Given a year in which oil prices inflicted broad economic pain -- then fell $100 a barrel, a Republican president nationalized key banks, and an African-American first-term U.S. Senator won the presidency, it's pretty tough to predict the encore. Volatility is obviously on everyone's mind, bad people from Wall Street to Mumbai are doing outrageously bad things, and the quality of news we receive about the state of the world is up for grabs. What framework can possibly explain what might happen next?
Despite arguing that interconnectedness of many factors matters a lot, I'm going to start by dividing the world into a domestic sphere (U.S., in this case) and a global sphere, then discuss the latter first.
Externalities of Globalization
An externality, in simplified form, is a spillover cost or benefit that accrues to someone outside an economic transaction. Pollution is a classic negative externality, but positive ones also exist, as when my health prospects improve in proportion to the percentage of the population that get flu shots.
Two main points of view delineate the globalization debates. Thomas Friedman carries the flag for the "flat" (level playing field) school, while the "lumpy" camp, which asserts that places, notably cities, are far from being fungible, is associated with urban theorists like Richard Florida. Wherever one comes down on that spectrum, there's no denying that the world has changed dramatically in the past decade or two. Whether one looks at Russia, or Korea, or Iraq, or India, huge changes are afoot in communications, life style, crime and warfare, ethnic relations, and other important realms.
All that is known; what's the prediction? As we have seen with armed conflict, capital flows, disaster relief, and other phenomena, a globalized world creates a new category of issue that requires multi-lateral response well beyond the scope of traditional definitions of sovereignty. A few examples illustrate the issue:
-Efforts to address the effects of climate change are impossible to restrict by nation-state: it's not as though Canada, let's say, could bear responsibility for some number of square miles of the ozone layer or the Gulf stream. Action and impact are impossible to connect in either time or space, except at a macro level, if then. As environmental concerns lead to the "internalization" of previously external phenomena (end of life disposal for goods with toxic components, cross-border pollution lawsuits, carbon taxes, and other arrangements), the need for both new definitions of sovereignty and new types of multi-lateral institutions will increase.
-Dealing with bad guys proves similarly problematic. The Somali pirates are a case in point: if some were to be caught, where might they be lawfully (and practically) imprisoned and tried? Guantanamo, for all its controversy, does serve a useful purpose, as the "not in my back yard" discussions related to its closure illustrate: at both the state and international level, there are few practical options for relocating the current detainees, many of whom are now men without a country. The international reaction to the Mumbai terror attacks supplies yet another example of the issues: much terror is now a global as well as a regional, tribal, and/or national question, yet we lack the institutions with which to prevent and fight these sorts of actions.
Furthermore, as the case of Mexico illustrates, the line between criminality and terrorism is extremely fuzzy. When narcotics gangs kill law enforcement and judicial officials, invade hospitals to kill survivors of prior attacks or threaten doctors, and shake down schoolteachers to surrender annual bonuses, they systematically undermine conventions of civil society. Conventional police forces are outgunned by such gangs, but as the Italian example shows, soldiers with adequate firepower, when mobilized to reassure tourists and citizens, lack training in even the basics of policing. Extend the conflict across borders, and the need for new kinds of multilateral action and coordination becomes an issue yet again.
Immigration -- whether in China, Greece, Norway, South Africa, or the U.S. -- provides another example of the need to address the externalities of globalization, as do several other new-era problems:
-Information flows matter in intellectual property, news media, or business transactions. These include offshore programming, contracts, or ingredient provenance as in the melamine matter. One could argue that information technology amplified the destructive potential of both the Mumbai terrorists (via satellite phones, GPS, Google Earth imagery, IP telephony, and other tools) as well as the Wall Street catastrophe (in part by enabling risk exposure far greater than models could accommodate).
-The governance and monitoring of global capital flows by nationally-delimited regulators have already been a topic of conversation at the G20 and G8 levels.
-Reporting standards for everything from land mines to life expectancy to laboratory results rarely coordinate or enable effective (and cost-effective) information across continents and often borders.
With so much room between the cracks of law, enforcement, and reporting, expect to see more global equivalents of dropped fly balls in 2009. (Speaking of sports metaphors, the internationalization of professional leagues including soccer, American football, and perhaps most successfully basketball bears watching.)
The Domestic Conundrum
As we noted in the October letter, many of the challenges facing U.S. public- and private-sector leaders, most notably President-elect Obama, are sticky and intertwined: it's hard to reduce the inventory of unsold houses with rising unemployment, no matter what the interest rates, but cheapening the dollar by lowering these rates causes problems of its own (a probable increase in oil prices for starters).
Given the high stakes, and the relative freedom to address the issues (provided by the combination of a friendly but not veto-proof congress and the perception of a honeymoon period with the electorate), expect to see some combination of strong efforts that will have the effect of attacking boundaries between problems. Four key areas in particular are often attached:
-Health care
Can a broadly inclusive appetite for change retie this massive knot into something more manageable? Demographics (see below) is driving unprecedented demand for care as the baby boom generation starts needing stroke care, diabetes treatment, heart surgery, and hip replacements in massive numbers: what will be the de facto or de jure rationing mechanisms? Managed care is historically credited with curbing cost increases but also blamed for unsustainably low morale among primary care providers -- and for today's thin pipeline of internists in medical schools. Defensive medicine, in part attributable to the American litigation climate, is estimated by the McKinsey Global Institute to cost $150-190 billion annually. Pharmaceutical pricing in the U.S. is 50% higher for equivalent molecules compared to other countries, but even concerted pressure on this sector cannot turn the tide without similarly dramatic changes in the status quo elsewhere. One number may be the scariest of all: 45 million Americans lack health insurance, and the number will rise given the trend in unemployment.
-Demographics
Big shifts are underway across groups defined by age, education, and sex. According to the Labor Department as reported in the Boston Globe (Dec 5), 1.1 million fewer men are working than were a year ago; 12,000 more women are now employed. Job losses in financial services and construction, for example, hit men hard, while health care, which is about 80% female, added 400,000 jobs. Intergenerational wealth transfer, often achieved via real estate, may in a rising number of cases be negative for the current generation of adult children. For a slightly younger cadre in their 20s, what Don Tapscott calls the Net Generation is integrating its experiences with technology into work, play, and social interaction -- and one study in the Archives of General Psychiatry controversially found roughly half of the college-age population to suffer from mental health disorders, some of which may relate to the dynamics of online interaction.
The biggest factor in demographics may be the collapse of many people's retirement assets. As one executive noted to me, people who retired two or three years ago made any number of assumptions that have been shattered, and jumping back into the labor market with old skills, contacts, and resumes is extremely tough in this economy. Even without the stock market drop, the shift in retirement funding from defined-benefit pensions (which aren't always defined or beneficial, as Motorola is proving right now) to defined-contribution proceeds always appeared to be a long-term gamble. A professionally managed pension plan costs 20% of salary to fund a full-salary pension. The fact that most 401(k) accounts, almost all run by amateurs, run less than 10% including employer match, should be cause for alarm even before adverse decisions and/or market performance exact their toll. It's not a 2009 prediction, but I believe a bail-out will eventually be required to address a massive shortfall between long lives and small retirement accounts. Unlike health care reform, or bank bail-outs, or wars, demographic change typically takes decades to unfold.
-Seeking consumers
Given high unemployment, what will be the source of customer demand to restart shuttered factories, reduce inventories, and stimulate hiring? The federal government, through a myriad of programs, is on pace to assume responsibility for a World War II-sized proportion -- of a much larger economy. On the private-sector side, growing verticals are hard to locate amidst broad and often deep layoff news. Just two chains of home improvement centers -- Home Depot and Lowe's -- together added over 250,000 jobs between 2000 and 2007 on the strength of the building and renovation boom, but it's hard to see a similarly promising retail (or other) sector on the horizon. Early retirement (see below) is less of an option than it might have been with less damage to retirement portfolios. Cashing out home equity fueled substantial spending earlier in the decade: according to a 2002 paper in the Federal Reserve Bulletin (Canner, Dynan, and Passmore 2002), over 50% of funds liquified in 2001 refinancings went for home improvement and consumer expenditures. The numbers were staggering: according to a paper by researchers at the New York Federal Reserve Bank (McConnell, Peach, and Al-Haschim 2003), the annualized withdrawals of Q2 2003 amounted to $450 billion. Where can similar sums of cash originate in the near future?
-Soft asset markets
Lack of demand for consumer goods is echoed in equity, credit debt, and housing markets as all four suffer from imbalances between supply and demand, and/or uncertainty:
-How will bank balance sheets appear and be analyzed under a TARP model? How will investors react?
-Should people buy cars from a manufacturer in or near chapter 11? Should banks loan them money to do so?
-If an individual of Bernie Madoff's reputation can take down $50 billion, who else is hiding bad news?
-Should people try to improve or even maintain the value of their houses given a) the mortgage is upside-down and/or b) the number of repossessions in the neighborhood may make it impossible to sell my home?
-With 10 years or more of equity gains wiped out, can I ever plan to retire?
Secondary questions
In addition to the four big issues noted above, a number of other questions loom large. With only minor comment, these include the following:
-50 years after the birth of the modern civil rights movement, the election of an African-American to the presidency will shift the terms of the affirmative action debate. At the same time, the status of gay and lesbian couples in the eyes of the state is being framed in terms of both civil rights and religious authority. What will the civil rights movement of 2012 look like?
-The non-profit sector, including private colleges and universities, charities, and religious organizations, has been hit hard by the downturn in financial markets. Given that the end of the calendar year is a traditionally active time for donations, the true impact will be much clearer in January. Schools in the St. Olaf, Colby, and Beloit mold are reporting double-digit drops in the application pool in a year with a huge graduating class of high school seniors. Lower demand poses another challenge apart from the diminished endowments, yet health care, heating, and other fixed costs continue to rise. How many non-profits will add to the unemployment rolls next year?
On the supply side, meanwhile, philanthropy is being reinvented by the Gateses, the Omidyar network, Google.org, Lance Armstrong, and other innovators such as the Multiple Myeloma Research Foundation (profiled in The New Yorker last January). These efforts, running counter to the traditions of the United Way and Rockefeller/Ford/Mellon foundations, bear watching. Can this semi-private sector outperform the NIH in finding a cancer cure, or the WHO in mass inoculations, or big pharma in breakthrough drug discovery?
-For all the concern with jobs lost to overseas locales with lower labor costs, automation (including on-line self-service) remains an important factor in the employment equation. Labor costs at the Big Three automakers, while under scrutiny, disproportionately reflect retiree health care and pension costs: even major wage concessions by active UAW workers would only save about $800 per car -- and would not turn an unsold pickup truck into a Honda Accord/Toyota Camry/VW Jetta competitor. What forces can reinvigorate American manufacturing?
-The timing told a powerful story: on the day that the Chicago Tribune broke the story of Governor Blagojevich's arrest, the paper's parent company declared bankruptcy. In a time and in a world with so much up for grabs and such a pressing need for informed citizenries, the demise of the daily newsprint-driven business model raises critically important questions about accountability, about investment, and about the role of advertising. Meanwhile, Jason Calacanis, a founding father of blogging, quit doing so in July, saying "Today the blogosphere is so charged, so polarized, and so filled with haters hating that it’s simply not worth it." If present-day blogging isn't capable of replacing formerly great newspapers, what comes next? My prediction, not an original one, is that some foundations or other not-for-profits will be organized to fund critical elements of an effective press, potentially including bureaus, archives, and editors.
Why is this time different?
In classes and seminars, I've been asked several times this fall whether this recession is like or unlike the tech slowdown of 2000. The short answer: it's very, very different.
1) More sectors are involved. While Cisco, Intel, et al felt real pain, homebuilding and commercial construction were booming, cheap gas allowed Detroit to sell lots of trucks and SUVs, and the sectors that rely on demand in those areas -- banking, chemicals, steel, for starters -- all could thrive. Job losses in one place -- bank consolidation, let's say -- were partially offset by growth in mortgage lending or real estate.
2) The baby boom generation is farther through the python, demographically speaking, and is about to start drawing down their retirement assets, such as they are. The pace of change in the workplace means that people in their 40s and 50s now being laid off have less chance of re-landing a similar job to the one they lost. Early retirement, geographic relocation, and extended unemployment are all unattractive options for people at this stage of the life cycle. People gearing toward retirement need "less house," making a large component of the population more likely real estate sellers (or downsizers) than upwardly mobile buyers.
3) Many individuals are hit with some combination of a "triple whammy" of equity loss, job loss, and house value loss. In 2001, unemployment hit certain cities hard, but home prices continued to appreciate and extreme liquidity made selling a property reasonably simple for those who wanted to do so. Job losses are far more broadly shared now, and the stock market as a whole fell far less in 2001 than we are witnessing today.
4) Foreign competition is more mature: India's and China's economies have grown significantly, removing a proportional slice of U.S.-based production capacity from the 2001 mix. IBM, for example, has added 70,000 jobs in India in this decade.
All told, it's perfectly likely that next year's big stories come from as-yet unexpected sectors -- natural disasters, say, or mass ethnic violence -- thus making 2009 a completely logical follow-on to one of the wildest years in recent memory.
Tuesday, December 23, 2008
Monday, November 24, 2008
Early Indications November 2008: Grading the Predictions
In the spirit of accountability, how did this year's reality fit prior predictions?
A) 2008 Predictions
Here's what I said in January: "Somewhere in the next 12 to 18 months, I expect to see major news unfold in some combination of the following five domains."
Domain 1) The Fragility of Democracies
Grade: Miss/incomplete
Apart from a near triumph of a convicted felon in a Senate race, the U.S. election ran smoothly: no major electronic voting irregularities, no hanging chads, no trip to the Supreme Court for vote-counting. Instead, looking back on the election cycle, the Obama campaign's skillful use of social media to raise vast sums of money, mobilize an army of volunteers, and get out the vote proved to be a milestone in the technology curve. Elsewhere, democracies remain fragile, and political instability could surface in the wake of economic turbulence. India and Pakistan both show signals of unrest, as do parts of Africa and South America. Food riots (see below) could precipitate further troubles.
Domain 2) Life in the Food Chain
Grade: Hit
When I said that "overall, U.S. food prices increased dramatically last year, and there's no reason to think the trend will reverse," I was making the same mistake the bond ratings agencies and others made when they assumed U.S. house prices could only go up. Commodity price movement is on the downswing for the moment, but several factors, not least of them global demand, could reverse the trend at any time. Food prices were in fact major news in 2008, as were "slow foods" and "buy local" movements. A big question going forward: as consumer spending responds to rising unemployment and loss of both residential and stock market equity, will people keep paying the premium for organic foods? Early returns (via the research firm Mintel) suggest not: 48% of UK organic shoppers say they will reduce or give up buying organic food in the next year.
Domain 3) Cheap Computing
Grade: Hit
Prediction: "I have no idea how it will play out, but we will see some interesting (both scary and exciting) developments as a result of the increase in low-cost options. This is not to say that paid package software will disappear, but having a growing set of inexpensive options will certainly change the industry, and the market."
