~synthesis~

awakening

The recent uprising in Tunisia was sparked (sorry) by the act of one person, it (very) rapidly expanded into a national uprising that resulted in the ousting of a long time President whose resounding electoral victories (he won his fifth election in 2009 with his lowest mandate - 89%) were always suspicious. Despite his close call in 2009, it was not until January 13 of this year that he announced that he would not seek reelection in 2014, and then realizing this was not enough, fled the country the next day. I'm willing to bet that in the 29 days following Bouazizi's immolation, former President Ben Ali had NO idea that that one seemingly inconsequential event would so quickly evaporate his once-powerful stranglehold on Tunisia.

That one man's desperate act would have gone unnoticed without the amazing communication capabilities, which even the poorest among us now enjoy, is a powerful testament to the world we now live in.

President Hosni Mubarak is reeling from roughly the same kick in the groin, and wondering, "what the hell just happened?" Emboldened by these acts, the oppressed from Morocco to Pakistan are rising against their leaders; leaders who until very recently lived under a wonderful shelter of power, wealth, and comfort without accountability. These regimes (even the faux-democracies) have wielded power over their citizens (many of whom live in poverty) for generations without repercussions. How will things change?

I think there are three lessons to be learned - first, politics or leadership is a delicate balance between the application of power and serving the citizens. Second, the right (and ability) for people to assemble may not be pervasive, but it is unstoppable. Third, be careful what you wish for, lest it come true.

Politics - citizens expect that leaders will be somewhat heavy-handed; they also expect public safety, employment, the opportunity to feed, clothe and shelter their families, and in most places, education and health care. We are all willing to suffer, but there is a breaking point. The Middle East reached it recently; we saw it in Sudan with their referendum; it affected the dissolution of the Soviet Union; and caused America to declare her independence from Britain.

Are Western states immune? Nope - the Wars on Terror + the Patriot Act combined with severe domestic belt-tightening have created unrest across America and Western Europe. The difference in the West is that politicians give away more than they should to win, where in the East, they suppress the populace more than they should to remain in power. But either way, in the end, the people suffer.

I think sustainable leadership requires adherence to three absolutes - Integrity, Transparency, and Accountability. There can be no compromise. Once you cross this delicate line, you are either perceived as insipid (President Jimmy Carter) and lose respect, or as despotic (almost every other example of government gone bad) and subject to revolt. Most governments will use misdirection (Wars, etc.) to keep their citizens in line and resistance at bay, until they get found out.

Assembly - the Communication Revolution is upon us and there is no turning back. Anyone has the capacity to create and share and associate, though its implications are not fully grasped by all. Even the American government was caught off guard by the speed with which things progressed in Tunisia and then spread to other countries. Birds of a feather are able to find like-minded people, convene and create movements in ways that were not possible even five years ago. Once tightly-held secrets (Wikileaks) are also fair game. Governments simply can't keep up.

Wishes - the Egyptians want Mubarak ousted - he is why they live in poverty, suffer high unemployment, and a high cost of living, etc. They want free and fair elections to choose their next government, believing that once Mubarak is gone, Egypt will once again flourish and all will be better. I feel sorry for the eventual winner of the elections - the world markets are in crisis, oil and grain (and hence most food) will be more expensive due weather, this turmoil and the economy; and let's face it - the situation in Egypt (or anywhere else) is not caused solely by its leader - most of the contributing factors that caused these problems still remain, and are very difficult to fix. The next leader may not fare any better.

The world is holding its breath to see what happens in the Middle East - from economics to diplomacy to war, changes of this magnitude to the status quo will have gigantic repercussions. Bouazizi may have ended up doing a huge favor to the Ben Alis and Mubaraks of the world - they will leave (with $$ tucked away in offshore accounts), their successors will inherit the messes they presided over, and the citizens will need to start over.

But there is something to celebrate - rising against despotism is a good thing. Self-determination is a good thing. I hope the citizens of these countries will look inwardly to realize that they are now responsible for their destinies, that they can no longer blame "the man," and that they alone have the ability to create viable economies, and ensure the health, safety and well-being of their families.

collar blues

Arbitrage is defined as "attempting to profit by exploiting price differences of identical or similar financial instruments, on different markets or in different forms."

A simple example is the buying of a currency in one market and selling it in another for a slightly higher price; success is knowing the prices in various markets and having buyers and sellers therein. Arbitrage thrived when communication was limited and it was difficult to know what each market was doing. As time and space have shrunk, arbitrage has had to evolve.

As one form of arbitrage was threatened, others grew. It began with the ability to safely and economically ship goods across oceans, combined with countries with predictable governments, cheaper workers, and easy access to ports - thus was formed outsourcing 1.0 - manufacturing. Improved telecommunications then lead to outsourcing 2.0 - services, which prevailed in countries with forward-thinking governments and cheaper, better-educated workers.

We all know that countries with lower costs of living were able to provide help desks, call centers, etc. to countries with higher costs, and both sides won. Western companies lowered expenses, reduced payrolls, and returned more to their shareholders, and "Eastern" companies created markets, employed people, raised local standards of living and returned more to their shareholders.

But... The East is able to provide these services to the West because they have a large, well-educated (better-educated, really) workforce who is used to getting paid much less than their Western counterparts. As communication opened up the possibility of outsourcing, it also opened the East to the salaries and lifestyles of the West, and as their "tide" of awareness and achievement lifted, so did their "boat" of expectations.

Thus people costs in the East are rising, margins are falling, and with the recent recession, the people costs in the West are falling and margins are rising. I'm not saying that the arbitrage opportunity is lost; I'm just saying the margins are shrinking, and growth in BPO (Business Process Outsourcing) is slowing.

I was having lunch with Pierre de Vries a few days ago, and among other things, our conversation went to a question that has been bugging me of late - whether a more educated society is more advantaged [more on this in future posts], and whether "white-collar" jobs add more value than "blue-collar" jobs.

Before we get to that, I'm sure you've noticed a trend over the last couple of generations. It used to be that goods manufactured in the East were of inferior quality, and their only buyers were those with no other choice. That changed very quickly - today goods made in Japan or Korea are considered to be of better quality and reliability vs. what you get in the West. The same thing happened with BPO - initially, you hated it when the call was answered by someone with an Indian accent because you weren't getting the same experience as with a Western call center; but now, their ability and capability have improved to the point where it's not as big an issue, and eventually, the outsourced call center will be preferred to the Western one.

As we have gotten used to the idea of some business processes provisioned "over there," the East is looking for new sources of growth - about 5-7 years ago, medical services began to be outsourced; today outsourced legal services are the new vogue; this in addition to successful outsourcing of software engineering, accounting/tax preparation, and design services to name but three. Outsourcing 3.0 is pure white-collar, and the acceptance of these services by the West is less and less an issue, which opens the door to even more white-collar provisioning.

A commodity is created "when a product becomes indistinguishable from others like it and consumers buy on price alone." From clothing to appliances to cars to help desks to accountants to radiologists to lawyers to ophthalmologists to... you?

When something becomes a commodity, the cost per unit drops, and the price per unit drops - that good or service is valued less, and those that do it are therefore valued less.

Doctors, lawyers, accountants.. What is more precious today? Having someone do your taxes, or knowing a really good, trusted contractor who will help make sure your house stays standing and in good repair? What is more valuable? The car or a great, trusted mechanic?

A successful economy requires sustained value creation combined with growth in unit value. If the worth of the thing being created is declining, the economy declines. A successful economy also requires that most of its constituents (citizens) be sources of value and not merely consumers of social services. For generations we've been led to believe that a doctor was "better" than a plumber. Our parents may even have discouraged us from pursuing these "lesser" vocations in favor of the "desk" job.

