network and the Internet. The TV can also accept other inputs, like some of the other Internet content provider’s boxes. Those boxes usually cost about $100.

Our first TV cost about $1000 new in 1980. In current dollars that’s over $3000. Our second TV & video cost twice that in current dollars for much more technology a couple of years later. Our latest TV is half as much for much, much more technology and an infinitely better experience.

But that’s not the end of the story. A 1980 TV breaks down frequently. It also needs a sophisticated roof-top antenna with a diplexer to defeat ghosting in the inner city. By the time you cost in all the repair and the antenna, it’s closer to $4000 in current dollars.

If you repeat the exercise with the 1985 TV and factor in the video player, all the video rentals over 10 years and the servicing and repair, you get closer to $16,000.

If you do the numbers for the set-top boxes on the old TV for about ten years, you get about $12,000 in current dollars.

My expectation is that we’ll consume about $20K (2010 dollars) worth in digital content over the next ten years. I expect to update the hardware twice in that time, at a cost of about $1-2K.

Seems like the big thing that’s changed about television is how much you spend on it. Free-to-air TV is still the one-and-only norm for 70% of households in Australia. Otherwise, it seems like we’re going to a pay-as-you-go model for content and a fiercely competitive global commodity consumer electronics model for hardware.

Looks like TV-in-the cloud needs to get commoditised. That’s the real change that’s needed.

Posted in Uncategorized | 1 Comment