Cloud computing became a powerful buzzword, meriting a 14-page special report in The Economist last month. PC demand continues to soften, whereas mobile platform growth has remained vigorous. Last week's launch of the new Blackberry will bear watching, and AT&T continues to see wireless market share movement based on the iPhone. Some U.S. customers are abandoning not only landline voice but also wired broadband, consolidating on the mobile platform now that form factor, usability, and wireless bandwidth have all crossed some threshold for wide adoption.
Domain 4) Organizing Augmentation
Grade: Incomplete
Prediction: "Every year we see more computing done outside 'computers.' . . . The point here is that just as there's a large category of enterprise software that we use to run other software, we'll soon need digital assistance to manage our digital assistance."
This shouldn't have been a one-year prediction. I still think it will pan out, but not in this time horizon.
Domain 5) Consequences of Visible Social Networks
Grade: Hit
Prediction: "As more of us can see and organize who we know, and the people they know, expect to see some unexpected outcomes. . . .we're already seeing changes in demographics. My students have a very different experience of interpersonal connectedness than did their predecessors of just a few years ago."
The Obama campaign capitalized powerfully on viral video, social networking, text messaging, blogging, and online coordination: Internet fund-raising alone allowed the campaign literally to rewrite the electoral playbook. Facebook is becoming a platform in several senses of the word and drives enormous traffic: Alexa ranks it #5, or in other words the #2 non-search site after YouTube. Just behind is Newscorp's MySpace at #7. Hi5, meanwhile, claims to be the #1 social networking site in over 30 countries and supports 37 languages; Alexa rates it as the #17 site overall on the Web, just behind Microsoft's home page. One unexpected consequence of these networks is crime-fighting: to cite a minor but local example, several individuals here in town have been arrested in our version of football hooliganism based on photos and/or videos posted on MySpace et al.
B) Two Older Predictions
1) In September 2005 I wrote a private research report on Microsoft Vista in which I expressed concern that comparisons to Windows 95 were premature. Because Vista failed to give home users new capabilities on par with 95's long filename and CD-ROM support, TCP/IP, modem controls, and other Internet and networking functionality, I predicted that "Vista’s feature set and the competitive environment should ensure that the product represents a single or more likely a double for Microsoft, but more certainly not a home run." I think it's safe to say this has in fact been the case as Microsoft has seen adoption lag predictions.
In the consumer domain, the contrast of four different Vista advertising campaigns this year to the hit-the-ground-running Rolling Stones campaign for 95 could not be more striking. The "Mojave experiment" experiment tried to suggest that Vista was not as bad as people had heard, Jerry Seinfeld lasted less than a month, and the current "I'm a PC" campaign avoids any mention of what Vista actually does. While enterprise purchases drive Microsoft's biggest numbers, even there XP is still controlling disproportionate market share. In addition, Microsoft's own early previews of Windows 7 implicitly acknowledge Vista ranks as less than a world-beater. Finally, the home PC market has changed radically from 13 years ago, as last week's news illustrates: PC Magazine is ceasing print publication after 27 years in business.
2) In April 2007, I hedged my bets on the iPhone, offering reasons for both success or failure. Now that the former outcome can be declared, why did I think the iPhone would succeed in the market?
If the iPhone follows the iPod as a success, it will be because:
-Apple invents a new category of device, learning from previous failures.
Outcome: True
-The user interface transcends anything else in the category not with bells-and-whistles complexity but intuitive simplicity.
Outcome: True
-Apple has once again used superior industrial design, elevated to the level of art, to create unsurpassed "cool" factor in a category.
Outcome: True
-As venture capitalist John Doerr recently noted, Apple has a vast army of users trained to synch their device with a computer. It's an installed base of user behavior that could give the iPhone a jump-start in adoption.
Outcome: True
-The iPhone captures momentum amidst industry disruption. As mobile broadband emerges from competing standards and platforms, the iPhone could dominate a multi-radio niche just at the moment that heterogeneous coverage becomes a reality.
Outcome: True
-The demographics align: the price points, through whatever mechanism, drive adoption in both the niche knowledge-worker and technology-as-jewelry segments along with 20-somethings who replaced landline phones with mobiles and may augment PCs with a tablet-phone-music player.
Outcome: Incomplete
-The beautiful device is powered by a "killer application."
Outcome: False, as the range of applications rather than the power of any one appears to be more compelling.
-The iPhone, rather than being a phone, is treated by enterprise IT shops as a Unix terminal.
Outcome: False. The enterprise market is not driving nearly as much uptake as personal purchases.
C) What I wish I'd have seen:
Although I did say in January that "the world has become more nonlinear: when weird things happen, they affect more people and move faster than such events in the past," the reach of financial mismanagement and shared exposure has stunned essentially everyone. Rather than Avian flu in the physical domain, we're coping with derivative trauma in the financial.
Globalization is leveling some playing fields more than others, but in terms of acquisitions, the sale of first-world assets to non-first-world investors is happening faster than many might have thought. Consider that InBev (Belgium-Brazil) bought Anheuser-Busch in July, Tata Motors (India) bought Jaguar in June, numerous sovereign-wealth funds hold substantial Western equity, Lenovo (China) bought IBM's PC business in 2005, and GE Plastics is now owned by a Saudi Arabian firm. Combine such cross-border M&A with the collapse of U.S. financial-services firms such as Bear Stearns, Merrill Lynch, and Lehman Brothers, and the instability in the auto industry, and we find that very few companies can be said to be acquisition-proof.
While the music industry appears to have stopped suing its customers for downloading music, piracy -- of the high-seas variety -- is back in the news. The impact of the Somali ship-ransom industry (a $150 million effort) will bear watching: the Indian navy recently appeared to sink a pirate vessel, and the Russian navy is sending more warships to the Gulf of Aden. With the U.S. already active, the pirates appear to have mobilized a rare and perhaps unprecedented coalition of protective forces.
The almost instantaneous shift from worries about inflation to concerns about deflation characterizes the wildly unstable year we've witnessed. Consider:
-The Obama campaign promised to levy a windfall profits tax on the oil company, yet in the current climate, investors, employees, and governments would most likely be delighted to see any corporations capable of prospering. Verizon and AT&T appear to be recession-resistant in their mobile and cable units, and HP posted Q3 earnings that reflect 5% year-over-year organic growth, but financial services, manufacturing, most of the tech sector, housing, travel, and retail (outside Walmart and some dollar stores) all range from disastrous to troubled.
-Crude oil prices have fallen nearly $100 per barrel -- $100 per barrel! -- in just over 100 days.
-The U.S. dollar has rapidly strengthened, rising from nearly $1.60 per Euro to under $1.25 in just over 3 months (July 15 to October 27). Historically, dollars and oil have of course moved in close relation to each other, but I could not find any convincing explanation of causation one way or the other, or of a third factor that might be driving both currency appreciation and lower commodity prices as dependent variables.
What could possibly follow this crazy year? Check back next month for 2009 predictions.
A) 2008 Predictions
Here's what I said in January: "Somewhere in the next 12 to 18 months, I expect to see major news unfold in some combination of the following five domains."
Domain 1) The Fragility of Democracies
Grade: Miss/incomplete
Apart from a near triumph of a convicted felon in a Senate race, the U.S. election ran smoothly: no major electronic voting irregularities, no hanging chads, no trip to the Supreme Court for vote-counting. Instead, looking back on the election cycle, the Obama campaign's skillful use of social media to raise vast sums of money, mobilize an army of volunteers, and get out the vote proved to be a milestone in the technology curve. Elsewhere, democracies remain fragile, and political instability could surface in the wake of economic turbulence. India and Pakistan both show signals of unrest, as do parts of Africa and South America. Food riots (see below) could precipitate further troubles.
Domain 2) Life in the Food Chain
Grade: Hit
When I said that "overall, U.S. food prices increased dramatically last year, and there's no reason to think the trend will reverse," I was making the same mistake the bond ratings agencies and others made when they assumed U.S. house prices could only go up. Commodity price movement is on the downswing for the moment, but several factors, not least of them global demand, could reverse the trend at any time. Food prices were in fact major news in 2008, as were "slow foods" and "buy local" movements. A big question going forward: as consumer spending responds to rising unemployment and loss of both residential and stock market equity, will people keep paying the premium for organic foods? Early returns (via the research firm Mintel) suggest not: 48% of UK organic shoppers say they will reduce or give up buying organic food in the next year.
Domain 3) Cheap Computing
Grade: Hit
Prediction: "I have no idea how it will play out, but we will see some interesting (both scary and exciting) developments as a result of the increase in low-cost options. This is not to say that paid package software will disappear, but having a growing set of inexpensive options will certainly change the industry, and the market."
Cloud computing became a powerful buzzword, meriting a 14-page special report in The Economist last month. PC demand continues to soften, whereas mobile platform growth has remained vigorous. Last week's launch of the new Blackberry will bear watching, and AT&T continues to see wireless market share movement based on the iPhone. Some U.S. customers are abandoning not only landline voice but also wired broadband, consolidating on the mobile platform now that form factor, usability, and wireless bandwidth have all crossed some threshold for wide adoption.
Domain 4) Organizing Augmentation
Grade: Incomplete
Prediction: "Every year we see more computing done outside 'computers.' . . . The point here is that just as there's a large category of enterprise software that we use to run other software, we'll soon need digital assistance to manage our digital assistance."
This shouldn't have been a one-year prediction. I still think it will pan out, but not in this time horizon.
Domain 5) Consequences of Visible Social Networks
Grade: Hit
Prediction: "As more of us can see and organize who we know, and the people they know, expect to see some unexpected outcomes. . . .we're already seeing changes in demographics. My students have a very different experience of interpersonal connectedness than did their predecessors of just a few years ago."
The Obama campaign capitalized powerfully on viral video, social networking, text messaging, blogging, and online coordination: Internet fund-raising alone allowed the campaign literally to rewrite the electoral playbook. Facebook is becoming a platform in several senses of the word and drives enormous traffic: Alexa ranks it #5, or in other words the #2 non-search site after YouTube. Just behind is Newscorp's MySpace at #7. Hi5, meanwhile, claims to be the #1 social networking site in over 30 countries and supports 37 languages; Alexa rates it as the #17 site overall on the Web, just behind Microsoft's home page. One unexpected consequence of these networks is crime-fighting: to cite a minor but local example, several individuals here in town have been arrested in our version of football hooliganism based on photos and/or videos posted on MySpace et al.
B) Two Older Predictions
1) In September 2005 I wrote a private research report on Microsoft Vista in which I expressed concern that comparisons to Windows 95 were premature. Because Vista failed to give home users new capabilities on par with 95's long filename and CD-ROM support, TCP/IP, modem controls, and other Internet and networking functionality, I predicted that "Vista’s feature set and the competitive environment should ensure that the product represents a single or more likely a double for Microsoft, but more certainly not a home run." I think it's safe to say this has in fact been the case as Microsoft has seen adoption lag predictions.
In the consumer domain, the contrast of four different Vista advertising campaigns this year to the hit-the-ground-running Rolling Stones campaign for 95 could not be more striking. The "Mojave experiment" experiment tried to suggest that Vista was not as bad as people had heard, Jerry Seinfeld lasted less than a month, and the current "I'm a PC" campaign avoids any mention of what Vista actually does. While enterprise purchases drive Microsoft's biggest numbers, even there XP is still controlling disproportionate market share. In addition, Microsoft's own early previews of Windows 7 implicitly acknowledge Vista ranks as less than a world-beater. Finally, the home PC market has changed radically from 13 years ago, as last week's news illustrates: PC Magazine is ceasing print publication after 27 years in business.
2) In April 2007, I hedged my bets on the iPhone, offering reasons for both success or failure. Now that the former outcome can be declared, why did I think the iPhone would succeed in the market?
If the iPhone follows the iPod as a success, it will be because:
-Apple invents a new category of device, learning from previous failures.
Outcome: True
-The user interface transcends anything else in the category not with bells-and-whistles complexity but intuitive simplicity.
Outcome: True
-Apple has once again used superior industrial design, elevated to the level of art, to create unsurpassed "cool" factor in a category.
Outcome: True
-As venture capitalist John Doerr recently noted, Apple has a vast army of users trained to synch their device with a computer. It's an installed base of user behavior that could give the iPhone a jump-start in adoption.
Outcome: True
-The iPhone captures momentum amidst industry disruption. As mobile broadband emerges from competing standards and platforms, the iPhone could dominate a multi-radio niche just at the moment that heterogeneous coverage becomes a reality.
Outcome: True
-The demographics align: the price points, through whatever mechanism, drive adoption in both the niche knowledge-worker and technology-as-jewelry segments along with 20-somethings who replaced landline phones with mobiles and may augment PCs with a tablet-phone-music player.
Outcome: Incomplete
-The beautiful device is powered by a "killer application."
Outcome: False, as the range of applications rather than the power of any one appears to be more compelling.
-The iPhone, rather than being a phone, is treated by enterprise IT shops as a Unix terminal.
Outcome: False. The enterprise market is not driving nearly as much uptake as personal purchases.
C) What I wish I'd have seen:
Although I did say in January that "the world has become more nonlinear: when weird things happen, they affect more people and move faster than such events in the past," the reach of financial mismanagement and shared exposure has stunned essentially everyone. Rather than Avian flu in the physical domain, we're coping with derivative trauma in the financial.
Globalization is leveling some playing fields more than others, but in terms of acquisitions, the sale of first-world assets to non-first-world investors is happening faster than many might have thought. Consider that InBev (Belgium-Brazil) bought Anheuser-Busch in July, Tata Motors (India) bought Jaguar in June, numerous sovereign-wealth funds hold substantial Western equity, Lenovo (China) bought IBM's PC business in 2005, and GE Plastics is now owned by a Saudi Arabian firm. Combine such cross-border M&A with the collapse of U.S. financial-services firms such as Bear Stearns, Merrill Lynch, and Lehman Brothers, and the instability in the auto industry, and we find that very few companies can be said to be acquisition-proof.
While the music industry appears to have stopped suing its customers for downloading music, piracy -- of the high-seas variety -- is back in the news. The impact of the Somali ship-ransom industry (a $150 million effort) will bear watching: the Indian navy recently appeared to sink a pirate vessel, and the Russian navy is sending more warships to the Gulf of Aden. With the U.S. already active, the pirates appear to have mobilized a rare and perhaps unprecedented coalition of protective forces.
The almost instantaneous shift from worries about inflation to concerns about deflation characterizes the wildly unstable year we've witnessed. Consider:
-The Obama campaign promised to levy a windfall profits tax on the oil company, yet in the current climate, investors, employees, and governments would most likely be delighted to see any corporations capable of prospering. Verizon and AT&T appear to be recession-resistant in their mobile and cable units, and HP posted Q3 earnings that reflect 5% year-over-year organic growth, but financial services, manufacturing, most of the tech sector, housing, travel, and retail (outside Walmart and some dollar stores) all range from disastrous to troubled.