Can you have a purely white-collar economy? No. Consumers consume things - those things need to be created and provisioned. Let's go a bit further - you only have to start with lawyers to see that many white-collar jobs are actually self-fulfilling prophecies. As they become commodities, their value will diminish, and (hopefully), their role in society will diminish (speaking specifically of lawyers and tax accountants :-)).

There's a theory that white-collar jobs have more "leverage" than blue-collar jobs - that they earn more, create move value, etc. Doesn't that also mean that disproportionately more white-collar jobs implies greater unemployment?

Might we see less and less white collar jobs in the West and more and more blue-collar jobs over the coming generation? Is it likely that we will want to outsource white-collar jobs???

The extreme conclusion (of course this won't happen) would be that America (for example) becomes the agriculture and manufacturing capital of the world, and India and China become the white-collar services capitals. Each consumes the other's products, and needs the other to survive, but power resides in control of scarcity, which will depend on what is more commoditizable. Now this can't happen because it's not practical for someone in Beijing to wait for a plumber from Buffalo. But you get the picture.

I believe our value mechanism needs to shift to the point where we recognize what so many already know - white or blue, economic success resides in the scarcity of what you do, and not whether you need to clean your fingernails at the end of the day.

mind the gap

This phrase is indelibly etched into my brain from my days riding the London Underground - and it has so many meanings.

Transparency International published their 2009 Corruption Perceptions Index last month, no surprises - poor nations are perceived to be more corrupt than rich nations. The authors of this survey are mostly of the top twenty nations, and their definition of corruption is very top-20 nation-ish. I was born in Tanzania (126th), and have spent time in some of the more "corrupt" parts of the world; I'm not saying that inequity and corruption are not present, I'm saying instead that there is a gap in the understanding of how things get done in the top-20 world vs. the rest of the planet.

How much would the list change if we added a new measure to the index - efficiency of outcomes? It would include tax rates, lobby/PAC spending, pork-barrel budgeting, government-led "preferential" spending, etc. It should also include the time it takes to get something done and the extent to which ethics and that nation's constitution are violated or flaunted by the government.

We in the "developed" world suffer from the arrogant righteousness of our way vs. "theirs", and measure others based on what we value, and not what they value. I wonder what would happen to the index if "tolerance and respect for others" was included?

American foreign policy is all about minding (or managing) the gap - it hinges on the premise that US success requires every "them" to look like "US" - it is more "Soviet" than the Soviets were. Like the Soviets, America prefers to use force as the first resort and diplomacy simply to manage perception - I wonder when President Obama will replace every American ambassador abroad with a US Marine General?

The NY Times published an article today that contrasts America's approach in Afghanistan (and elsewhere) to China's - it's an excellent read, I say this not just because it vindicates my recent post on Afghan redemption :-). Afghanistan is blessed with abundant natural resources; China (and India) recognize this and are doing something about it. The Americans in the article scoffed at China's overspending to win the contract, but how different is that from TARP in America (the overpayment is less than 1/10th of 1% of TARP, and equal to the cost of sending 1,000 troops to Afghanistan for a year)? From the article (my emphasis):

Nurzaman Stanikzai was a mujahedeen in the 1980s, using American-supplied arms to help drive the Red Army from his homeland. Today he is a contractor for M.C.C., building the Aynak mine’s electric fence, blast wall, workers’ dormitories and a road to Kabul.
“The Chinese are much wiser. When we went to talk to the local people, they wore civilian clothing, and they were very friendly,” he said recently during a long chat in his Kabul apartment. “The Americans — not as good. When they come there, they have their uniforms, their rifles and such, and they are not as friendly.”

...

The Chinese, meanwhile, have rebuffed requests to join the Afghan war effort, saying that national policy forbids military action abroad except as part of a peacekeeping force. Instead, China’s foreign policy is based on commerce. Its state-owned companies have been snapping up energy and mineral resources worldwide for years now, often by overwhelming competitors with lavish offers.

...

The Afghan government is seeking bids for its second great mineral project, a behemoth called Hajigak that is said to contain 60 billion tons of iron ore. There are seven finalists — all companies from India and China. M.C.C. is one of them.

China and India it seems have a foreign policy strategy, while America has foreign policy attitude.

According to BillShrink.com's analysis of the most profitable companies in the world, 2009 was a tough, tough year - aggregated profits for the top 100 dropped precipitously, lowest in at least the last five years. The top 6 are all oil companies, and together their profits totaled $163 billion; despite the tough economy, the United States is home to fully half the most profitable companies. I wonder which countries will host the most profitable companies at the end of the next decade?

Some gaps are shrinking and others widening... which ones are we minding?

Oh and the United States is ranked 19th least corrupt, China 79th, and Afghanistan 179th.

entropic policy

Entropy is the tendency of a system to move to its most energetic (entropic) state. For example, you expect ice to melt, turn into water and evaporate into the air. In order to maintain H2O in its solid state (ice), you have to apply energy (a powered ice box/fridge); otherwise it will eventually dissipate into water vapor.

Social entropy is a similar concept applied to people - we have a tendency towards anarchy unless society applies extensive energy (laws, police, Dick Cheney, etc.) to rein us in. The NY Times reported today that the level of social entropy in Iran has increased to the point where the government is expending significant energy to control it and keep the community "intact."

We may be dormant (complacent) for a long, long time simply because we don't know better - think about the fall of the Iron Curtain; think more about the shifts in perception/behavior/desire/unrest in countries like Japan, China and Korea. But once information about a less-constrained society is "available," it is almost inevitable that shifts happen. This is how America was colonized and eventually formed as an independent state.

What catalyzes significant changes to the social entropic state? Fear? Hope? Freedom? Safety? Opportunity? Risk? I think it's all of these (and more). There is enough knowledge and insight to be able to predictably shift a society's entropic state either from within or from outside; there are also evil and benevolent ways to do this.

Vis-à-vis Iran, I think Secretary Clinton must rethink her position - weaponizing nuclear technology is a threat, but the current tack (attack, provoke, vilify, and (over)react to every twitch) demonstrates how easily Iran is able to goad and manipulate America, and is clearly NOT working. To the contrary, and not unlike the War on Terror - Iran's hand is strengthened at minimal cost to them.

America in true Aikido fashion, must take advantage of Iran's inertia and momentum, and divert her attention from weapons, warfare and terrorism into defending the status quo inside Iran. It must do this in a way that is not invasive but rather creative and filled with guile (a foreign concept in the good ol' US of A). The recent Iranian election combined with the death of Grand Ayatollah Hossein Ali Montazeri have opened a door for the West - one that they can help widen by being good global citizens and in no way referring to, commenting on, or vilifying the current regime.

I'd create a US-government-sponsored scholarship fund for all Iranian (why stop there - all Middle Eastern) students that covers expedited student visas, transport, tuition + room & board at any American high school or University, provided the Iranian student is able to gain acceptance (i.e. they are evaluated equally to any other candidate), and they successfully undergo a careful security screening. Clinton's statement should say "we wish to celebrate our friendship with all Middle Eastern countries (including Pakistan and Afghanistan), and do so by offering to help their children be as well-educated as possible and as well-prepared as possible to meet their future and achieve their greatest potential."

What will happen?