-Crude oil prices have fallen nearly $100 per barrel -- $100 per barrel! -- in just over 100 days.
-The U.S. dollar has rapidly strengthened, rising from nearly $1.60 per Euro to under $1.25 in just over 3 months (July 15 to October 27). Historically, dollars and oil have of course moved in close relation to each other, but I could not find any convincing explanation of causation one way or the other, or of a third factor that might be driving both currency appreciation and lower commodity prices as dependent variables.
What could possibly follow this crazy year? Check back next month for 2009 predictions.
Wednesday, October 29, 2008
Early Indications October 2008: Information-age Stimulus
As economies around the world continue to wobble in the aftermath of the credit crises, the next American president will be faced with competing calls to "do something" both at home and in a global context. With equity, housing, and credit markets showing weakness in concert, the choices of where to intervene are complex indeed. The lack of ready historical precedents complicates the issue further.
Numerous press reports and blog postings raise the question of whether the current situation parallels the Great Depression. In the U.S., the numbers are thus far convincing in the negative: unemployment has (by official measures) risen to 6%, but this number, while concerning, falls far short of the 23% figure reached in 1932. Equity values are low, but even though the S&P 500 is down roughly 40% from its October 2007 high, that's still only half of the percentage decline registered from 1930-1932. In short, even though few are happy with the current picture, it's a far cry from Depression territory.
That news is hardly comforting to job-seekers, investors, or employees. Despite the magnitude of the Troubled Asset Relief Program package passed by Congress earlier this month, it is unlikely to jump-start a global economy that appears to be in a broad-based slowdown. When the American people, and citizens of the other OECD nations, look to the new president for action, what are the realistic options?
Franklin Roosevelt's reaction to the Great Depression is instructive, not for parallels to the current situation, but for the many differences in the two situations. According to the Library of Congress, the New Deal enacted in 1933 and modified thereafter worked across multiple fronts:
"Based on the assumption that the power of the federal government was needed to get the country out of the depression, the first days of Roosevelt's administration saw the passage of banking reform laws, emergency relief programs, work relief programs, and agricultural programs. Later, a second New Deal was to evolve; it included union protection programs, the Social Security Act, and programs to aid tenant farmers and migrant workers."
Threads of continuity are obvious: banking regulation and Social Security will be very much top of mind in 2009. Beyond those two areas, however, the tools that Roosevelt reached for will likely not be high priorities for President McCain or Obama: migrant agricultural workers, factory laborers, and farmers, whatever their current pain, will not play central roles in the eventual economic recovery.
What investments and other actions by the federal government, then, might help increase economic competitiveness, raise the standard of living for broad segments of the population, and restore confidence and therefore asset values? Given the increase in the size of the services sector (including government itself) since 1933, and given the impact of information technology since about 1950, the levers for today's economy are less obvious, but several areas do stand out. Each of the following determines the employment of large numbers of people, is ripe for investment and innovation, and plays a strategic role in the overall economy. What separates our age from Roosevelt's is how the "real" and financial (as well as physical and information) economies have so quickly grown intertwined.
-Food
Not surprisingly, food is important for numerous other economic sectors. The current U.S. agriculture system is premised on cheap and plentiful petroleum and water. Going forward, nether assumption can be taken as given, which raises the importance of biology -- new seed types -- going forward. These in turn call into question the place and reach of intellectual property protections for life forms.
The food and nutritional policy layer -- governing tariffs, labeling regulations, and food safety and nutrition -- merits a thorough revisiting. Current practices, for example, include prophylactic doses of antibiotics to livestock that are implicated in the rise of "superbugs" such as MRSA and other gram-negative antibiotic-resistant bacteria. Similarly, policies regarding sugar and especially high-fructose corn syrup should be examined in light of potential connections to obesity and diabetes.
At the level of economics, encouraging food as fuel (corn ethanol) is having unintended consequences for both farmers and eaters. Indeed, according to the Lancet (May 17-23 2008), the entire investment climate around food commodities is showing signs that speculation is connected to malnutrition. In short, the CBOT and its kin become a public-health issue: "There is compelling evidence that the recently expanded market in food-commodity derivatives has led to large increases in speculative investment, pushing global food prices far higher than predicted by demand-supply effects." (Pace et al, "Food commodity derivatives: a new cause of malnutrition?" pp. 1648-51)
In the process of improving the outcomes of financial markets, health care, international trade and assistance, and energy, a hard look at the food industry is essential.
-Immigration
Near the core of the United States' identity, history, and tradition of innovation lies the nation's role as a destination of immigrants. Andrew Carnegie used to be the archetype of the immigrant-entrepreneur, but we live today among some extraordinary immigrants.
*Steven F. Udvar-Házy (Hungary) co-founded International Lease Finance Corporation, which with a fleet of 824 is the largest owner of aircraft in the U.S.
*Sergey Brin (Soviet Union) co-founded Google.
*Arno Penzias (Germany) won a Nobel Prize for work done at Bell Labs.
*Jerry Yang (Taiwan) co-founded Yahoo.
*Elon Musk (South Africa) co-founded PayPal; last month, his SpaceX company launched the first privately funded liquid-fueled rocket into orbit.
*Vinod Khosla (India) co-founded Sun Microsystems and later helped nurture many other startups in tech, finance, and energy as a venture capitalist.
*Pierre Omidyar (born in France to Iranian parents) founded eBay and continues to innovate, now in philanthropy.
It is safe to say that few, if any, of the above ventures could have launched, much less succeeded, in these individuals' countries of origin. At the same time, illegal immigration from Mexico and Central America stresses education, medical care, and social services in countless localities. The U.S. will suffer if global brainpower and creativity are locked out, but completely open borders are no longer an option in most countries. Striking a better balance will require courage, negotiating skill, and vision.
-Health care
According to the National Coalition on Health Care, overall health care spending increased at twice the rate of inflation in 2007. Employer premiums have doubled since 2000, compared to cumulative inflation of 24%. Total spending -- $2.3 trillion -- represented 16% of GDP, or $7,600 per person, and is expected to double in the next nine years. Health care finance, malpractice law, and payment processing are ripe for innovation and waste reduction: nobody contends that the U.S.'s current ratio of paperwork to patient care is remotely fair, safe, or effective.
At the same time, many towns suffer from physician shortages as medical school loans, managed care reimbursement schedules, and quality of life issues combine to make practice in many areas unattractive. Pharmaceutical companies, meanwhile, act in economically rational fashion to invest in drugs with high payoff. Lifelong maintenance drugs (think cholesterol, obesity, or certain mental health categories) represent annuity streams, while antibiotics, vaccines, and other high-value categories from an outcomes perspective look insufficiently profitable in prospect to capture significant investment.
Any way you look at it, innovation in health care creates substantial leverage, and is essential given demographic trends. Public-private partnerships, such as philanthropies' and NGOs' efforts to create viable vaccine markets, can be much better coordinated. Information, beginning with public health and outcomes statistics, electronic medical records, and improved claims processing arrangements, will be necessary but far from sufficient.
-Energy
The proximity of solar panels to the semiconductor industry represents but the tip of the iceberg in terms of information intensity. Whether it be solar, wind, new drilling techniques for oil and natural gas, or storage technologies such as batteries and fuel cells, information technology will be front and center in the evolution of the industry. Markets for carbon offsets or other financial instruments, increased software content in battery and hybrid automobiles, and an improved power grid will all rely on significant contributions from IT. At the same time, cloud computing is particularly dependent on an adequate power grid -- see below re: infrastructure.
-Manufacturing
Amidst all the calls for "energy independence" on the oil/import side, an important factor in the current U.S. trade imbalance is manufactured exports. Figures are difficult to come by, for defense-related items are not readily broken out. Fully a third of U.S. total exports go to Canada or Mexico, but it is difficult to determine how much they offset $113 billion in oil and related imports from these two countries. In addition, many totals are deceptive: in automobiles, for example, chassis, components, and other sub-assemblies are "exported" to Canada then assembled in Ontario, at which time the U.S. "imports" the car or truck.
For many reasons, increasing U.S. manufacturing exports makes sense, as does improving the balance of trade where possible by reducing imports. For this to occur, investment in such high-value manufacturing areas as advanced materials (for things like windmill blades; lighter and therefore more fuel-efficient automobiles; and medical devices) should pay dividends. Medical electronics, energy-related systems, and heavy equipment have historically done well in world markets as well. As shipping costs rise, making automobiles for fast-growing nearby markets including Mexico and potentially Brazil presents a golden opportunity.
-Communications
The U.S. lags its peers in broadband deployment by many measures. In Japan, KDDI has announced 1-gigabit fiber to the premise service for about US$50 per month. Policy reform and potentially investment -- think of the equivalent of the Interstate Highway system -- could spur development of such economic engines as telemedicine, remote learning and training, and realistic "telecommuting."
-Education
No Child Left Behind has yet to improve American 15-year-olds' poor performance relative to math and science students in most peer countries: the OECD's Programme for International Student Assessment (PISA) was most recently scored for 2006. The U.S. finished 35th of 70 countries in math, just ahead of Croatia and far behind Finland (#1), Korea (2), and Canada (5). Much like communications, the equivalent of a Manhattan Project to reinvent primary and secondary education would rely heavily on, and improve the nation's performance in, information and technology industries.
For all the effort needed in math and science, the outlook in language and cultural understanding may be worse still. High schools persist in teaching German, Spanish, French, and Latin at a time when Arabic, Russian, and Chinese hold great strategic importance. Furthermore, unlike Europe or even South America, where English is often the de facto language of international discussion, no one can assume that the billions of people who speak these languages natively are in a great hurry to learn English.
Whatever the weaknesses at the K-12 level, the U.S. excels at higher education. At the doctoral level, research universities led by Texas, Michigan, and California are educating the world's research scientists and technologists. According to an annual report compiled by the University of Chicago for the National Science Foundation and five other government agencies, of about 7,500 Ph.D.s granted by U.S. institutions in the physical sciences in 2006, over half went to non-U.S. citizens. In engineering, 64% of the 7,200 Ph.D.s went to non-U.S. citizens. Not surprisingly, China and India -- countries competing with us in the development of such strategic projects as blue-water navies, space weapons, and domestic automobile industries -- led the way.
To get people to study these areas and help restock Northrop Grumman, NASA, and Ford, there needs to be incentive. In the recent past, reward has gone to individuals who innovated in financial services: the Enron Special Purpose Entities lead a list of tools (ending in credit default swaps) which made a small number of people rich but failed to generate widespread growth. Brainpower followed the money, potentially to the detriment of more durable fields of innovation. Think of the broad and lasting impact of such American real-economy inventions as the mobile phone, the Internet, the personal computer, MRI and PET scanning, the laser printer (and indeed the laser), the transistor, and the integrated circuit. Only PET is less than 35 years old. As elsewhere, to fix education, other sectors need to be considered.
-Infrastructure
Whatever the ability of information to move rapidly through fiber or ether, people, goods, and food need reliable infrastructure: roads, ports, airports, and pipes. The American Society of Civil Engineers -- not an uninterested party, to be sure -- graded the country's infrastructure in 2001 and 2005, giving the nation a D, with $1.6 trillion deemed necessary for improvements. Bridges (C) and solid waste treatment (C+) were the relative highlights of an otherwise dismal list.
A coalition of state and local officials has recently been formed to highlight the need. According to New York Mayor Michael Bloomberg, "the governors and the mayors of this country every day see at an operational level bridges that are rusting away, and tracks that can't carry high speed trains, and power transmission lines that can't keep up with demand, and airports that need new runways, and water lines that need backup systems, and sewage plants that leak into the rivers and the oceans."
One problem is that infrastructure spending at the federal level has historically been burdened with non-essential earmarks for things like bike paths: a report by the Department of Transportation Inspector General found over 8,00 such provisions, worth $8 billion, in FY07 federal spending -- 13% of the entire spending plan. Leadership to do better is essential: peace gardens won't get the economy back into gear.
Beyond Subsidy to Synergy
In the recent past, lobbying rather than presidential leadership has driven legislation: the AARP got the prescription drug benefit, the corn lobby got ethanol subsidies and tariffs, the financial sector got a light regulatory hand. The list above, however, illustrates how intertwined the key areas of the economy have become. As the credit crisis highlights, commodity markets (currently regulated separately from financial markets) have become part of a complex, tightly coupled global financial system. Immigration has a huge impact on health care. Health care costs affect the competitiveness of manufacturing companies in global markets.
The list goes on, but shows how merely acting one lobby at a time is a recipe for slow progress at best or disaster at worst. As Ray Kurzweil (another U.S. innovator who is a child of immigrants, by the way) and others have argued, change itself is changing:
"Our forebears expected the future to be pretty much like their present, which had been pretty much like their past. . . . Today, in accordance with the common wisdom, everyone expects continuous technological progress and the social repercussions that follow. But the future will be far more surprising than most observers realize: few have truly internalized the implications of the fact that the rate of change itself is accelerating." (quoted from here)
Accordingly, instead of more of the same old governance, one hopes that the next president leads with a vision of a global, information-age future that addresses complex problems with robust, synergistic actions, rather than being satisfied with delivering trophies to K Street.
Numerous press reports and blog postings raise the question of whether the current situation parallels the Great Depression. In the U.S., the numbers are thus far convincing in the negative: unemployment has (by official measures) risen to 6%, but this number, while concerning, falls far short of the 23% figure reached in 1932. Equity values are low, but even though the S&P 500 is down roughly 40% from its October 2007 high, that's still only half of the percentage decline registered from 1930-1932. In short, even though few are happy with the current picture, it's a far cry from Depression territory.
That news is hardly comforting to job-seekers, investors, or employees. Despite the magnitude of the Troubled Asset Relief Program package passed by Congress earlier this month, it is unlikely to jump-start a global economy that appears to be in a broad-based slowdown. When the American people, and citizens of the other OECD nations, look to the new president for action, what are the realistic options?
Franklin Roosevelt's reaction to the Great Depression is instructive, not for parallels to the current situation, but for the many differences in the two situations. According to the Library of Congress, the New Deal enacted in 1933 and modified thereafter worked across multiple fronts:
"Based on the assumption that the power of the federal government was needed to get the country out of the depression, the first days of Roosevelt's administration saw the passage of banking reform laws, emergency relief programs, work relief programs, and agricultural programs. Later, a second New Deal was to evolve; it included union protection programs, the Social Security Act, and programs to aid tenant farmers and migrant workers."
Threads of continuity are obvious: banking regulation and Social Security will be very much top of mind in 2009. Beyond those two areas, however, the tools that Roosevelt reached for will likely not be high priorities for President McCain or Obama: migrant agricultural workers, factory laborers, and farmers, whatever their current pain, will not play central roles in the eventual economic recovery.
What investments and other actions by the federal government, then, might help increase economic competitiveness, raise the standard of living for broad segments of the population, and restore confidence and therefore asset values? Given the increase in the size of the services sector (including government itself) since 1933, and given the impact of information technology since about 1950, the levers for today's economy are less obvious, but several areas do stand out. Each of the following determines the employment of large numbers of people, is ripe for investment and innovation, and plays a strategic role in the overall economy. What separates our age from Roosevelt's is how the "real" and financial (as well as physical and information) economies have so quickly grown intertwined.
-Food
Not surprisingly, food is important for numerous other economic sectors. The current U.S. agriculture system is premised on cheap and plentiful petroleum and water. Going forward, nether assumption can be taken as given, which raises the importance of biology -- new seed types -- going forward. These in turn call into question the place and reach of intellectual property protections for life forms.
The food and nutritional policy layer -- governing tariffs, labeling regulations, and food safety and nutrition -- merits a thorough revisiting. Current practices, for example, include prophylactic doses of antibiotics to livestock that are implicated in the rise of "superbugs" such as MRSA and other gram-negative antibiotic-resistant bacteria. Similarly, policies regarding sugar and especially high-fructose corn syrup should be examined in light of potential connections to obesity and diabetes.
At the level of economics, encouraging food as fuel (corn ethanol) is having unintended consequences for both farmers and eaters. Indeed, according to the Lancet (May 17-23 2008), the entire investment climate around food commodities is showing signs that speculation is connected to malnutrition. In short, the CBOT and its kin become a public-health issue: "There is compelling evidence that the recently expanded market in food-commodity derivatives has led to large increases in speculative investment, pushing global food prices far higher than predicted by demand-supply effects." (Pace et al, "Food commodity derivatives: a new cause of malnutrition?" pp. 1648-51)
In the process of improving the outcomes of financial markets, health care, international trade and assistance, and energy, a hard look at the food industry is essential.
-Immigration
Near the core of the United States' identity, history, and tradition of innovation lies the nation's role as a destination of immigrants. Andrew Carnegie used to be the archetype of the immigrant-entrepreneur, but we live today among some extraordinary immigrants.
*Steven F. Udvar-Házy (Hungary) co-founded International Lease Finance Corporation, which with a fleet of 824 is the largest owner of aircraft in the U.S.
*Sergey Brin (Soviet Union) co-founded Google.
*Arno Penzias (Germany) won a Nobel Prize for work done at Bell Labs.
*Jerry Yang (Taiwan) co-founded Yahoo.
*Elon Musk (South Africa) co-founded PayPal; last month, his SpaceX company launched the first privately funded liquid-fueled rocket into orbit.
*Vinod Khosla (India) co-founded Sun Microsystems and later helped nurture many other startups in tech, finance, and energy as a venture capitalist.
*Pierre Omidyar (born in France to Iranian parents) founded eBay and continues to innovate, now in philanthropy.
It is safe to say that few, if any, of the above ventures could have launched, much less succeeded, in these individuals' countries of origin. At the same time, illegal immigration from Mexico and Central America stresses education, medical care, and social services in countless localities. The U.S. will suffer if global brainpower and creativity are locked out, but completely open borders are no longer an option in most countries. Striking a better balance will require courage, negotiating skill, and vision.
-Health care
According to the National Coalition on Health Care, overall health care spending increased at twice the rate of inflation in 2007. Employer premiums have doubled since 2000, compared to cumulative inflation of 24%. Total spending -- $2.3 trillion -- represented 16% of GDP, or $7,600 per person, and is expected to double in the next nine years. Health care finance, malpractice law, and payment processing are ripe for innovation and waste reduction: nobody contends that the U.S.'s current ratio of paperwork to patient care is remotely fair, safe, or effective.
At the same time, many towns suffer from physician shortages as medical school loans, managed care reimbursement schedules, and quality of life issues combine to make practice in many areas unattractive. Pharmaceutical companies, meanwhile, act in economically rational fashion to invest in drugs with high payoff. Lifelong maintenance drugs (think cholesterol, obesity, or certain mental health categories) represent annuity streams, while antibiotics, vaccines, and other high-value categories from an outcomes perspective look insufficiently profitable in prospect to capture significant investment.
Any way you look at it, innovation in health care creates substantial leverage, and is essential given demographic trends. Public-private partnerships, such as philanthropies' and NGOs' efforts to create viable vaccine markets, can be much better coordinated. Information, beginning with public health and outcomes statistics, electronic medical records, and improved claims processing arrangements, will be necessary but far from sufficient.
-Energy
The proximity of solar panels to the semiconductor industry represents but the tip of the iceberg in terms of information intensity. Whether it be solar, wind, new drilling techniques for oil and natural gas, or storage technologies such as batteries and fuel cells, information technology will be front and center in the evolution of the industry. Markets for carbon offsets or other financial instruments, increased software content in battery and hybrid automobiles, and an improved power grid will all rely on significant contributions from IT. At the same time, cloud computing is particularly dependent on an adequate power grid -- see below re: infrastructure.
-Manufacturing
Amidst all the calls for "energy independence" on the oil/import side, an important factor in the current U.S. trade imbalance is manufactured exports. Figures are difficult to come by, for defense-related items are not readily broken out. Fully a third of U.S. total exports go to Canada or Mexico, but it is difficult to determine how much they offset $113 billion in oil and related imports from these two countries. In addition, many totals are deceptive: in automobiles, for example, chassis, components, and other sub-assemblies are "exported" to Canada then assembled in Ontario, at which time the U.S. "imports" the car or truck.
For many reasons, increasing U.S. manufacturing exports makes sense, as does improving the balance of trade where possible by reducing imports. For this to occur, investment in such high-value manufacturing areas as advanced materials (for things like windmill blades; lighter and therefore more fuel-efficient automobiles; and medical devices) should pay dividends. Medical electronics, energy-related systems, and heavy equipment have historically done well in world markets as well. As shipping costs rise, making automobiles for fast-growing nearby markets including Mexico and potentially Brazil presents a golden opportunity.
-Communications
The U.S. lags its peers in broadband deployment by many measures. In Japan, KDDI has announced 1-gigabit fiber to the premise service for about US$50 per month. Policy reform and potentially investment -- think of the equivalent of the Interstate Highway system -- could spur development of such economic engines as telemedicine, remote learning and training, and realistic "telecommuting."
-Education
No Child Left Behind has yet to improve American 15-year-olds' poor performance relative to math and science students in most peer countries: the OECD's Programme for International Student Assessment (PISA) was most recently scored for 2006. The U.S. finished 35th of 70 countries in math, just ahead of Croatia and far behind Finland (#1), Korea (2), and Canada (5). Much like communications, the equivalent of a Manhattan Project to reinvent primary and secondary education would rely heavily on, and improve the nation's performance in, information and technology industries.
For all the effort needed in math and science, the outlook in language and cultural understanding may be worse still. High schools persist in teaching German, Spanish, French, and Latin at a time when Arabic, Russian, and Chinese hold great strategic importance. Furthermore, unlike Europe or even South America, where English is often the de facto language of international discussion, no one can assume that the billions of people who speak these languages natively are in a great hurry to learn English.
Whatever the weaknesses at the K-12 level, the U.S. excels at higher education. At the doctoral level, research universities led by Texas, Michigan, and California are educating the world's research scientists and technologists. According to an annual report compiled by the University of Chicago for the National Science Foundation and five other government agencies, of about 7,500 Ph.D.s granted by U.S. institutions in the physical sciences in 2006, over half went to non-U.S. citizens. In engineering, 64% of the 7,200 Ph.D.s went to non-U.S. citizens. Not surprisingly, China and India -- countries competing with us in the development of such strategic projects as blue-water navies, space weapons, and domestic automobile industries -- led the way.
To get people to study these areas and help restock Northrop Grumman, NASA, and Ford, there needs to be incentive. In the recent past, reward has gone to individuals who innovated in financial services: the Enron Special Purpose Entities lead a list of tools (ending in credit default swaps) which made a small number of people rich but failed to generate widespread growth. Brainpower followed the money, potentially to the detriment of more durable fields of innovation. Think of the broad and lasting impact of such American real-economy inventions as the mobile phone, the Internet, the personal computer, MRI and PET scanning, the laser printer (and indeed the laser), the transistor, and the integrated circuit. Only PET is less than 35 years old. As elsewhere, to fix education, other sectors need to be considered.
-Infrastructure
Whatever the ability of information to move rapidly through fiber or ether, people, goods, and food need reliable infrastructure: roads, ports, airports, and pipes. The American Society of Civil Engineers -- not an uninterested party, to be sure -- graded the country's infrastructure in 2001 and 2005, giving the nation a D, with $1.6 trillion deemed necessary for improvements. Bridges (C) and solid waste treatment (C+) were the relative highlights of an otherwise dismal list.
A coalition of state and local officials has recently been formed to highlight the need. According to New York Mayor Michael Bloomberg, "the governors and the mayors of this country every day see at an operational level bridges that are rusting away, and tracks that can't carry high speed trains, and power transmission lines that can't keep up with demand, and airports that need new runways, and water lines that need backup systems, and sewage plants that leak into the rivers and the oceans."
One problem is that infrastructure spending at the federal level has historically been burdened with non-essential earmarks for things like bike paths: a report by the Department of Transportation Inspector General found over 8,00 such provisions, worth $8 billion, in FY07 federal spending -- 13% of the entire spending plan. Leadership to do better is essential: peace gardens won't get the economy back into gear.
Beyond Subsidy to Synergy
In the recent past, lobbying rather than presidential leadership has driven legislation: the AARP got the prescription drug benefit, the corn lobby got ethanol subsidies and tariffs, the financial sector got a light regulatory hand. The list above, however, illustrates how intertwined the key areas of the economy have become. As the credit crisis highlights, commodity markets (currently regulated separately from financial markets) have become part of a complex, tightly coupled global financial system. Immigration has a huge impact on health care. Health care costs affect the competitiveness of manufacturing companies in global markets.
The list goes on, but shows how merely acting one lobby at a time is a recipe for slow progress at best or disaster at worst. As Ray Kurzweil (another U.S. innovator who is a child of immigrants, by the way) and others have argued, change itself is changing:
"Our forebears expected the future to be pretty much like their present, which had been pretty much like their past. . . . Today, in accordance with the common wisdom, everyone expects continuous technological progress and the social repercussions that follow. But the future will be far more surprising than most observers realize: few have truly internalized the implications of the fact that the rate of change itself is accelerating." (quoted from here)
Accordingly, instead of more of the same old governance, one hopes that the next president leads with a vision of a global, information-age future that addresses complex problems with robust, synergistic actions, rather than being satisfied with delivering trophies to K Street.
Monday, September 22, 2008
September 2008: Of Crowds, Both Wise and Foolish
The surest sign that a phrase has entered broad usage is to apply the cliche test: if you leave the last word(s) blank and most readers know how to complete it, the phrase is best used carefully, if at all, in good writing. In broad swaths of the online literate, the phrase "wisdom of _____" will not refer to elders, the East, science, or abstinence. Only four years after James Surowiecki's book of the same name, it's an article of Internet faith that groups of people can give better answers than will individuals.
It's timely to revisit the notion given a powerful paradox: many observers -- including yours truly, who raved in this newsletter about the Iowa Electronic Markets (IEM) after trekking to Iowa City nine years ago -- see great potential in idea markets at the same time that financial markets are proving eminently fallible. In concrete terms, the number of businesses built on markets as information processing mechanisms is soaring even as the number of U.S. investment banks, home to tens of thousands of well-supported best and brightest, shrank from five to two in a matter of months after over 150 years in business.
It seems clear that U.S. financial markets are suffering in the aftermath of an inflated mortgage-products market, but it turns out that financial scholars can't agree on what a bubble is. According to Cornell's Maureen O'Hara in The Review of Financial Studies (February 2008), the "less controversial" approach is to follow one scholar's mild assertion that "bubbles are typically associated with dramatic asset price increases, followed by a collapse." Begging the question of what constitutes a collapse, the issue for our purposes concerns the potential for bubble equivalents in information markets.
The fate of the many information market startups, some of which we will discuss, will unfold over the next few years. In under two months we will see whether IEM maintains its record of performance in tracking presidential election results. Come February, traders in the Hollywood Stock Exchange (owned by the finance firm Cantor Fitzgerald) will try improve on its 10-year average of 82% correct picks across the top eight Oscar award categories. Specific companies aside, it's worth discussing some of the larger issues.
1) How do crowds express wisdom?
Several mechanisms come to mind:
-Voting, whether officially in the process of politics, or unofficially with product reviews, Digg or similar feedback ("Was this review helpful?"). All of these actions are voluntary and unsolicited, making statistical significance a moot point.
-Betting, the putting of real (as at IEM) or imagined (at HSX) currency where one's mouth is. Given the right kind of topic and the right kind of crowd, this process can be extremely powerful, albeit with constrained questions.
-Surveys, constructed with elaborate statistical tools and focused on carefully focused questions. Interaction among respondents is usually low, making surveys useful in collecting independent opinions.
-Convened feedback. This catch-all includes tagging, blogs and comments, message boards, trackbacks, wikis, and similar vehicles. Once again, the action is voluntary, but the field of play is unconstrained. Compared to the other three categories, convened feedback can contain substantial noise, but its free form allows topics to emerge from the group rather than from the pollster, market maker, or publisher.
2) What kind of questions best lend themselves to group wisdom?
On this topic Surowieki is direct: "Groups are only smart when there is a balance between the information that everyone in the groups shares and the information that each of the members of the group holds privately." Conversely, "what happens when [a] bubble bursts is that the expectations converge." (pp. 255-6)
A great example of this effect can be found at Metafilter. A year ago the question was posed, "What single book is the best introduction to your field (or specialization within your field) for laypeople?" Hundreds of people replied, in areas from homicide forensics to astrophysics. The results are truly priceless, a distillation of centuries of experience into a modest library.
Cass Sunstein, a University of Chicago law professor, agrees in his book Infotopia (2006). He states that "This is the most fundamental limitation of prediction markets: They cannot work well unless investors have dispersed information that can be aggregated." (pp. 136-7) Elsewhere in a blog post he notes that in an informal experiment with U of C law professors, the crowd came extremely close to the weight of the horse that won the Kentucky Derby, did "pretty badly" on the number of lines in Shakespeare's Antigone, and performed "horrendously" when asked the number of Supreme Court invalidations of state and federal law. He speculates that markets employ some self-selection bias: "participants have strong incentives to be right, and won't participate unless they think they have something to gain."
The best questions for prediction markets, then, involve issues about which people have formed independent judgments and on which they are willing to stake a financial and/or reputational investment. It may be that the topics cannot be too close to one's professional interests, as the financial example would suggest, and in line with the accuracy of the HSX Oscar predictions.
3) Where is error introduced?
The French political philosopher Condorcet (1743-1794) originally formulated the jury theorem that explains the wisdom of groups of people, when each individual is more than 50% likely to be right. Bad things happen when people are less that 50% likely to be right, however, and crowds then amplify error.
Numerous experiments have shown that group averages suffer when participants start listening to outside authorities or to each other. What Sunstein called "dispersed information" and what Surowiecki contrasts to mob behavior -- independence -- is more and more difficult to find. Many of the startups in idea markets include chat features -- they are, after all, often social networking plays -- making for yet another category of echo chamber.