1. First (and this applies to everyone in the Middle East), parents will see a possibility for their children to create a better future; they will see a possibility for their families to be more than they are today; they will see a possibility for achievement and attainment that secures the destiny of their progeny, and they will push their children towards it. The side effect is that they will view America as someone that can and is helping them.
2. Second, the Obama Administration uses this to fund expansion of schools in America from the ground-up, improve cultural awareness between Middle Easterners and Americans, and save money because this is way cheaper than war. This is about as good a stimulus package as you might find.
3. Third, it is a way to create a vestedness for America in the Middle East (in particular with those who are susceptible to terrorist recruitment); despite being disaffected, you are less likely to want to bomb the country in which your brothers and sisters are studying for fear of killing your brethren (and biting the hand that feeds you) - I'm not saying this is a guarantee (suicide bombers do kill their own today), but it does engender better feelings.
4. Finally, in Iran specifically, this is a way to empower to those that challenge the status quo by recognizing and offering them a chance for a better future for their children. The Iranian government will want to resist this dilution of their power base and way of life, and focus more energy on resisting it. They will try suppression, but that will only work for so long - a willful citizenry can be very powerful.
   At some point they will have to offer a better alternative to keep Iranian students in Iran (especially as Iranians see their peers from other Middle Eastern countries flocking to a better education), with better and more "open" local schools, more freedom of expression, etc.
   They will have to respond knowing that their actions will affect their ability to trade globally.

If we use society's natural tendency towards entropy and self-determination, not usurp a country's right to self-determination, and honor that country's people by hosting and educating them in our nation, good things will come, and they will live in the form of lasting friendships and better understanding. There will be a harmonizing of all our states of entropy.

nyet nyet...

I read an outsider's view of life in the Soviet Union in 1982 by Edward Crane this morning. 1982 is 27 years, or roughly a generation ago - it seems like so much longer ...or does it?

The Soviet Union was formed in 1922 following a long and bloody civil war. Its formation spawned a massive industrialization, achieving among other things, the electrification of the USSR. Socialism became the policy, along with a one-party system that viewed everyone including their own citizenry with suspicion and mistrust.

Following WWII, the USSR built a mighty military machine and a progressively oppressed society. It viewed everyone not "of the Party" as "them" and not "us." The socialist way achieved a high degree of equality, but very little quality. Over time, the "thems" became most of the rest of the world; and despite becoming an industrial/military superpower, the Soviets were only interested in further domination and suppression. Needless to say, this created enemies among all the "thems," who were united in their "the enemy of my enemy is my friend" mentality. In the end, there were very few countries that the USSR could count on, and most of those were "allies" due to economic ties vs. any sense of camaraderie.

According to Crane, Debra Kocher, and Wikipedia, life there was at best dour. It was permeated with authoritarian thuggery, excessive oversight, chronic despair, alcoholism, religious oppression, dilapidated infrastructure, lack of basic services (like health care, good education), and shortages of food and consumer goods. While not explicit, each also remarks on how the Soviet people's views of life in the West were inaccurate, and "crafted" by their government. Worst of all, all three characterized the Soviet people as being entirely without hope.

The downfall of the USSR was the result of a lack of industrial self-sufficiency, the resulting economic disparity leading to a lack of foreign currency with which to import goods; and then the disaffection of all the States in the Union, leading to their own declarations of independence, and the eventual Soviet dissolution by Gorbachev.

Is there parallelism between then and now? Yes, I think so, but these are still two very different unions. 

In America, politics is a predatory act. Politicians either prey on hope, fear, or ignorance, or sometimes all three. The ideal situation for any politician, Democrat or Republican, is to have an utterly submissive and willing populace. After September 11, 2001, Americans bowed to Cheney/Bush's will, blindly accepted everything they said, and believed their resolution to be true and righteous.

During this time, Americans accepted many changes to their way of life in the name of a secure society. The government was happily given permission to impinge on its citizens' privacy (listening to communications, proliferating security cameras, watching economic transactions); control movement (all air travel and border crossings); declare war on nations; commit crimes on foreign soil; and spend $billions that it didn't have - all in the name of national security.

Americans have also become increasingly xenophobic - everyone else is "them" and only Americans are "us." The idea of building, dare I say it, an Iron Curtain between the United States and Mexico was at the forefront of political debate just a few short months ago, as is the ever-present issue of restricting immigration.

Religion dominates policy issues, whether it is marriage or sex education or abortion or gay rights or curriculum. It aims to control large swaths of political will and social behavior.

American infrastructure is horribly dilapidated - roads and bridges are falling apart, trains are failing, airplanes are poorly maintained, and air traffic control is in a dangerous state. Hospitals are unable (or unwilling) to care for everyone, millions go without health care altogether; schools are in decline, students that do manage to graduate are poorly equipped for their next evolution. The economy is tanking, unemployment is rising precipitously, as is the number of people who have already lost unemployment benefits but remain without work or income.

Is it simply a matter of time before someone comes along with a "just and righteous" value proposition, and the citizens willingly accept a bold new way to salvation, where the "state" controls everything and "provides" everyone exactly what they need?

The recent election might be a ray of hope, though things don't seem to have changed a whole lot. The many economic packages have dramatically increased state ownership of industry (textbook socialism); the ideas of nationalization, excessive government oversight, and foreign intervention have become acceptable; a tacit rejection of the very things that made America the country it once was. A country that rejected oppression (religious or otherwise); that opened its arms and welcomed all people; whose Declaration of Indepencence brilliantly stated:

We hold these Truths to be self-evident, that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

Why aren't these words quoted more often? Why isn't their truth and practice promoted more often? And why isn't their violation called out more often?

Now I don't really believe that America will all of a sudden turn into a variant of the Soviet Union, but I think some sense of why and how this country was formed in the first place needs to be much closer to the front of our minds than mired somewhere in the bowels. 

Let us be vigilant lest we be doomed to generations of constipation...

UPDATE - corrected to reflect correct document - thanks Josh

epic movements

How do you create a global movement? What does it take to start something that sufficiently compels the leaders of governments around world to make the necessary trade-offs on a national scale to make change happen?

About a month ago, I had the opportunity to spend 30 minutes on the phone with Steve Killelea - a very interesting fellow who has taken on an equally interesting mission - global peace. To do this, Steve decided to make peace tangible - define it, quantify it, and build a model that allows each country to be assessed and ranked so that government leaders can see how they compare to each other, and take action.

As our conversation went on, he said that there were three causative factors for peace - income per capita, perception of corruption, and education. So the wealthier, more educated and less corrupt you are, the more likely you are to be peaceful - kinda makes sense. I also learned that the biggest driver of change in a country's ranking is domestic stability; Mexico for example has fallen significantly due to its drug-related issues.

Around the same time, I had the good fortune of previewing the premier of the upcoming NOVA scienceNOW season, where I learned about Luis von Ahn, and in particular this really cool idea he has called GWAP - games with a purpose. von Ahn is a fascinating and rather divergent thinker - he's done some brilliant and powerful work in a variety of areas - watch the NOVA episode when it airs to learn more.

Going back to Killelea's GPI (global peace index), I think it's a bizarrely interesting idea to quantify peace (I would have thought of it like porn - you know it when you see it:-)). First, I think you have to be very sure of your data before you publish - there are some numbers that I do question - the USA is absolutely not 99% literate, nor with a 75% (or less) high school graduation rate is post secondary enrollment 82%. I say this because the countries that this Index needs to influence are those that will dismiss the analysis (which I think is worthwhile) based on any error, and then we're nowhere.

I think for Killelea (or anyone) to create geopolitical change, there needs to be a really (really) big hammer - it's called the power of the people. There's no way you're going to pressure the USA (ranked #83 - remember the three factors - education, corruption and wealth!) to do anything differently without two actions - demonstrate the profundity of their impact, and get their citizens to viscerally understand how widely-felt their country's acts are, and start the change from within (witness recent events in Iran).