Another kind of error comes when predictions ignore randomness. Particularly in thickly traded markets with many actors, the complexity of a given market can expose participants to phenomena for which there is no logical explanation -- even though many will be offered. As Nassim Nicholas Taleb pointed out in The Black Swan (2007), newswire reports on market movement routinely and fallaciously link events and price changes: it's not uncommon to see the equivalent of both "Dow falls on higher oil prices" and "Dow falls on lower oil prices" during the same day.
Varieties of market experience
The following are just some of many businesses seeking to monetize prediction markets:
-Newsfutures makes a B2B play, building internal prediction markets for the likes of Eli Lilly, the Department of Defense, and Yahoo.
-Spigit sells as enterprise software to support internal innovation and external customer interaction. Communities are formed to collect and evaluate new ideas.
-Intrade is an Irish firm that trades in real money (with a play money sandbox) applied to questions in politics, business (predictions on market share are common), entertainment, and other areas. The business model is built on small transaction fees on every trade.
-Hubdub, from Edinburgh, trades in play money but prominently features leaderboards, which intensify user involvement. Topics under discussion are limited only by users' imaginations and curiosity as any member can propose a question. The current leader, orlin, has done well on European football but also advanced wide ranging predictions, including one regarding the Higgs boson being discovered by the large hadron collider within a year. He or she has made nearly 6,000 predictions.
Apart from social networking plays and predictions, seemingly trivial commitments to intellectual positions work elsewhere. Cass Sunstein's more recent book, called Nudge (2008), was co-authored with the Chicago behavioral economist Richard Thaler. It points to the value of commitment for such personal behaviors as weight loss or project fulfillment. For example, a Ph.D. candidate, already hired as a lecturer at a substantial discount from an assistant professor's salary, was behind on his dissertation. Thaler made him write a $100 check at the beginning of every month a chapter was due. If the chapter came in on time, the check was ripped up. If the work came in late, the $100 went into a fund for a party to which the candidate would not be invited. The incentive worked, notwithstanding the fact that $400 or $500 was a tiny portion of the salary differential at stake. A Yale economics professor who lost weight under a similar game has co-founded stickK.com, an ad-funded online business designed to institutionalize similar "Commitment Contracts."
Futures
It's clear that crowds can in fact be smart when the members don't listen to each other too closely. It's also clear that financial and/or reputational investment is connected to both good predictions and fulfilled commitments. Several other issues are less obvious. Is there a novelty effect with prediction markets? Will clever people and/or software devise ways to game the system, similar to short-selling in finance or sniping on eBay? What do prediction bubbles look like, and what are their implications? When are crowds good at answering questions and when, if ever, are they good at posing them? (Note that on most markets, individuals can ask questions, not groups.) Can we reliably predict whether a given group will predict wisely?
At a larger level, how do online information markets relate to older forms of group expression, particularly voting? The U.S.'s filtration of a state's individual votes through the winner-take-all Electoral College is already controversial (only Maine and Nebraska currently allot their votes proportionately), and so-called National Popular Vote legislation is passed or pending in states with 274 electoral votes - enough to overturn the current process. Will some form of prediction market or other crowd wisdom accelerate or obviate this potential change?
Any process that can, under the right circumstances, deliver such powerful results will surely have unintended consequences. The controversy over John Poindexter's Futures Markets Applied to Prediction (FutureMAP) program, which was canceled by DARPA in July 2003, will certainly not be the last of the tricky issues revolving around this class of tools.
It's timely to revisit the notion given a powerful paradox: many observers -- including yours truly, who raved in this newsletter about the Iowa Electronic Markets (IEM) after trekking to Iowa City nine years ago -- see great potential in idea markets at the same time that financial markets are proving eminently fallible. In concrete terms, the number of businesses built on markets as information processing mechanisms is soaring even as the number of U.S. investment banks, home to tens of thousands of well-supported best and brightest, shrank from five to two in a matter of months after over 150 years in business.
It seems clear that U.S. financial markets are suffering in the aftermath of an inflated mortgage-products market, but it turns out that financial scholars can't agree on what a bubble is. According to Cornell's Maureen O'Hara in The Review of Financial Studies (February 2008), the "less controversial" approach is to follow one scholar's mild assertion that "bubbles are typically associated with dramatic asset price increases, followed by a collapse." Begging the question of what constitutes a collapse, the issue for our purposes concerns the potential for bubble equivalents in information markets.
The fate of the many information market startups, some of which we will discuss, will unfold over the next few years. In under two months we will see whether IEM maintains its record of performance in tracking presidential election results. Come February, traders in the Hollywood Stock Exchange (owned by the finance firm Cantor Fitzgerald) will try improve on its 10-year average of 82% correct picks across the top eight Oscar award categories. Specific companies aside, it's worth discussing some of the larger issues.
1) How do crowds express wisdom?
Several mechanisms come to mind:
-Voting, whether officially in the process of politics, or unofficially with product reviews, Digg or similar feedback ("Was this review helpful?"). All of these actions are voluntary and unsolicited, making statistical significance a moot point.
-Betting, the putting of real (as at IEM) or imagined (at HSX) currency where one's mouth is. Given the right kind of topic and the right kind of crowd, this process can be extremely powerful, albeit with constrained questions.
-Surveys, constructed with elaborate statistical tools and focused on carefully focused questions. Interaction among respondents is usually low, making surveys useful in collecting independent opinions.
-Convened feedback. This catch-all includes tagging, blogs and comments, message boards, trackbacks, wikis, and similar vehicles. Once again, the action is voluntary, but the field of play is unconstrained. Compared to the other three categories, convened feedback can contain substantial noise, but its free form allows topics to emerge from the group rather than from the pollster, market maker, or publisher.
2) What kind of questions best lend themselves to group wisdom?
On this topic Surowieki is direct: "Groups are only smart when there is a balance between the information that everyone in the groups shares and the information that each of the members of the group holds privately." Conversely, "what happens when [a] bubble bursts is that the expectations converge." (pp. 255-6)
A great example of this effect can be found at Metafilter. A year ago the question was posed, "What single book is the best introduction to your field (or specialization within your field) for laypeople?" Hundreds of people replied, in areas from homicide forensics to astrophysics. The results are truly priceless, a distillation of centuries of experience into a modest library.
Cass Sunstein, a University of Chicago law professor, agrees in his book Infotopia (2006). He states that "This is the most fundamental limitation of prediction markets: They cannot work well unless investors have dispersed information that can be aggregated." (pp. 136-7) Elsewhere in a blog post he notes that in an informal experiment with U of C law professors, the crowd came extremely close to the weight of the horse that won the Kentucky Derby, did "pretty badly" on the number of lines in Shakespeare's Antigone, and performed "horrendously" when asked the number of Supreme Court invalidations of state and federal law. He speculates that markets employ some self-selection bias: "participants have strong incentives to be right, and won't participate unless they think they have something to gain."
The best questions for prediction markets, then, involve issues about which people have formed independent judgments and on which they are willing to stake a financial and/or reputational investment. It may be that the topics cannot be too close to one's professional interests, as the financial example would suggest, and in line with the accuracy of the HSX Oscar predictions.
3) Where is error introduced?
The French political philosopher Condorcet (1743-1794) originally formulated the jury theorem that explains the wisdom of groups of people, when each individual is more than 50% likely to be right. Bad things happen when people are less that 50% likely to be right, however, and crowds then amplify error.
Numerous experiments have shown that group averages suffer when participants start listening to outside authorities or to each other. What Sunstein called "dispersed information" and what Surowiecki contrasts to mob behavior -- independence -- is more and more difficult to find. Many of the startups in idea markets include chat features -- they are, after all, often social networking plays -- making for yet another category of echo chamber.
Another kind of error comes when predictions ignore randomness. Particularly in thickly traded markets with many actors, the complexity of a given market can expose participants to phenomena for which there is no logical explanation -- even though many will be offered. As Nassim Nicholas Taleb pointed out in The Black Swan (2007), newswire reports on market movement routinely and fallaciously link events and price changes: it's not uncommon to see the equivalent of both "Dow falls on higher oil prices" and "Dow falls on lower oil prices" during the same day.
Varieties of market experience
The following are just some of many businesses seeking to monetize prediction markets:
-Newsfutures makes a B2B play, building internal prediction markets for the likes of Eli Lilly, the Department of Defense, and Yahoo.
-Spigit sells as enterprise software to support internal innovation and external customer interaction. Communities are formed to collect and evaluate new ideas.
-Intrade is an Irish firm that trades in real money (with a play money sandbox) applied to questions in politics, business (predictions on market share are common), entertainment, and other areas. The business model is built on small transaction fees on every trade.
-Hubdub, from Edinburgh, trades in play money but prominently features leaderboards, which intensify user involvement. Topics under discussion are limited only by users' imaginations and curiosity as any member can propose a question. The current leader, orlin, has done well on European football but also advanced wide ranging predictions, including one regarding the Higgs boson being discovered by the large hadron collider within a year. He or she has made nearly 6,000 predictions.
Apart from social networking plays and predictions, seemingly trivial commitments to intellectual positions work elsewhere. Cass Sunstein's more recent book, called Nudge (2008), was co-authored with the Chicago behavioral economist Richard Thaler. It points to the value of commitment for such personal behaviors as weight loss or project fulfillment. For example, a Ph.D. candidate, already hired as a lecturer at a substantial discount from an assistant professor's salary, was behind on his dissertation. Thaler made him write a $100 check at the beginning of every month a chapter was due. If the chapter came in on time, the check was ripped up. If the work came in late, the $100 went into a fund for a party to which the candidate would not be invited. The incentive worked, notwithstanding the fact that $400 or $500 was a tiny portion of the salary differential at stake. A Yale economics professor who lost weight under a similar game has co-founded stickK.com, an ad-funded online business designed to institutionalize similar "Commitment Contracts."
Futures
It's clear that crowds can in fact be smart when the members don't listen to each other too closely. It's also clear that financial and/or reputational investment is connected to both good predictions and fulfilled commitments. Several other issues are less obvious. Is there a novelty effect with prediction markets? Will clever people and/or software devise ways to game the system, similar to short-selling in finance or sniping on eBay? What do prediction bubbles look like, and what are their implications? When are crowds good at answering questions and when, if ever, are they good at posing them? (Note that on most markets, individuals can ask questions, not groups.) Can we reliably predict whether a given group will predict wisely?
At a larger level, how do online information markets relate to older forms of group expression, particularly voting? The U.S.'s filtration of a state's individual votes through the winner-take-all Electoral College is already controversial (only Maine and Nebraska currently allot their votes proportionately), and so-called National Popular Vote legislation is passed or pending in states with 274 electoral votes - enough to overturn the current process. Will some form of prediction market or other crowd wisdom accelerate or obviate this potential change?
Any process that can, under the right circumstances, deliver such powerful results will surely have unintended consequences. The controversy over John Poindexter's Futures Markets Applied to Prediction (FutureMAP) program, which was canceled by DARPA in July 2003, will certainly not be the last of the tricky issues revolving around this class of tools.
Wednesday, August 20, 2008
The Paradox of Data Visualization
It has been a full quarter-century since the publication of Edward Tufte’s landmark book, The Visual Display of Quantitative Information. In that time, computer screens and other projection tools have emerged as a powerful medium challenging the primacy of paper, previously the default tool of choice. Information visualization is now exploiting new display technologies (think flexible OLED), new computing platforms (iPhones and their kin), and ever-increasing computing power (Playstation 3 et al). For visualization to capitalize on the power of these and other technologies, information architecture must increase in sophistication, usability, and explanatory leverage.
This task is deceptively difficult: on screen, even more than on paper, it is far too simple to use both desktop tools, such as the ubiquitous Excel, and enterprise “business intelligence” packages to create bad information displays. Going forward, the task will get harder even as it becomes more necessary.
Why?
Several factors are responsible. First, data is generated by more sources and available to more users every year. “Data glut” may be a cliche, but tools such as search can intensify it: Google recently announced that a trillion web pages had been indexed. For context, if each of the 32 million books in the Library of Congress averages 300 pages, that’s less than 10 billion physical pages, and these individual units reside in nothing resembling a unified, organized, searchable repository.
More important, the task of data visualization is difficult because good displays must create spatial representations of non-spatial data. This is not new: linear representations have conveyed time for millennia, and pie charts have become handy shorthand for subsets of a whole. Good maps remain the gold standard, but enjoy the advantage of being a spatial representation of, well, space rather than something less tangible. Consult a UK Ordnance Survey map, or a fine 19th-century sample from any number of countries, and compare the quality to the non-spatial representations we encounter every day: USA Today visuals, executive dashboards, or owner’s manuals. In most cases, the antique remains superior to the modern.
Going forward, information architects are challenged to create readable, repeatable conventions for such abstractions as risk, intellectual property (patents are a poor proxy for human capital, for example), and attitudinal information such as customer satisfaction. Semi-arbitrary lists of text-string matches remain hard to make visual: concepts are notoriously difficult to map spatially, in contrast to the elegance of the periodic table of the elements, to take a classic example. Current social network maps, especially those of large social graphs such as Facebook, quickly grow useless, as this example illustrates.
Color presents a further difficulty. Even outside a visual context, meanings are inconsistent: operating a business in the black is good, but a black mark on your record is bad. A person green with envy, or looking slightly green on a cruise ship, lies conceptually opposite from a green-lighted script in Hollywood; an environmentally conscious activity is another matter entirely. In displays, the situation is worse yet as colors seldom hold stable meanings. Color-blindness is a further fact of life overlooked by many applications.
Given all of these challenges, it’s important to get things right. Human powers of pattern recognition remain more formidable than anything powered by Moore’s law: ask a 5-year-old to find objects in her toy box that belong on a dinner table and she’ll likely outperform even laboratory-grade artificial intelligence. In the face of the information volumes noted above, rising at an accelerating rate because of video, and given the need for more decisions in shorter times than ever, humans need the augmentation that good displays can provide.
How?
In his book Envisioning Information, Tufte suggests five tactics for increasing information density and “escaping flatland” – conveying more than two dimensions of meaning on paper. These are:
-Micro/macro readings (relating both wholes and parts as distinct entities)
-Layering and separation (often by use of color and graphic weight, as in a technical drawing)
-Small multiples (to show often subtle differences within elements of a system: a good lunar chart is an example)
-Color and information (sensitivity to the palette as color labels, measures, represents reality, and enlivens)
-Narratives of space and time (compressing the most powerful human dimensions onto flatland).
For all of the wisdom in these suggestions, and the beauty of Tufte’s examples – it’s no accident he’s both a statistician and a working artist – good information visualizations remain rare. For information to convey meaning in standard, predictable ways, we need tools: “tools” as in grammars and lexicons rather than more software widgets. (A noteworthy effort that appears to be directly in line with this need is Leland Wilkinson’s The Grammar of Graphics (New York: Springer, 2005).)
Some precedents may be useful. The history of sailing and shipping is rich with examples of various parties agreeing on conventions (port and starboard do not vary in different countries the way rules for automobiles do) and solving problems of conveying information. Container ships interlock regardless of carrier while being handled at countless global ports. The Beaufort wind scale arose from the need for agreed-upon metrics for measuring wind aboard a ship, a matter of great practical importance. Even today, with satellites and computerized navigation systems, a Beaufort 0 (“Calm; smoke rises vertically”) is the same around the world, while a 12 (“Air filled with foam; sea completely white with driving spray; visibility greatly reduced”) spells disaster no matter how fast the hurricane winds are actually blowing.
Closely related to navigation is weather. From early tabular and graphic representations of temperature and precipitation until 1982, when USA Today made a full-page set of color maps and tables a trademark of the upstart publication, tools for understanding weather and climate have helped lead the state of information visualization. More recently, graphics workstations were overrepresented in television studios as an arms race of weather-casting helped advance the state of the field. The weatherpeople can boast results: compare the number of people who can understand a Doppler radar image to those who can grasp binomial distributions, bid-ask spreads, or treemaps.
Musical notation is another relevant example. Easily transportable, relatively impervious to language, and yet a representation (rather than a reproduction) of a performance, scores have the kinds of conventions that information visualization for the most part still lacks. At this point, good visualizations are featured in “galleries” – as befit works of art. They are created by artists and artisans, not by people who merely have something to say. At the risk of a strained analogy, we are at the stage where latter-day monks painstakingly hand-letter sacred texts, still awaiting both Gutenberg and the typewriter.
As the references suggest, this is a rich field with many fascinating byways and footnotes. For a superb historical overview, see Friendly and Denis, Milestones in the History of Thematic Cartography, Statistical Graphics, and Data Visualization.
Current Directions
There is cause for optimism, however, on several fronts:
1) Hollywood and the gaming market are leading a charge toward effective, practical, and multidimensional visual tools. A quick look at the most recent SIGGRAPH conference program illustrates the overlap as featured speakers come from both computer science powers like Carnegie Mellon and animation houses such as Pixar.
2) 3-D has become a day-to-day reality in architecture, manufacturing, and, again, gaming, and this trickles down to consumer applications such as kitchen design tools. Even state-of-the-art roller coasters are being rendered (how, I don’t know) in CAD for mass enjoyment.
3) Since the release of its Flex version 2 product in 2006 which extended Flash functionality to more programming environments, Adobe has supported the rapid development (in both senses of the term) of visually attractive, data-driven visualizations: search the Flex application showcase and see a wide variety of database-driven shopping, monitoring, configuration, and wayfinding tools. Some are extremely handsome and useful, and even some of the visually “flat” examples possess a high information density.
4) Mapping remains important, and through the release of APIs from the likes of the UK Ordnance Survey, ESRI, Microsoft, and Google, developers can build data-rich geographically-useful tools more easily than ever before. Once again, Flex can accelerate the process.
5) In the labs, more senses are being enlisted in human information processing. Just as force-feedback enhances a driving game, so too can users navigate 3-D data volumes with haptic tools. Sonification is another emerging tool: when two or more elements interact (for example, sensor or observational reports regarding some phenomenon), the user can hear sounds of varying harmony to indicate different kinds of similarity or coherence. If two reports have plausible time stamps but fail to corroborate each other, there may be a) bad information in the system or b) two observed targets rather than one at different times. A dissonant tone warns the user from overlooking the potential inconsistency. (For more see here.)
6) Transparency in real or implied 3D data volumes can allow exceptions to stand out more clearly. These approaches can score well on several of Tufte’s implied indices. In 2-D, transparency preserves the baseline information.
7) Time can be manipulated via sliders and other intuitive tools, effectively creating animations. True data richness, as in this example from the Boston Federal Reserve Bank, is well served by easy comparison across time and county, instantly obvious navigation, subtle but clear use of color for information, and appropriate scale: doing such a tool on a national level would be unfeasible and lose appropriate granularity.
There’s no shortage of activity, samples of which can be experienced at Flex.org, Visual Complexity, or this IBM site - some work is truly stunning, and global centers of design leadership are emerging. Even so, the fundamental tension quickly becomes evident: words like “galleries” suggest that we are viewing works of art, and in many instances the work should be in museums. But art by definition is unique; visualization needs to be brought to the masses of managers, citizens, and students who have something to say but lack the tools, grammar, and training to create the beautiful. In short, the task is to help high levels of information visualization migrate from the artist to the worker.
This task is deceptively difficult: on screen, even more than on paper, it is far too simple to use both desktop tools, such as the ubiquitous Excel, and enterprise “business intelligence” packages to create bad information displays. Going forward, the task will get harder even as it becomes more necessary.
Why?
Several factors are responsible. First, data is generated by more sources and available to more users every year. “Data glut” may be a cliche, but tools such as search can intensify it: Google recently announced that a trillion web pages had been indexed. For context, if each of the 32 million books in the Library of Congress averages 300 pages, that’s less than 10 billion physical pages, and these individual units reside in nothing resembling a unified, organized, searchable repository.
More important, the task of data visualization is difficult because good displays must create spatial representations of non-spatial data. This is not new: linear representations have conveyed time for millennia, and pie charts have become handy shorthand for subsets of a whole. Good maps remain the gold standard, but enjoy the advantage of being a spatial representation of, well, space rather than something less tangible. Consult a UK Ordnance Survey map, or a fine 19th-century sample from any number of countries, and compare the quality to the non-spatial representations we encounter every day: USA Today visuals, executive dashboards, or owner’s manuals. In most cases, the antique remains superior to the modern.
Going forward, information architects are challenged to create readable, repeatable conventions for such abstractions as risk, intellectual property (patents are a poor proxy for human capital, for example), and attitudinal information such as customer satisfaction. Semi-arbitrary lists of text-string matches remain hard to make visual: concepts are notoriously difficult to map spatially, in contrast to the elegance of the periodic table of the elements, to take a classic example. Current social network maps, especially those of large social graphs such as Facebook, quickly grow useless, as this example illustrates.
Color presents a further difficulty. Even outside a visual context, meanings are inconsistent: operating a business in the black is good, but a black mark on your record is bad. A person green with envy, or looking slightly green on a cruise ship, lies conceptually opposite from a green-lighted script in Hollywood; an environmentally conscious activity is another matter entirely. In displays, the situation is worse yet as colors seldom hold stable meanings. Color-blindness is a further fact of life overlooked by many applications.
Given all of these challenges, it’s important to get things right. Human powers of pattern recognition remain more formidable than anything powered by Moore’s law: ask a 5-year-old to find objects in her toy box that belong on a dinner table and she’ll likely outperform even laboratory-grade artificial intelligence. In the face of the information volumes noted above, rising at an accelerating rate because of video, and given the need for more decisions in shorter times than ever, humans need the augmentation that good displays can provide.
How?
In his book Envisioning Information, Tufte suggests five tactics for increasing information density and “escaping flatland” – conveying more than two dimensions of meaning on paper. These are:
-Micro/macro readings (relating both wholes and parts as distinct entities)
-Layering and separation (often by use of color and graphic weight, as in a technical drawing)
-Small multiples (to show often subtle differences within elements of a system: a good lunar chart is an example)
-Color and information (sensitivity to the palette as color labels, measures, represents reality, and enlivens)
-Narratives of space and time (compressing the most powerful human dimensions onto flatland).
For all of the wisdom in these suggestions, and the beauty of Tufte’s examples – it’s no accident he’s both a statistician and a working artist – good information visualizations remain rare. For information to convey meaning in standard, predictable ways, we need tools: “tools” as in grammars and lexicons rather than more software widgets. (A noteworthy effort that appears to be directly in line with this need is Leland Wilkinson’s The Grammar of Graphics (New York: Springer, 2005).)
Some precedents may be useful. The history of sailing and shipping is rich with examples of various parties agreeing on conventions (port and starboard do not vary in different countries the way rules for automobiles do) and solving problems of conveying information. Container ships interlock regardless of carrier while being handled at countless global ports. The Beaufort wind scale arose from the need for agreed-upon metrics for measuring wind aboard a ship, a matter of great practical importance. Even today, with satellites and computerized navigation systems, a Beaufort 0 (“Calm; smoke rises vertically”) is the same around the world, while a 12 (“Air filled with foam; sea completely white with driving spray; visibility greatly reduced”) spells disaster no matter how fast the hurricane winds are actually blowing.
Closely related to navigation is weather. From early tabular and graphic representations of temperature and precipitation until 1982, when USA Today made a full-page set of color maps and tables a trademark of the upstart publication, tools for understanding weather and climate have helped lead the state of information visualization. More recently, graphics workstations were overrepresented in television studios as an arms race of weather-casting helped advance the state of the field. The weatherpeople can boast results: compare the number of people who can understand a Doppler radar image to those who can grasp binomial distributions, bid-ask spreads, or treemaps.
Musical notation is another relevant example. Easily transportable, relatively impervious to language, and yet a representation (rather than a reproduction) of a performance, scores have the kinds of conventions that information visualization for the most part still lacks. At this point, good visualizations are featured in “galleries” – as befit works of art. They are created by artists and artisans, not by people who merely have something to say. At the risk of a strained analogy, we are at the stage where latter-day monks painstakingly hand-letter sacred texts, still awaiting both Gutenberg and the typewriter.
As the references suggest, this is a rich field with many fascinating byways and footnotes. For a superb historical overview, see Friendly and Denis, Milestones in the History of Thematic Cartography, Statistical Graphics, and Data Visualization.
Current Directions
There is cause for optimism, however, on several fronts:
1) Hollywood and the gaming market are leading a charge toward effective, practical, and multidimensional visual tools. A quick look at the most recent SIGGRAPH conference program illustrates the overlap as featured speakers come from both computer science powers like Carnegie Mellon and animation houses such as Pixar.
2) 3-D has become a day-to-day reality in architecture, manufacturing, and, again, gaming, and this trickles down to consumer applications such as kitchen design tools. Even state-of-the-art roller coasters are being rendered (how, I don’t know) in CAD for mass enjoyment.
3) Since the release of its Flex version 2 product in 2006 which extended Flash functionality to more programming environments, Adobe has supported the rapid development (in both senses of the term) of visually attractive, data-driven visualizations: search the Flex application showcase and see a wide variety of database-driven shopping, monitoring, configuration, and wayfinding tools. Some are extremely handsome and useful, and even some of the visually “flat” examples possess a high information density.
4) Mapping remains important, and through the release of APIs from the likes of the UK Ordnance Survey, ESRI, Microsoft, and Google, developers can build data-rich geographically-useful tools more easily than ever before. Once again, Flex can accelerate the process.
5) In the labs, more senses are being enlisted in human information processing. Just as force-feedback enhances a driving game, so too can users navigate 3-D data volumes with haptic tools. Sonification is another emerging tool: when two or more elements interact (for example, sensor or observational reports regarding some phenomenon), the user can hear sounds of varying harmony to indicate different kinds of similarity or coherence. If two reports have plausible time stamps but fail to corroborate each other, there may be a) bad information in the system or b) two observed targets rather than one at different times. A dissonant tone warns the user from overlooking the potential inconsistency. (For more see here.)
6) Transparency in real or implied 3D data volumes can allow exceptions to stand out more clearly. These approaches can score well on several of Tufte’s implied indices. In 2-D, transparency preserves the baseline information.
7) Time can be manipulated via sliders and other intuitive tools, effectively creating animations. True data richness, as in this example from the Boston Federal Reserve Bank, is well served by easy comparison across time and county, instantly obvious navigation, subtle but clear use of color for information, and appropriate scale: doing such a tool on a national level would be unfeasible and lose appropriate granularity.
There’s no shortage of activity, samples of which can be experienced at Flex.org, Visual Complexity, or this IBM site - some work is truly stunning, and global centers of design leadership are emerging. Even so, the fundamental tension quickly becomes evident: words like “galleries” suggest that we are viewing works of art, and in many instances the work should be in museums. But art by definition is unique; visualization needs to be brought to the masses of managers, citizens, and students who have something to say but lack the tools, grammar, and training to create the beautiful. In short, the task is to help high levels of information visualization migrate from the artist to the worker.
Friday, July 25, 2008
July 2008 Early Indications: The Story of a Gun
Last month, we discussed the fact that the planet has crossed the 3.3 billion cellphone mark, which, if equally distributed, would supply a phone to every second person in the world. This month, we are reminded that technologies of communications have long developed in parallel with technologies of violence. Michael Hodges, a British journalist, recently documented the history of the AK47 assault rifle, a technology that also has achieved wide distribution all over the world. The story of the gun, and of its many implications, provides a sobering counterpoint to the achievements and potentialities of mass mobile communications.
Hodges ranges widely, but several salient facts about the weapon grab the reader's attention:
-Between 70 and 100 million AK47s are in circulation worldwide (to put this in perspective, there are at least enough weapons to arm the Chinese People's Liberation Army, the world's largest, and its reservists at least 25 times over). About 8 million more guns a year are sold, more than all M16s made in nearly 50 years.
-The weapon fires 650 rounds per minute; a clip of 30 takes about 3 seconds on full automatic.
-The AK47 was designed to be simple enough for even illiterate recruits to learn, maintain, and fire.
-The rifle has proved amazingly reliable, performing for 60 years in nearly all operating conditions -- cold, rain, sand, mud, jungles, and cities -- with minimal maintenance.
-The AK47 was invented in Russia but was later manufactured, royalty-free, in many other countries. (This makes the weapon an early example of open-source hardware, before anyone called it that.)
-With a mere eight moving parts, machined only to loose tolerances, the gun can be readily repaired in or near the field (but this design choice also exacts a cost in accuracy).
Numerous examples testify to the AK47's effectiveness, longevity, and cost-effectiveness. In Afghanistan, after Soviet forces grew tired of being ambushed with their own rifle, convoys drove when possible on roads cleared of cover for 300 yards on either side in deference to the weapon's effective range. In Viet Nam, U.S. soldiers often grew frustrated with their M16s, which jammed in wet conditions, and took up AK47s when they were recovered from enemy casualties or POWs. More recently, when the U.S. needed to arm the re-formed Iraqi security forces, the contract was awarded to a Bulgarian manufacturer of Kalashnikovs selling for $100 apiece.
But Hodges is not interested in strictly military history. His story of what he calls "the people's gun" has several facets, some of which prove more persuasive than others. The assertion that the weapon, and its distinctive silhouette, have become a global brand, alongside Coke and Sony, feels slightly underdeveloped but also only marginally relevant. That the AK47 has become a political totem, a "signifier" (to use the jargon of literary theory), is undeniable. From Afghanistan, where Osama Bin Laden poses with different variants of the weapon in his video missives to the world, to Mozambique, whose 1983 flag features an AK crossed with a hoe, the gun has a long history of symbolic potency.