To do the first, the Peace Index must include a coefficient of influence for every country that measures and demonstrates the ripple effect on other countries of their malfeasance. So if America does something untoward, the impact spreads well beyond her borders to affect XX other countries. In this way, the whole world can see how interdependent it is, and each country will know just how much it's harshing on everyone else off with its actions. This can be an incredible motivator - both for the one country and those that are affected by its actions.

To do the second, we must humanize. Let's bring Luis von Ahn back into the mix. I think his GWAP is unique in how it connects with people's insides. The two gents need to collaborate and build a game (or other vehicle) that can go seriously viral, that shows people exactly how their government creates un-peace, how it affects them, and then helps them understand and play out approaches to shift the balance so that the country becomes peaceful from within - as Kellelea stated, domestic issues are the biggest driver of changes in ranking - let the people act!

Global change comes from within - let the people be the change they seek.

social darwinism

I'm not a fan of protectionism. I think that every business or industry must either thrive in the global marketplace or die. This is how we ensure sustainable businesses and a vibrant economy. You only have to look at the auto industry to see how protectionism and creating a false-economy (one, two, three) solely to support an expensive, unionized labor force were not sustainable, caused or perpetuated uncompetitiveness, and eventually resulted in failure.

Yesterday was a beautiful, warm, cloudless day here in Seattle. Hanging out at a nearby park/marina, I noticed two sets of parents with their infants - one was using an anti-bacterial wipe to sterilize a restaurant highchair, the other was feeding their child (overhearing this part) ultra-organic, home-prepared, "pure" baby food. Both parents had expensive strollers; bragged about their infant's already hectic schedules; and talked about how they were already looking at schools (or even home-schooling); and (this blew me away) bemoaning how careful one had to be to pick the right kids for play-dates. Next to them was a family that had just plopped their infant down (no autoclave in sight), and were feeding him restaurant-prepared junk food. The latter child seemed happy, energetic, inquisitive, looked around, laughed, etc.; the former two were both placid.

Assuming these "super-parents" succeed, their kids will never touch "imperfect" food, never inhabit "unclean" environments, have ultra-busy schedules (playing with the "right" kids in "appropriately-designed" play spaces), enjoy ultra-managed electronic access, and ideally never have an uncontrolled exposure to anything.

This is not new; a large class of baby-boomers have been raising children like this for more than a generation.

How are these kids acclimatizing to the real, post-pubescent, high school world? Being around people with different opinions, potentially more confrontational, competitive, angry, etc. will have an effect. Will their systems have the antibodies, immunity and resilience to eat in the real world? Will their bodies accept a non-hypoallergenic environment? Will they be able to adapt to dealing with "raw" situations containing stress, angst, happiness, lust, greed + alcohol, drugs, cigarettes, etc.?

Exposing children to the world suddenly, and now without the parental protection safety-net has resulted less healthy, uncontrolled, immature, binge-driven behavior in high-school and university (and beyond). Academic performance has declined generation over generation, as has the motivation to excel. Children today aspire to be so much less than their grandparents and parents - you only have to look at relative academic performance to confirm this.

Can it be because their parents coddled them to the point where they have no motivation to achieve, nor do they fear failure?? After all, their parents have always been there - haven't they?? They expect to be happy, successful and healthy, because they've never known any other reality.

I think well-intentioned "super-parents" (like their NHTSA & EPA counterparts) may be doing their children more harm than good. I hope modern American children are not already down the path of suffering the same fate as General Motors, that like GM they're so close to action, and have so much social inertia that they are unable to see the forest through the trees.

We must expose our children to the real world; build up the physical, intellectual and emotional antibodies and resistance that will enable them to participate; and create the stress, team-orientation and competitiveness that will best-prepare them to not just survive, but aspire and thrive.

business habitats

I had a meeting yesterday in Beijing next to The Place, which sports one of the most amazing open-air displays I've ever seen. A colleague (David Ho) and I were talking about organizational structures, my recent post on corporate brittleness, and his perspective from living in Hong Kong and working across Asia. He came up with this really fascinating idea - that organizations have no choice but to form according to the habitat they inhabit - we had to cut our conversation short when the rest of the group showed up, so I hope David doesn't mind me riffing on this.

If we define a habitat as a social, physical space with a pre-defined set of rules and expectations, then here are a couple of examples:

America - hierarchical, ever-abrupt, time-centered, measured by quarterly performance, driven by MBAs, lawyers, and a lot of management layers. Success is defined by the last deal closed, funds are raised based on a frenetic performance rate, and sustainability is a marketing gimmick. Business is done quickly, without preamble and concluded with a strong, manly handshake as a demonstration of personal and corporate prowess.

Asia - hierarchical, sometimes abrupt, far-sighted, deliberate, outcomes measured in decades, driven by familialness, protocol, a complex, interconnected socio-corporate lattice. Success is much like a game that takes minutes to learn and a lifetime to master, Go - it's all about occupying as much space that you can hold on to for the long haul as possible. Funds are raised based on navigating that same lattice with proven ideas, trustworthiness and long-standing relationships. Business is done when the time is right, minds have met, bonds have formed, subtleties explored, and ideals intertwined. There is more preamble than not and a strong handshake connotes weakness, bluster and a profound lack of substance (read: "walk softly and carry a big stick").

Is it any wonder that operating outside one's habitat is so difficult? It's akin to a baseball player taking home run swings at fastballs, only to suddenly notice that the "pitcher" is actually playing badminton. "Steeerike Three!!"

I bet most companies don't even realize that they live in and instinctively behave according to the rules of their habitat. They are so immersed that it is nigh impossible to perceive the forest from their tree. If they have a better sense of their habitat, they'd traverse it more effectively, and use its rules to their advantage. More critically, if they aspire to do business in other habitats, their capacity to understand how they are regarded from the outside based on the filter that the other habitat uses will be of tremendous advantage, and misinterpreting this a most significant risk. Of course one must also understand the premise, rules and traditions of the other habitat.

I am reminded as ever of the words of history's most brilliant strategist (Chinese as it turns out), Sun Tzu:

If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle. -- Sun Tzu, The Art of War

Master the Art of War, for it deciphers the rules of all habitats. One hopes that more MBA schools discover this text - who knows - maybe that'll lead to the occasional single or double.

the brittle truth

I heard this great quote on a TV show called Naruto: "anything that has form must one day decay."

Besides asking what the heck I was doing watching Naruto in the first place, I wondered why things get brittle as they age? Is it size? Ego? Sedentaryness? For inanimate objects, it feels like they just dry up - grapes to raisins, plums to prunes, etc. - not a happy thing. I imagine a person's "water content" also diminishes over time...

-- Oops - sorry about that - I felt oddly compelled to get a drink of water just then.

So why does it feel like the older (and larger) an organization gets, the more it "retains water"?? When organizations decay, they don't shrink and dry up, they ...congeal. Besides the "yuk" & "eeew -- gross" factor, this pendulous, ineffectual, slug-like behavior could have some dramatic effects on the world around them:

Apparently, 7,100 (or 47%) of the 15,000 air traffic controllers in the US will hit their mandatory retirement age in 2012. I don't know about you, but this doesn't make me sit back, relax and enjoy the flight!