For our purposes, it is not symbolism but very physical implications of the gun that matter. At the same time that mobile phones connect families, market participants, and community resources such as ambulances in India or banks in Bangladesh, wide availability of assault weapons counteracts these tendencies. Grudges and tribal antagonisms intensify; desperation among people without hope is given violent outlet. Gang wars mixing some combination of rites of passage, turf conflict, drugs, and gunplay (whether in Pakistan, Columbia, Sudan, or U.S. inner cities) both grow deadlier and trigger waves of payback and escalation. The cycle of recruitment, killing, retribution -- and collateral damage -- can spiral out of control as gangsters outgun most peacekeepers.
Hodges is grimly persuasive when he writes of "Kalshnikov cultures," places where poverty, heavily armed combatants, and radical politics combine to render rule of law and even basic notions of civil society moot. On particularly depressing outgrowth of such cultures is the recruitment of [often orphaned] children, who are placed in the first wave of attacks since they are light enough to not trip land mines. The AK47's ease of use makes such a scenario possible. Indeed, when a weapon becomes "the people's gun" and stops being "the army's gun," many basic rules of social interaction are rewritten or, more accurately, erased.
Because AK47s circulate beyond the locked armories and strict rules of a typical army, the story of their distribution is an exercise in social networking of a lethal sort: most parties who want a weapon are well within "six degrees" of obtaining one. Between the open-source hardware mentioned above, and the weapon's nondescript footprint which lacks radiation or radio frequency emissions, it is virtually impossible to track. Finally, because of their proven durability, decades-old rifles still pose a threat to life and limb: even if manufacturing were to be curtailed tomorrow, the size of the weapons population would continue to shape crime, politics, and terror well into the 21st century. Changing the impact of the gun will be an exercise in changing minds, not controlling the technology.
As powerfully as it explains key facets of contemporary terror, Hodges' story also reminds us that technologies of communications and killing have frequently developed in parallel: radio and mustard gas were commercialized within a few years of each other. Gunpowder and a new style of musical notation were roughly contemporaneous, and the first cast-iron gun predated European movable type by about 20 years. To give credit where it is due, Mikhail Kalashnikov invented a technology that did what it was designed to do, under adverse conditions, for over six decades, at low cost.* It also changed the face of both warfare and politics, a claim that can be made by few inventors, of any era.
*At a much higher price tag, the B-52 bomber has achieved similar longevity: several grandchildren of the original pilots are now operating these aircraft in various theaters.
Michael Hodges, AK47: The Story of a Gun. San Francisco: MacAdam Cage, 2008.
Hodges ranges widely, but several salient facts about the weapon grab the reader's attention:
-Between 70 and 100 million AK47s are in circulation worldwide (to put this in perspective, there are at least enough weapons to arm the Chinese People's Liberation Army, the world's largest, and its reservists at least 25 times over). About 8 million more guns a year are sold, more than all M16s made in nearly 50 years.
-The weapon fires 650 rounds per minute; a clip of 30 takes about 3 seconds on full automatic.
-The AK47 was designed to be simple enough for even illiterate recruits to learn, maintain, and fire.
-The rifle has proved amazingly reliable, performing for 60 years in nearly all operating conditions -- cold, rain, sand, mud, jungles, and cities -- with minimal maintenance.
-The AK47 was invented in Russia but was later manufactured, royalty-free, in many other countries. (This makes the weapon an early example of open-source hardware, before anyone called it that.)
-With a mere eight moving parts, machined only to loose tolerances, the gun can be readily repaired in or near the field (but this design choice also exacts a cost in accuracy).
Numerous examples testify to the AK47's effectiveness, longevity, and cost-effectiveness. In Afghanistan, after Soviet forces grew tired of being ambushed with their own rifle, convoys drove when possible on roads cleared of cover for 300 yards on either side in deference to the weapon's effective range. In Viet Nam, U.S. soldiers often grew frustrated with their M16s, which jammed in wet conditions, and took up AK47s when they were recovered from enemy casualties or POWs. More recently, when the U.S. needed to arm the re-formed Iraqi security forces, the contract was awarded to a Bulgarian manufacturer of Kalashnikovs selling for $100 apiece.
But Hodges is not interested in strictly military history. His story of what he calls "the people's gun" has several facets, some of which prove more persuasive than others. The assertion that the weapon, and its distinctive silhouette, have become a global brand, alongside Coke and Sony, feels slightly underdeveloped but also only marginally relevant. That the AK47 has become a political totem, a "signifier" (to use the jargon of literary theory), is undeniable. From Afghanistan, where Osama Bin Laden poses with different variants of the weapon in his video missives to the world, to Mozambique, whose 1983 flag features an AK crossed with a hoe, the gun has a long history of symbolic potency.
For our purposes, it is not symbolism but very physical implications of the gun that matter. At the same time that mobile phones connect families, market participants, and community resources such as ambulances in India or banks in Bangladesh, wide availability of assault weapons counteracts these tendencies. Grudges and tribal antagonisms intensify; desperation among people without hope is given violent outlet. Gang wars mixing some combination of rites of passage, turf conflict, drugs, and gunplay (whether in Pakistan, Columbia, Sudan, or U.S. inner cities) both grow deadlier and trigger waves of payback and escalation. The cycle of recruitment, killing, retribution -- and collateral damage -- can spiral out of control as gangsters outgun most peacekeepers.
Hodges is grimly persuasive when he writes of "Kalshnikov cultures," places where poverty, heavily armed combatants, and radical politics combine to render rule of law and even basic notions of civil society moot. On particularly depressing outgrowth of such cultures is the recruitment of [often orphaned] children, who are placed in the first wave of attacks since they are light enough to not trip land mines. The AK47's ease of use makes such a scenario possible. Indeed, when a weapon becomes "the people's gun" and stops being "the army's gun," many basic rules of social interaction are rewritten or, more accurately, erased.
Because AK47s circulate beyond the locked armories and strict rules of a typical army, the story of their distribution is an exercise in social networking of a lethal sort: most parties who want a weapon are well within "six degrees" of obtaining one. Between the open-source hardware mentioned above, and the weapon's nondescript footprint which lacks radiation or radio frequency emissions, it is virtually impossible to track. Finally, because of their proven durability, decades-old rifles still pose a threat to life and limb: even if manufacturing were to be curtailed tomorrow, the size of the weapons population would continue to shape crime, politics, and terror well into the 21st century. Changing the impact of the gun will be an exercise in changing minds, not controlling the technology.
As powerfully as it explains key facets of contemporary terror, Hodges' story also reminds us that technologies of communications and killing have frequently developed in parallel: radio and mustard gas were commercialized within a few years of each other. Gunpowder and a new style of musical notation were roughly contemporaneous, and the first cast-iron gun predated European movable type by about 20 years. To give credit where it is due, Mikhail Kalashnikov invented a technology that did what it was designed to do, under adverse conditions, for over six decades, at low cost.* It also changed the face of both warfare and politics, a claim that can be made by few inventors, of any era.
*At a much higher price tag, the B-52 bomber has achieved similar longevity: several grandchildren of the original pilots are now operating these aircraft in various theaters.
Michael Hodges, AK47: The Story of a Gun. San Francisco: MacAdam Cage, 2008.
Thursday, June 26, 2008
June 2008 Early Indications: Crossing Over
Rather than looking at the somewhat ambiguous "tipping points" that Malcolm Gladwell helped popularize (much to my colleague David McIntosh's despair; see also here), I'd like to look this month at several crossover points: moments in history where one way of doing something overtakes a previous one. Three broad areas come into play: performing a task on a PC, connecting to another person, and making a living.
1) PCs
Sometime in the past five years, more people completed a task using software based elsewhere than did people who utilized an application running locally. Here are the numbers: according to comScore data from August 2007, 754 million unique searchers averaged 80 searches for the month. (Rolled up, that's 61 billion searches per month, 37 billion served by Google.) While figures for desktop-resident applications are harder to come by, Microsoft estimated in 2003 that 150 million copies of Office had been sold, 80 million of them Office XP. This breakout suggests that there might be double counting as customers migrated through various versions: by myself I own three current licenses, never mind how many past versions that were attached to me at different times. More recently, a March press release spoke of 500 million Office users worldwide. ERP seats and PC games (#1 all time is The Sims), both at roughly 100 million, don't even come close.
Taking that Microsoft number at face value and assuming no double-counting, and not including web browsers as application software, as of last year 50% more people completed a task on a remote server compared to the number using the leading resident application.
Why does this crossover matter? As PCs become more affordable and can be purchased by more people, the advantages of non-resident processing will become more pronounced: upgrades do not require downloads or shipments of physical disks, training requirements are reduced, and the utility of the PC can often be enhanced by offloading processing-intensive activities to a server somewhere. In some ways this is bad news for Intel and AMD as devices for the developing world will require low price points and moderate processing power, with concomitantly lower margins.
It's also fitting that Bill Gates is retiring from Microsoft at the precise moment when the desktop software model is being forced to evolve. No company has more at stake in the transition to new generations of networked computing, and the handoff to Ray Ozzie as the architect (literally and figuratively) of Microsoft's future occurred when the company's desktop franchise was quantitatively eclipsed by a model that remains foreign to the company's historical financial, technical, and brand fundamentals.
2) Connections
The world is going a) untethered and b) toward video. a) Depending on who's doing the counting, last year or this the world is crossing the point where more than 3.3 billion mobile phones are in use. While they are not distributed this way, that's one mobile for every second person on the planet. Because of unequal distribution, however, there's another crossover: more than 250 million people live in countries with more cellphones than people. b) According to Cisco figures analyzed by Morgan Stanley, consumer Internet traffic will overtake commercial traffic this year. YouTube (the #3 destination on the Web, according to Alexa) and related services are driving much of this growth, estimated at 58% annually.
Several noteworthy stories are embedded here.
-The distribution of countries with teledensity over 100 is most surprising. According to International Telecommunications Union figures from 2006, over thirty countries qualify. No, wealthy Luxembourg is not a shock -- but the figure of 151 phones per 100 people is. Sweden is surprisingly listed at only 100.5, while Portugal recorded a figure of 116 for 2006. Perhaps the most stunning entry is Germany, by far the biggest country in the 100+ club: a nation of 82 million citizens (compared to 5-10 million for the Nordics and 20 million for Australia) had 102 cellphones per 100 population as of two years ago.
-The geographic spread of 100+ teledensities also comes as a surprise. Qatar and the UAE represent the Middle East/North Africa, Aruba and Trinidad and Tobago the Caribbean, and Singapore Asia. As one colleague from this part of the world told me, many Mediterranean cultures love to talk, and they literally put their money where their mouths are: Italy (123), Spain (106), Israel (123), Greece (100), and the aforementioned Portugal uphold the stereotype.
-About 100 years ago, the economist Thorstein Veblen posited that there are penalties for technological leadership, largely because any generation of technology imposes switching costs on the adoption of something newer. Many states are proving his point as they leapfrog poor wireline infrastructure by building wireless capacity at blinding speed: Lithuania had a fixed line teledensity of only 32 as of 2000, but a mobile quotient of 138 only six years later.
-According to the ITU, the number of cellphone subscribers worldwide passed the number of wireline subscribers in 2001. In developed countries, landline conventional connections are dropping, which serves to accentuate the shift toward mobility. The best countries at wireline broadband (the Nordics and Korea) only reach about a third of their populations, suggesting that wireless broadband could behave similarly to wireless voice -- which is to say, wireless broadband could devalue still more fixed-line assets in the coming years.
Making a Living
According to the most recent "Key Indicators of the Labour Market" published in September 2007 by the International Labour Organization (part of the UN), humanity crossed a significant milestone: for the first time since people learned to stay and farm rather than hunt and gather, agriculture was not the dominant focus of human endeavor. In a development that would have been unforeseen even 30 years ago, it was not manufacturing but services sectors that claimed the mantle.
The KILM document is worth quoting at length:
In recent years agriculture has lost its place as the main sector of employment and has been replaced by the services sector, which in 2006 constituted 42.0 per cent of world employment compared to 36.1 per cent for agriculture. As for the industry sector, it represented 21.9 per cent of total employment, which is almost unchanged from ten years ago. Although textbook theory suggests that economic development entails a structural transformation with a shift away from agriculture to the industry sector, this no longer seems to be reflected in reality. Instead of moving into high-productivity jobs in the industry sector, people are moving directly into the services sector, which consists of both high- and low-productivity jobs. Therefore, it is unclear if the sectoral shift goes hand in hand with productivity increases and thereby a better utilization of the workforce. (KILM, 5th edition, section 4, p. 6)
Numerous implications cascade from this transition. As the quotation suggests, measuring productivity of many services -- whether school teaching, nursing, litigation, or government activities -- can be nearly impossible. Economies of scope and scale behave very differently compared to manufacturing. Services sectors can change more rapidly than manufacturing because so much of the capital base is intellectual rather than physical: compare Google's rate of change to Intel's, much less GE's or GM's. Education and mid-career reorientation become more important for service-sector labor forces.
Perhaps most important, the state of computing and communications allows many services to be performed remotely from their customers. Compared to classical economics, in which the haircut often stands as a proxy for everything from an oil change to psychotherapy, some services do not have to be performed with both parties in the same place at the same time. As the economist Alan Blinder suggested in Foreign Affairs a few months back, the implications of services mobility will be as big as the Industrial Revolution. Equity analysis, credit scoring, and radiographic interpretation are being done in Australia, India, and Estonia even though the client/applicant/patient lives thousands of miles away.
Other changes that follow from the new primacy of services are promising. Compared to pollution and other forms of environmental degradation that typically accompany factories -- China surpassed the U.S. as the planet's largest emitter of CO2 in 2006 -- the externalities of services sectors have tended to be positive: spillover economic productivity, for example.
Adding It Up
Big, messy questions emerge as we consider these changes in parallel. What is the impact of information and communications technologies, most of which have emerged in the past 50 years, on the shift to predominance of services employment, which was tens of thousands of years in the making? How will global mobility of computing and telecommunications shape existing and future services industries? How will an increasingly searchable base of knowledge and information affect interpersonal relationships and employment patterns, not to mention notions of privacy, ownership, and redress?
As government becomes a major services sector in its own right, how will it generate sufficient revenues without killing off fragile but fast-growing industries? African countries have for decades depended on the hard currency brought into the nation by long-distance interconnect charges. With the decline of transatlantic faxes and the rise of Skype, for example, those revenues must be replaced. A promising revenue source, from the government's perspective, is the mobile phone industry: in such countries as Malawi and Ghana, over 1/3 of the cost of mobile phone ownership is tax, according to the GSM trade association.
This is not new. At the time of the 3G spectrum auctions in the UK in 2000, major debates were concerned with what to do with the 37-billion Euro windfall: not without controversy, it went to pay off national debt, rather than improve the Health Service, cut taxes, or rebuild infrastructure. In manufacturing industries, it's difficult to imagine similar tax booms -- although resources can pay off handsomely, insofar as North Sea oil has behaved similarly for England and Norway, for example.
Lots of questions remain, probably best discussed non-virtually, over a beer. Until we can approximate that scenario, what do you think will be the next historic crossover? Given sufficient input I'll build the next letter on the answers.