I'm not an actuarial scientist, I didn't eat Wheaties for breakfast or sleep at a Holiday Inn Express, despite this even I can deduce that:

1. People do age (duh!)
2. It takes time to train an air traffic controller
3. The skies are crowded as it is, and we already have a lot of "close calls"
4. Planes aren't going to be replaced with Star Trek transporters anytime soon

The numbers:

1. There are 15,000 air traffic controllers today (we'll need 16,000 by 2012)
2. 3,500 of the 15,000 are in training (so there are really only 11,500 fully-qualified controllers)
3. The Department of Transportation (DOT) has found that 22% of facilities have already exceed the number of trainees they're allowed to have working at any time <-- read that one again!
4. 7,100 of the 11,500 (or 61%) qualified controllers are going to retire in three years (2012)
5. And now for the big one - it takes about three years to train an air traffic controller

Besides thinking it's time to go long on companies that sell video-conferencing technology, I'm wondering if this is just organizational decay? That as the DOT or FAA have grown older, they've just lost the ability to think clearly, forecast correctly, elevate issues appropriately, etc.? I'm sure there are many employees there who have been shouting about the impending resource gap, but maybe "management" just ignored it?

I think of the company I work for - it's now over 30 years old - and certainly some elements of it feel very sluggish. I think of the company that insures my apartment, that still today (after four years of assuring me that this was in the works) do not have a way for me to look at my policy or pay my bill online. I look at how long it took for America (a self-proclaimed super-power) to react to Katrina, or recognize that it's roads and highways are falling apart, there are so many examples.

What to do? How do organizations stay fresh? Here's one idea.

oversight Easter egg?

When the US Federal Government "took over" key American financial institutions, they imposed executive compensation restrictions, undertook Congressional investigations on bonuses, and decided to legislate how "their banks" would pay their employees.

What did the employees do? Many left. Where did they go? Some (the best and most employable investment bankers and traders) went to smaller, boutique firms where compensation is not regulated by Congress. The NY Times thinks this is a bad thing, but maybe not - here are three possible outcomes, which together might be a silver lining:

I. Dekeiretsuification

The exodus of trading talent means the big (now over-regulated) financial institutions may not be able to rebuild their brokerage/Wall Street presence. This could be a godsend if they go back focusing on their core business. Banks stick to savings and credit, insurance companies focus on actuarials, and trading companies focus on the markets.

If we can go back to a pre-1999, reinstated Glass-Steagall Act state, then government oversight of each type of financial institution is more clear, and conglomerate organizations like today's AIG & Citi are not possible. So even if bad behavior does occur, there should be less need for government intervention, and market forces would prevail.

II. Renegade Boutiquism

As these "quality" traders and brokers move to smaller, boutique firms, they will go back to their roots - commissions by the deal (no long-term view); employing aggressive, creative market-making approaches, looking for every loophole and finding new ways to create revenue streams; and doing whatever it takes to achieve hyper-returns.

Today there is a good regulatory framework (the SEC), but with one gaping hole - the rating agencies. As I wrote here, they were a critical point of failure, contributing signficantly to our current predicament. The SEC and Congress need to focus their energies on repairing this to restore rating integrity. Let the boutiques play - this is the "cowboy" end of the financial services system, and it should remain so.

III. Lax Americana

For those with a big ego who can't let go of "American supremacy," this is the tough pill to swallow. Being meekly Canadian, I'm not so wrapped up in it :-). With tight Glass-Steagall-like regulation, there is no possibility of massive American financial conglomerates. But I'm guessing that Russian, Chinese and Brazilian regulators will not restrain their banks, and these will be the new financial services "powerhouses" of the 21st century.

If US (and the West) regulators can think long term, they will first make sure that their infrastructure's dependency on these mega-banks is limited and managed; and they will resist the teenage male testosterone urge to view these "foreigners" as a challenge to their "manhood".

When they were going after the salaries and bonuses, I thought the Feds were being spuriously regulative. But provided we can re-enact Glass-Steagall, reassert Rater integrity, and stay focused on the long-term health of the economy, the result should be a stronger, more accountable, and better managed financial services system.

Let's hope the Easter Bunny is smiling...

private, public, pirate

I recently read Larry Lessig's post about the implications of ThruYou and how they're flaunting intellectual property rights. I also received an email pointing me to an article in the Austin Chronicle about Stephanie Klein whose life is as open a book as you'll find.

An interesting set of bedfellows? They do have things in common. They're about expression, they're about expression that might backfire if misused, and they are expressed in a medium where so much can be said so quickly by people who have so little to lose and so much to lose.

Seems pretty complicated...

Historically, a ton of content was produced, but not very much of it was published. What was published was vetted and reviewed, and funneled through a small group of people (editors/publishers) who were the gatekeepers to broad distribution. They also ensured intellectual property rights protection, mostly because they could be found easily and they had enough money to be lawsuit-worthy.

Then came the information and communication revolutions. First publishing became easy, and with Internet access, even free. Second, distribution/middlemen were largely removed from the equation - while they still exist, their impact as a percentage of the whole has shrunk dramatically. Third, with search engines, distribution is easier still, you can publish, with some work and a little luck, you will find an audience - all with little or no money expended. Though the returns are not really significant (witness my experience), they can be compelling depending on your strategy, and in aggregate, I presume better than traditional book publishing.

Implications? A ton of content gets published and is consumable by anyone who can find it. It's easy for someone to plagiarize other people's work and claim it as their own or just not attribute it. Copyright law does protect the original publisher, but let's face it, first you have to find it, then find the publisher, and then sue them, assuming there's something meaningful to sue for, and that your "authority" will have the power to get them to do the right thing. ("Authority" = does the plagiarist live in a place that recognizes and honors your authority to sue?) I have no data to back this up, but I would guess most web/blog publishers don't even explicitly protect their content (with Creative Commons, etc.).

The other side of this is publishing so much about yourself that you essentially have no privacy. That might seem like a good idea at the time, but it is possible that anything you say can and will be used against you. There is amazing power to being completely out there, as Stephanie Klein has demonstrated. The sheer volume of content not only creates a large following (if you're good, as she is), but can also shield you from piracy if your style is well-known and distinct enough to be identified.

How is a person benefited by being this public? There's the exhibitionist dimension. There's also the part where your followers can a-la Wisdom of Crowds, provide you with insight or advice about your situations. There's notoriety of course. And clearly there's money in it too. Is it worth it? Is TMI a factor? Do I really want to know that much about anyone?

Apparently people do. Not only through blogs, but certainly through reality TV shows, as well as those "wonderful" Jerry Springer-type people.

Is this an American/Western phenomenon? How about this for an experiment: what if someone in say Sao Paulo, Brazil decided to completely plagiarize Stephanie's blog, translate it into Brazilian Portuguese (make sure the context was shifted to their city) and then publish it?

Do you think it would make money?

Do you think Stephanie has a right to any of that money?

Do you think the authors are obligated to attribute it to Stephanie?

Do you think if Stephanie were to find out and sued, that she would get anything for her troubles?

The last question will be asked often as the web grows in global economic relevance, and when everything that is seemingly "intellectual property" becomes freely sampled and distributed for anyone to see and few to control.

getting your ticket punched

Brian Dixon wrote a great post on the transforming role of education. As I read it, I asked myself - what is the most elemental reason that people get an education?

For parents, it's about structured, mostly free babysitting; though I suppose wanting more for your kids than you had and thinking that education is the path towards that might have some influence.

For the government, it's about capacity creation. Once we moved into the Industrial Age, it became clear that GDP growth was tied to capacity to scale output, which was tied to the capacity to create scalable output, which was dependent on educated people. Plus most politicians are lawyers, and despite Shakespeare's best efforts, they still live, are inexorably linked to their alma maters, and want to see them live on and be filled with students.

For the student... now there's an interesting question. In most cases, entering the education system is an involuntary act. At some point they get used to it, and then hopefully enjoy it, building a community of friends, etc. But why (at the most fundamental level) do students wish to be in school?

A part of it (especially today) is that children know we live in a capitalist/market-driven world. They know also that from food to clothes to cars to games to phones to whatever, the biggest impediment to getting what they want (besides parental and legal constraints) is money. Once they're old enough, as long as they operate within the rules of society, the main thing in the way of what they want (or think they want) is money.

Again - why school? Until the Information Age, the ticket to employment (and thence income) was an accreditation of some kind. The better the accreditation, the better the employment & wage. School was the most likely path towards this. Two things have changed in the last couple of decades - first the success of athletes and musicians that prompted some to believe they had a non-academic path to bling; and second, the success of creative Internet commerce (mostly by young people) where "accreditation" wasn't required - examples include the Million Dollar Homepage, and of course this Forbes list of teenage millionaires - most of whom were really smart, but seemingly didn't require school to get it done.

Notwithstanding the fact that these successes are the equivalent of winning the lottery, it still puts children in a place that deeply questions the need for school. This of course creates yet more pressure on schools to be a place that compels children to want to attend and remain.

Back to Brian, I was at his place of work (High Tech High) last week. It is an incredible school. There are many things that make it so, but two stand out for me - first that it is a joyous place, and second that every student that I met or saw exuded "I can be anything." This is a tribute to the philosophy of this school and its amazing teachers. I got to spend some time with Brian and Larry Rosenstock, CEO of High Tech High (HTH). We had a wonderful conversation, one that befitting the surroundings, spanned a gazillion topics. Of course I learned a ton, and emerged that much more inspired and grateful that I get to do what I get to do.  While we didn't talk about it, I believe Larry would sign up for the three measures of school success I suggested here.

At HTH, I saw students wanting to be in a place where inspiration provokes outcomes, where the outcomes are meaningful, and where everyone (faculty, staff and students alike) thinks: "we can, we must, we will." It is this type of inspiration that every student needs, the inspiration to not merely seek the quick, easy win or a free ride, but instead the path of challenges, team work, and accomplishment - that's the ticket.

Energy Innovation

I was listening to an interview on NPR yesterday with an executive from Shell who said that energy independence is impossible, we just need to talk about reducing consumption. Questions arose. What is energy independence? What happens when you have it? What ought to be the right price to pay for this?

I think it is in Americans' nature to think: "if I see something I want and I can get it, unless someone stops me, I'm going to take it." That applies to buying bad mortgages, it applies to eating fast food, and it absolutely applies to energy consumption. We have big cars, big houses, big appliances and big appetites. This isn't true everywhere in the world, though I've seen it more and more in the Middle East and some Latin American countries like Venezuela.

When gas prices rose above $4/gallon, consumption fell. Instead of driving, more people tele-commuted, conducted e-meetings (vs. face-to-face), and braved public transit. People were even more thoughtful about home heating and whether they really needed to run the dishwasher right now. But when prices came back down, the old habits returned and consumption resumed.

There were hard times. People dependent on driving long distances suffered deeply. The American urban sprawl, was built that way because gas prices have historically been so low. When you travel through or live in Europe, you notice that gas prices are two to almost three times higher than here. Moreover, public transit is much more efficient and available, and everything is a lot closer to each other - you hardly need to drive.

The very nature of American urbanization puts us at a tremendous disadvantage compared to the European Union when it comes to the COGS of our products and services. Today, American workers are a bit more productive than their European counterparts, but one never knows how long that will last, and if that advantage erodes, the increased cost of fuel will make our products that much more expensive to sell and buy.

With few exceptions, public transit is abysmal in the US - first because we don't spend any money on it, and second because people mostly hate to use it. Let's change that! There is a large public transit allocation in the stimulus package, why not take this opportunity to change the game? First, all new public transit vehicles must be natural gas or electric powered, second, let's double gas prices again (for non-public transit consumption) with a tax whose proceeds are earmarked for pubic transit investments, and to expand transit coverage beyond city-centers. The results:

1. Lower CO2 emissions
2. Lower fuel imports
3. Cheaper overall transportation costs
4. A re-thinking of American city planning

I know this hurts the already-ailing auto industry because we'd be reducing their demand pretty dramatically, but maybe it's time to smell the coffee and realize that auto manufacturing has way too much capacity as it is, and is simply not sustainable.

Also - I haven't mentioned one very significant result from all of this. American ingenuity. I think when pressed, and when our backs are against the wall, creativity and innovation will occur - this country will produce the successor to the internal combustion engine. It will produce batteries that are (maybe even organic) smaller, have greater capacity and are more safely disposed of. It will design new forms of transportation that fundamentally change the very concept.

This is really what's needed. But to get there, our backs need to truly be against the wall - that's when the magic will happen.

Tomorrow's players

Nothing binds two countries more than economic interdependence. When you have a financial relationship, certain things naturally happen:

• You pay more attention
• You learn more about each other
• You are more vested in the other's destiny, therefore you care more about their well-being
• You are very unlikely to want to harm that which can feed you
• You are more likely to understand each other better than before the relationship

Some interesting data. According to this article in the Economic Times (part of India Times), the trade between India and China from 2002-2006 has grown at 50% year-over-year. This compares to 25% growth with any other country. India is one of China's top ten trading partners, and trade is growing fastest among the ten with India. Finally, trade has grown from about $5 billion in 2002 to $37 billion in 2007, and is forecast to be $75b in 2010 (assuming a conservative 25% growth), $113b by 2012, and $225b in 2015.

In another issue of the Economic Times, we learn that trade between India and the whole continent of Africa has grown from $5.2b in 2002 to $26b in 2007, and is forecast to grow to $150b by 2012.

The growth rates with both trading regions (China and Africa) is nothing short of phenomenal.

Two more things to ponder:

1. Together, these three regions represent 3.43 billion people, or just over 51% of the world's population.
2. In 2012, the trade between India and China and India and Africa will be $263b, up from $10.2b ten years prior.

In comparison, the combination of NAFTA (Canada, USA, Mexico) and the European Union represent a population of 942 million people or just under 14% of the world's population, and US trade with Canada, Mexico and the EU was $1.375 trillion, which is obviously bigger than $263b.

I know I haven't looked at US trade with Africa, India and China, and recognize that there are a lot of other factors at play here.

But considering the relative economic potential of the populations of the Western countries vs. that of the Africans, Indians and the Chinese, and the fact that India's trade with these two regions has grown 26 times in ten years, one can't help but think that India's got a lot of upside, and that the economic potential of their population (plus of course those of their very large trading partners) is growing at an incredible rate.

If this growth continues, I wonder what the economic potential India will be a decade from now? Greater than the US? I don't think it'll be that high, but here's one thing that I think will happen - in ten years, more Americans will move to India to improve their lot in life (find jobs, etc.) that will come to American shores. This behavior has already begun as more and more people come here for an education and now rather than stay, go back.

I think Africa, China and India's futures are much more tied to each other than otherwise. If they do end up becoming good friends, establishing connections more reflective of Canada/US relations, the West is in for a pretty humbling time.

If at the same time, America looks upon the rest of the world with arrogant disdain (as I discussed in this post), it is inevitable that as others rise and the gap between have and have not shrinks, they will not admire, or wish to befriend this particular "have" as much as others have in the past. It is good that the sitting President seems more about joining with the world than owning it.

Thank goodness that Vice President Cheney didn't run for President. If he had won, I imagine we'd be calling him Kim Il Cheney [apologies to Koreans everywhere], and building a DMZ between us and Mexico, Canada and everyone else. And when as the sun rose in the East, those nations would be that much more motivated to spank America.

Our job should among other things be to focus on building stronger, friendlier, and more symbiotic relationships with this triumvirate (and everyone else of course) representing more than half the planet.

Philanthropy, foreign policy and sustainable outcomes

There's a lot of talk lately about what role the Obama government should play in helping emerging countries ascend. Most attempt to marry philanthropy and relatively short-term, Western ideas about what we think "they" really need. I wonder if we're simplifying too much and over-committing to the idea of philanthropy?

When philanthropy does create an outcome, how long does it last once the funds and the Westerners leave? If the intervention is not in the natural flow of the local community, and something that they would make a trade-off for within their hierarchy of needs, how often does it succeed?

I'm reminded of a story I read a while back about a Microsoft executive who visited a school in Guatemala - essentially someone donated a satellite dish + internet access to a school; at some point they stopped paying the satellite bill, and there ended that project.

Sustainability is the panacea for all intervention. But things only stick if all the players wish it to, and would make the trade-off for it vs. other priorities. In many emerging communities, the other priorities include food, shelter, income, and healthcare. Even education doesn't always make the cut.

The most successful recent technological intervention in emerging communities is the mobile phone. The innovation was in the sale of cheap handsets and pay-as-you-go plans. The Western investment was typically to build the network (cell towers), and provision very simple, cheap handsets and SIM cards via local retailers.

It succeeded because it was about business not philanthropy. A market investment was made to create a symbiotic relationship - provide a service that the local community wants and willing to pay for. It took time for this to happen, but now there are ancillary businesses that have grown organically from this and it is self-sustaining.

Historical successes include the TV and VCR, though they are used sporadically since they need continuous electricity, which a mobile phone does not. I think this is one reason why PCs don't (and won't) do so well.

I would make the bet in the mobile communication arena (vs. PC computing, or pure internet access, or whatever), and I would consider the following for-profit ventures:

1. Provide ubiquitous and very-low-cost mobile data plans, and provision low-cost data-enabled mobile phones
2. Build a simple, pervasive text and mobile data (3G, GPRS, etc.) e-banking and e-transaction service 
3. Create and distribute mobile educational curriculum, much like Kumaras Pillay does in South Africa
4. Develop mobile content on how to use #1 & 2 to create your own e-business in local languages

The Obama administration should promote investments that create a symbiotic relationship between the Western companies, local companies, and local consumers, but that's just fluff.

The Administration's real role should be to catalyze the ITU and the World Bank to negotiate multinational, multi-party deals that enable #1 & 2, and spawn companies in partnership with UNESCO to build pan-African (say) mobile curriculum for #3. If the large Western companies have a brain (and they do), they will help build #4 in each market to drive increased adoption and usage.

The "owner" should be Hillary Clinton, the new Secretary of State. It should take six months to negotiate the deals with the various parties, and 24-36 months before we see results from pockets of  critical mass. It should cost relatively little to do this (low-interest loans to upgrade cell towers for data access (~$25mm),  implementation of a simple e-banking model (~$1-2mm), and curriculum development ~$2-3mm)), and say 3-5 people in the Administration to oversee progress.

The citizens would benefit if the services were of enough interest to warrant spending their very scarce funds. The local companies would form organically and benefit their communities. The larger (and sometimes Western) companies would benefit because their markets had expanded.

America would benefit because it believes (as Obama said many times) in peace through improved global education, prosperity and communication.

A rising tide lifts all boats. As value is provided to the lowest layer, its worth rises, and goodness flows throughout the whole system. It might take more time (3-5 years) than we'd like, but the result is pervasive, locally-owned and sustained improvement, and a good step towards peace and prosperity for all.

Pointless Competition

Eduwonk (Andy Rotherham) wrote about international pressures on American education recently. In it, he pointed to a press release by the National Governors Association, where they identified "five transformative steps that the American education system needs to undergo to produce more globally competitive students:"

1. Upgrade state standards by adopting a common core of internationally benchmarked standards in math and language arts for grades K-12;
2. Leverage states’ collective influence to ensure textbooks, digital media, curricula and assessments are aligned to internationally benchmarked standards and draw on lessons from high-performing nations;
3. Revise state policies for recruiting, preparing, developing and supporting teachers and school leaders to reflect the "human capital" practices of top-performing nations and states around the world;
4. Hold schools and systems accountable through monitoring, interventions and support to ensure consistently high performance, drawing upon international best practices; and
5. Measure state-level education performance globally by examining student achievement and attainment in an international context to ensure that students are receiving the education they need to compete in the 21st century economy.

These are good steps. Or are they?

The aim of America's education system should be to create the best possible American students, not the best possible African or Asian or European or Latin American students. This it seems will have us forever attempting to catch up to the rest of the world based on their standards. It's not as much about being globally-competitive as it is about being the best you can be.

Now I'm not arguing for xenophobic or myopic America-only thinking at all. I'm just saying that there are so many examples of excellence in American schools, why are we not basing our definition of great education based on these? There's one in my backyard - the Seattle Girls School. If the NGA was to look inside the America's borders they would find many successful schools; schools proven to understand this culture and this reality, and able to create greatness within it. At SGS, they focus more on creating an environment in which learning happens than curriculum. Where is the call for more research on this topic?

These schools' walls have the capacity to create great students. Perhaps the job should be to find ways to take Seattle Girls School and the hundreds of others like it to scale and achieve results that make the nations of the world seek to be compared to and measured by our standard?

Long Tail Advertising

Mark Cuban wrote an excellent post a couple of days ago about the next iteration of Youtube. This quote was interesting:

"A look at the current Youtube home page demonstrates the new reality of user generated content. Everyone wants to get paid.  Rare is the widely viewed video that doesn’t have a profit or stardom motivation."

So what does this mean? I think it's about this concept of long tail advertising. I think these comments in the entry are onto something.

"...the short head will be human, the fat middle social, the long tail algorithmic."  "And he says that the advertising interest is in the fat tail."

I'm struggling to imagine a scenario where it ever makes sense to advertising to the fringe - especially in this era of long tailness.

What is the era of long tailness? We are in or approaching a place where search, social and community all work together to find birds of a feather and connect them. It's pretty clear that the farther down the tail you are, the easier it is to find your friends - the searches get that much more precise, and the communities are that much smaller and more specific.

So - if the farther down the tail you go, the more precisely the community can be defined, what's the point of advertising (which by definition is an imprecise, un-targeted tool for "spray" reach)?

So how does this connect back to Mark's blog? Well - I think the situation for Youtube is more dire than Mark thinks. On the assumption that his premise is true (i.e. most everyone who posts on Youtube has an ulterior motive - either revenue or notoriety), then how will they be gratified?? Having scanned some recent postings on Youtube (over the last hour), the majority are decidedly long tail, and very far away from interesting any large, "sprayable" demographic.

So why advertise to that audience via Youtube at all?? I think Mark's overestimating the willingness of advertisers to put $$ against these audiences. If I were in their shoes, I'd use alternate means to reach my audience, and what's more of the three I mentioned above (search, social and community), I'm going to find myself starting with search, but quickly moving to the other two, since at some point, they'll find me via social and community. I won't need to go looking for them.

And that's when I'll use a different form of advertising than the traditional Google model.

I wonder if we're beginning to approach the point at which what is a brilliant business model (Google's) starts the journey towards the way of the TV ad?

Rating the Raters

I just saw this fascinating explanation of CDOs by Marketplace's senior editor, Paddy Hirsch. Until I saw this, I didn't realize that the poorly-rated elements of these instruments had become re-collateralized or maybe the better word is re-derivativized.

When a banker created the original security (S), s/he put together a package of mortgages and other debt that bear interest, and sold the package to investors, who purchased based on the risk they were seeking to undertake (let's call their choices: Saaa, Saa, Sbbb, Sbb, etc.). A second banker then created a derivative instrument (BS) based on (S), but instead of mortgages, this banker used the actual investments the first banker sold as the underlying asset.  What's more banker#2 used the higher-risk bits of Sx, so (BS) is based on a bunch of Sbbb, Sbb-type investments vs. any debt instruments,and vs. Saaa or Saa. 

With (S), people get paid in the following order (Saaa, Sss, Sbbb, etc.). The first people to get paid are (Saaa), but they get paid less as a percentage since they made a lower risk (and hence lower return) choice, but they get paid first. With (BS), the first people to get paid with (BS) are those that got paid last for (S).

Now here's the kicker. A rating agency rated BS investments as having the same risk profile as S!! Can you believe that??

Implication: people that bought BS got screwed.

How is it that the rating agencies have not been held accountable for this failure? Where is the Senate or House inquiry on these agencies' leaders?

It eludes me how simple accountability is abjectly ignored in our government.

When I wrote about this, I proposed a solution to the lending crisis. My idea was based on a purely market-economy-driven approach. I think if this approach were taken, while some of the Sx's and BSx's would have gotten a bit less money, most if not all of them would at least be paid for the simple reason that their interest payments would have resumed (albeit at a slightly lower level) very quickly. More critically, most homeowners would have been able to remain in their homes, continued to pay down their mortgages, and the banks and others in the financial system would have taken a bit of a hit but survived.

It's a simple idea, but it doesn't seem that simplicity is a preferred path.

Bailout madness

Update: David Brooks also wrote about this topic - another incisive mind and great editorial.

-=-=-=-=-=-=-=-

Thomas Friedman has a great mind. His Nov 11 editorial spoke to me.

In any right-minded world, it should be the goal of the stakeholders of that organization to ensure that the best possible management and governance are in place, and further that that management is committed to the sustained best interest of the organization. As the citizen stakeholders, we must act.

It's surprising to me that the management of all of the organizations, be they financial services, manufacturers, or lemonade stands who are asking for bailouts have never gone public with analysis of what happened, why it happened, the nature of their missteps, and most critically, specifics on what they intend to do to return their company to a position of strength.

Further, what do they intend to do with the cash infusion?  Just pay the bills and change nothing??  Does anybody with a brain believe that that's a good place to throw money?

What to do instead?  Well - I wrote a while back about the lending crisis, and I think a similar strategy should be employed with the automobile industry. Let's not give those that failed miserably more money to fail even more miserably.  Please.

So - how to motivate new car buyers?  How about this:

1. The American government creates a used car purchase and export program to donate used cars to developing countries. Used cars are purchased at the 2005 Blue Book value (to give the seller a premium).
2. The cars are then refurbished (economic stimulus to the car parts, servicing and detailing companies), and shipped (stimulus to the shipping/transport industries) to other countries, as negotiated by the Department of State.
3. Consumers are given an economic incentive (government funded loans through the banks (giving them the cash flow) @ 1% per year for 4 years) to purchase new cars. The incentive would also include a 4-year insurance discount of 25% (again funded by the government). 
   
4. Consumers are ONLY required to buy domestically-manufactured cars, but not just from the Big 3.  Any American-built car is eligible. The market forces should prevail, allowing consumers to spend their money where they choose. If the Big 3 don't have the best product, they don't deserve to win, but American automotive workers do benefit.
5. If one or more of the Big 3 end up failing because of this, the foreign manufacturers should have an opportunity to buy them out, but they should not be obligated to hire union labor, nor should they be held accountable for the legacy retired worker pension problem. The UAW should be obligated to liquidate its funds to cover what they can, and the rest is in the hands of the former employees. 
   

While this may sound harsh, it is reality. Others don't keep getting their pensions funded when they lose their jobs. All retirees receive state-funded medical care, and the rest is now in their hands, the hands of their families and the UAW, who after all was formed to take care of them.

I believe this type of plan could work quite well, while preserving the principles of a market economy.  No doubt some people will suffer, but the alternative of wholesale corporate welfare is even worse.

 The used  car buy-back reduces the inventory of these cars in the country (which is good), puts (on a percentage basis) more fuel-efficient and safer cars on the road than any other time in history (both in the US and elsewhere) and increases consumers' spending power. This type of stimulus approach has the added benefit of not rewarding the imbeciles that got us in this mess in the first place, and hopefully forces all of those decision-makers into corporate purgatory.

Change and Insomnia

OK so I've succumbed to a bit of late-night-itis as a result of sleeping until noon today. I was reading an interesting article on Sarah Palin (and yes - this is a whole lot like not being able to ignore the traffic accident) by Katha Pollitt and found a very interesting blog entry by Laila Lalami. 

She writes that perhaps maybe we should temper our enthusiasm for change because President Obama will only be able to do so much while in power, despite his incredible mandate.
 
I disagree with Laila. The audacity of hope is a powerful idea. Its time has come. While it won't be here in minutes, it comes through education. If Obama is able to do one thing that will be lasting, it would be to invest in building the best possible education system for this country.  I will write more on this later, but I wanted Laila to know that change is possible.

Immediate change requires cataclysmic events combined with fear-driven leadership <-- can you say September 11, 2001 + President Cheney/Bush? But let's face it, the electorate finally got its head out of the sand and decided not to be driven by fear.

Sustained change on the other hand requires the opening of minds and the creation of hope. That's something President Obama can do. Make 21st Century Learning real - give our children the capacity to think, the imagination to create, and a global perspective to understand.

Foreign Policy vs. Global Policy

Foreign Policy in my opinion is purely about economics. Global Policy is about human rights, multilateral action, and global security.

Defense is a purely domestic issue. It is not any one nation's right, or role, or obligation to be responsible for or take unilateral action against another sovereign nation no matter what. That's the role of a global league of nations. Which means that defense is about protecting your own citizens from harm, not from proactively endangering or attacking any other nation or its citizens.

So Foreign Policy = Economic Policy.

If you've been living under a rock, you'll disagree with me. Otherwise, you will have no doubts about this. The American mortgage crisis has become a planetary crisis, and are you ready for this? One that has resulted in the US Dollar actually rising against the Euro, Pound, Yuan, Yen, etc.  Why? The interrelationships between every economy are now more profound than ever, it manifests itself in banking, manufacturing, health care, pharmaceuticals, defense, transportation, you name it.

Foreign debt and balance of trade/payments are in my opinion irrelevant measures.   Why? Because there's no real difference between foreign and domestic anymore! Everyone's worried that China holds too much American debt, and that gives them some kind of hold over the American economy! But what can they do? Foreign ownership means that that entity is now deeply vested in your future - their success is now predicated on your success - talk about mutually-assured construction! <-- Maybe this should be the new world economy phrase:)!

There is no longer such a thing (especially for a country like the United States) as a local economic incident. So if a country is interested in declaring war against the USA, they end up (maybe even before the first casualties) potentially harming their own economy before this one! They will absolutely also affect other economies and nations that they trade with, have pacts with, and might even ally with. And all of these nations will visibly hate the idea of getting caught in the collateral damage. Unless a country is prepared to throw itself under the bus (literally cut off its nose to spite its face), to oppose another country, there is no point, value, or benefit to going to war.

 This begs the question - "what about those countries that have nothing to lose?"  Excellent question:) This is why economic policy and foreign policy are so intertwined. It is in the best national defense interest of every nation that has, to make sure every other nation in the world and every citizen in the world also has. This is not global philanthropy - this about global investment, global returns, and global opportunity. Building the infrastructure for the planet, making education, health care, and food available to everyone, and then going on to building roads, buildings, power plants, etc. are what every has economy should do as a matter of national defense.

Give everyone on this planet something to lose, and everyone on this planet will be more worried about protecting, preserving and growing their lot in life and less worried about being vindictive or bearing animus against anyone; they'll instead focus on and be excited about their children's futures, and there will be a smile on their faces.