1) PCs
Sometime in the past five years, more people completed a task using software based elsewhere than did people who utilized an application running locally. Here are the numbers: according to comScore data from August 2007, 754 million unique searchers averaged 80 searches for the month. (Rolled up, that's 61 billion searches per month, 37 billion served by Google.) While figures for desktop-resident applications are harder to come by, Microsoft estimated in 2003 that 150 million copies of Office had been sold, 80 million of them Office XP. This breakout suggests that there might be double counting as customers migrated through various versions: by myself I own three current licenses, never mind how many past versions that were attached to me at different times. More recently, a March press release spoke of 500 million Office users worldwide. ERP seats and PC games (#1 all time is The Sims), both at roughly 100 million, don't even come close.
Taking that Microsoft number at face value and assuming no double-counting, and not including web browsers as application software, as of last year 50% more people completed a task on a remote server compared to the number using the leading resident application.
Why does this crossover matter? As PCs become more affordable and can be purchased by more people, the advantages of non-resident processing will become more pronounced: upgrades do not require downloads or shipments of physical disks, training requirements are reduced, and the utility of the PC can often be enhanced by offloading processing-intensive activities to a server somewhere. In some ways this is bad news for Intel and AMD as devices for the developing world will require low price points and moderate processing power, with concomitantly lower margins.
It's also fitting that Bill Gates is retiring from Microsoft at the precise moment when the desktop software model is being forced to evolve. No company has more at stake in the transition to new generations of networked computing, and the handoff to Ray Ozzie as the architect (literally and figuratively) of Microsoft's future occurred when the company's desktop franchise was quantitatively eclipsed by a model that remains foreign to the company's historical financial, technical, and brand fundamentals.
2) Connections
The world is going a) untethered and b) toward video. a) Depending on who's doing the counting, last year or this the world is crossing the point where more than 3.3 billion mobile phones are in use. While they are not distributed this way, that's one mobile for every second person on the planet. Because of unequal distribution, however, there's another crossover: more than 250 million people live in countries with more cellphones than people. b) According to Cisco figures analyzed by Morgan Stanley, consumer Internet traffic will overtake commercial traffic this year. YouTube (the #3 destination on the Web, according to Alexa) and related services are driving much of this growth, estimated at 58% annually.
Several noteworthy stories are embedded here.
-The distribution of countries with teledensity over 100 is most surprising. According to International Telecommunications Union figures from 2006, over thirty countries qualify. No, wealthy Luxembourg is not a shock -- but the figure of 151 phones per 100 people is. Sweden is surprisingly listed at only 100.5, while Portugal recorded a figure of 116 for 2006. Perhaps the most stunning entry is Germany, by far the biggest country in the 100+ club: a nation of 82 million citizens (compared to 5-10 million for the Nordics and 20 million for Australia) had 102 cellphones per 100 population as of two years ago.
-The geographic spread of 100+ teledensities also comes as a surprise. Qatar and the UAE represent the Middle East/North Africa, Aruba and Trinidad and Tobago the Caribbean, and Singapore Asia. As one colleague from this part of the world told me, many Mediterranean cultures love to talk, and they literally put their money where their mouths are: Italy (123), Spain (106), Israel (123), Greece (100), and the aforementioned Portugal uphold the stereotype.
-About 100 years ago, the economist Thorstein Veblen posited that there are penalties for technological leadership, largely because any generation of technology imposes switching costs on the adoption of something newer. Many states are proving his point as they leapfrog poor wireline infrastructure by building wireless capacity at blinding speed: Lithuania had a fixed line teledensity of only 32 as of 2000, but a mobile quotient of 138 only six years later.
-According to the ITU, the number of cellphone subscribers worldwide passed the number of wireline subscribers in 2001. In developed countries, landline conventional connections are dropping, which serves to accentuate the shift toward mobility. The best countries at wireline broadband (the Nordics and Korea) only reach about a third of their populations, suggesting that wireless broadband could behave similarly to wireless voice -- which is to say, wireless broadband could devalue still more fixed-line assets in the coming years.
Making a Living
According to the most recent "Key Indicators of the Labour Market" published in September 2007 by the International Labour Organization (part of the UN), humanity crossed a significant milestone: for the first time since people learned to stay and farm rather than hunt and gather, agriculture was not the dominant focus of human endeavor. In a development that would have been unforeseen even 30 years ago, it was not manufacturing but services sectors that claimed the mantle.
The KILM document is worth quoting at length:
In recent years agriculture has lost its place as the main sector of employment and has been replaced by the services sector, which in 2006 constituted 42.0 per cent of world employment compared to 36.1 per cent for agriculture. As for the industry sector, it represented 21.9 per cent of total employment, which is almost unchanged from ten years ago. Although textbook theory suggests that economic development entails a structural transformation with a shift away from agriculture to the industry sector, this no longer seems to be reflected in reality. Instead of moving into high-productivity jobs in the industry sector, people are moving directly into the services sector, which consists of both high- and low-productivity jobs. Therefore, it is unclear if the sectoral shift goes hand in hand with productivity increases and thereby a better utilization of the workforce. (KILM, 5th edition, section 4, p. 6)
Numerous implications cascade from this transition. As the quotation suggests, measuring productivity of many services -- whether school teaching, nursing, litigation, or government activities -- can be nearly impossible. Economies of scope and scale behave very differently compared to manufacturing. Services sectors can change more rapidly than manufacturing because so much of the capital base is intellectual rather than physical: compare Google's rate of change to Intel's, much less GE's or GM's. Education and mid-career reorientation become more important for service-sector labor forces.
Perhaps most important, the state of computing and communications allows many services to be performed remotely from their customers. Compared to classical economics, in which the haircut often stands as a proxy for everything from an oil change to psychotherapy, some services do not have to be performed with both parties in the same place at the same time. As the economist Alan Blinder suggested in Foreign Affairs a few months back, the implications of services mobility will be as big as the Industrial Revolution. Equity analysis, credit scoring, and radiographic interpretation are being done in Australia, India, and Estonia even though the client/applicant/patient lives thousands of miles away.
Other changes that follow from the new primacy of services are promising. Compared to pollution and other forms of environmental degradation that typically accompany factories -- China surpassed the U.S. as the planet's largest emitter of CO2 in 2006 -- the externalities of services sectors have tended to be positive: spillover economic productivity, for example.
Adding It Up
Big, messy questions emerge as we consider these changes in parallel. What is the impact of information and communications technologies, most of which have emerged in the past 50 years, on the shift to predominance of services employment, which was tens of thousands of years in the making? How will global mobility of computing and telecommunications shape existing and future services industries? How will an increasingly searchable base of knowledge and information affect interpersonal relationships and employment patterns, not to mention notions of privacy, ownership, and redress?
As government becomes a major services sector in its own right, how will it generate sufficient revenues without killing off fragile but fast-growing industries? African countries have for decades depended on the hard currency brought into the nation by long-distance interconnect charges. With the decline of transatlantic faxes and the rise of Skype, for example, those revenues must be replaced. A promising revenue source, from the government's perspective, is the mobile phone industry: in such countries as Malawi and Ghana, over 1/3 of the cost of mobile phone ownership is tax, according to the GSM trade association.
This is not new. At the time of the 3G spectrum auctions in the UK in 2000, major debates were concerned with what to do with the 37-billion Euro windfall: not without controversy, it went to pay off national debt, rather than improve the Health Service, cut taxes, or rebuild infrastructure. In manufacturing industries, it's difficult to imagine similar tax booms -- although resources can pay off handsomely, insofar as North Sea oil has behaved similarly for England and Norway, for example.
Lots of questions remain, probably best discussed non-virtually, over a beer. Until we can approximate that scenario, what do you think will be the next historic crossover? Given sufficient input I'll build the next letter on the answers.
Thursday, May 29, 2008
May 2008 Early Indications: Book reviews
Nicholas Carr, The Big Switch: Rewiring the World, From Edison to Google (New York: Norton, 2008)
Clay Shirky, Here Comes Everybody: The Power of Organizing Without Organizations (New York: Penguin, 2008)
In many ways, Nick Carr and Clay Shirky are mirror images of each other. Carr attended and later worked at Harvard; Shirky graduated from Yale and teaches at NYU. Carr worked at Mercer Management Consulting, Shirky at a web startup. Both publish heavily visited blogs. Carr sits on the Encyclopedia Britannica editorial board; Shirky contributes to Wikipedia. Each published in "old media" earlier this year, their books appearing mere weeks apart. They address many of the same issues, but often draw different conclusions. In doing so, they situate themselves in a timeless dialogue about the nature and cost of technological progress.
Judging by the rapid sales of the book based on his "Last Lecture" at Carnegie Mellon, computer science professor and terminal cancer patient Randy Pausch has clearly struck a mass-market nerve. The book elaborates on the themes addressed in the lecture and in subsequent national television appearances, imparting life lessons from the perspective of a dying 47-year-old who will not watch his children mature, marry, or multiply. For our purposes, the key point of the book is Pausch's distinction between two kinds of people: Tiggers and Eeyores, based on the characters from the world of Winnie the Pooh.
Carr exhibits many traits of an Eeyore. After arguing that computing (via Google, Amazon web services, and other instances of "the World Wide Computer") has become a utility sharing many attributes with Edison's successful flavor of electricity, Carr shifts the book's focus. On page 110, he states that the consequences of grid/utility computing "are the subject of the rest of this book." After that point, the news is often interpreted as bleak. More on Carr's inner Eeyore in a moment.
Carr's treatment of the electricity metaphor is less than robust. "In contrast to the switch-over to electric utilities," he notes, "buyers don't face an all-or-nothing choice when it comes to computing."(117) Two immediate problems emerge. First of all, the invention of electrical distribution wasn't a switch-over: for most consumers, radio, television, and air conditioning were not "switchovers" from other tools but appeared sui generis, and the move from candles or oil lamps to light bulbs was more momentous than an economist's substitution. Secondly, people and enterprises often face real alternatives among utilities: ovens and clothes dryers and even air conditioners frequently run on gas, and furnaces run on oil or propane. Automobiles generate power off the grid; batteries store it.
The more important point here is that even though utility models allow capability to run through a pipe or wire, there remains considerable expertise in the construction of the appliances that run on the utility. But information, and information processing, differ substantially from electric current even though all three can run over networks; an information appliance may not compare neatly to a toaster. I think Carr is wrong, and focused on the technology rather than the information, when he asserts that "Business units and even individual employees will be able to control the processing of information directly, without the need for legions of technical specialists." (118) I suppose there is wiggle room, depending on how you define "legions," but the complexity of enterprise information -- its politics, accounting, and governance much more than its hardware du jour -- will not be eliminated any time soon.
Carr's overall point about information processing as a utility covers familiar ground, which is not to say he's off base: the scale of investment by major firms (from Amazon to Yahoo) in massive data centers is well worth contemplating and analyzing. The Big Switch he's talking about most passionately, however, is off the grid: regardless of the fate of corporate IT shops, utility computing is a Bad Thing for individuals. Consider:
-Privacy becomes obsolete:
"Soon, the World Wide Computer will know where we are and what we're doing at almost every instant of the day." (123)
-Inequality is amplified:
"[The Long Tail] is a vision of a world in which more and more of the wealth produced by markets is likely to be funneled to 'a small fraction' of particularly talented individuals." (147)
-Most people's jobs will lose meaning or even disappear:
"Computerization creates new work, but it's work that can be done by machines. People aren't necessary." (136)
-Great works of art will be marginalized:
"We may find that the culture of abundance being produced by the World Wide Computer is really just a culture of mediocrity - many miles wide but only a fraction of an inch deep." (157) and
"Two of the hopes most dear to the Internet optimists -- that the web will create a more bountiful culture and that it will promote greater harmony and understanding -- should be treated with skepticism. Cultural impoverishment and social fragmentation seem equally likely outcomes." (167)
-Evil will run rampant:
"There is reason to believe that our cybernetic meadow [itself the creation of "techno-utopians" like John Perry Barlow, who Carr implies are taken seriously] may be something less than a new Eden." (125) and
"The very qualities that make the World Wide Computer so useful to many -- its universality and its openness -- make it dangerous as well." (171)
-In the end, death is the last refuge for the inheritors of the Old Ways:
"The full power and consequence of a new technology are unleashed only when those who have grown up with it become adults and begin to push their outdated parents to the margins. As the older generations die, they take with them their knowledge of what was lost when the new technology arrived, and only the sense of what was gained remains." (233)
In relation to such a grim vision, it's not hard to position Shirky as a bit of a Tigger (something Carr does in his blog from time to time). Even his book's title -- Here Comes Everybody -- begs for an exclamation point. Inside, the stories cover much the same ground as Carr's:
-Amateurs can reach wide audiences and are eroding traditional business models, particularly for newspapers. (55 ff.) Shirky gives bloggers too much credit, however: for every story they uncover or refuse to let die, there are hundreds of traditional media postings that merely get linked or maybe piled onto in the blogosphere. Opinion, both informed and un-, is easy to find; news is a different story. Operating news bureaus is expensive, and writing hard or investigative news reliably and well difficult, so it's hard to imagine a world without professional reporters. That there will be fewer than there used to be, however, is not necessarily cause for alarm.
-Amateur publishing, formerly a contradiction in terms, is a function of the "scale-free" nature of the Internet: "the old habit of treating communications tools like the phone differently from broadcast tools like television no longer makes sense." (99) This in turn leads to the need for new filtering tools to allow people to cope with the glut of content. Shirky argues, not fully persuasively, that social filtering will address the need. For certain activities (he names hobbies), the crowd can definitely help. For others, the jury is still out. Holocaust deniers, Columbine re-enactors, and people ill at ease with modernity can find ample evidence (and audience) for their views regarding everything from the moon landing to climate change to black helicopters.
-These new communications tools make possible new sizes and types of social networks. These networks can organize and mobilize human knowledge to accomplish new things, both grand (Wikipedia) and small (organize a group dinner). Shirky's example of Voice of the Faithful (143-148), a Boston-based group of Catholic laypeople responding to the local diocese's treatment of pedophilic priests, is a strong point of the book. On the other hand, passionate hoards are sometimes just mobs -- it's difficult to see the output of sports talk radio and websites, to take one example, as Jeffersonian democracy incarnate.
-We are entering a phase in which the implications of modern technologies are playing out in deeper layers. On this, everyone here agrees: as Shirky states, "Communications tools don't get socially interesting until they get technologically boring." (105) There's an old saying that there's nothing so invisible as the familiar. Particularly for the generation currently about 30 and under (increasingly, a demographic independent of geography) cell phones, Facebook, Google, et al are as invisible as oxygen -- and typically as essential.
In contrast to Carr's conclusion which mourns (almost audibly) a lost golden era, Shirky's is upbeat: "Our social tools are improving our ability to share, cooperate, and act together." (304) This view could be construed as techno-utopianism, given that those same tools simultaneously improve people's ability to steal, to undermine, and to splinter. It resonates with me because like Shirky I work with students for whom the new modes are routine, and I don't yet see them pushing me, outdated, to the margins. In its optimism and communitarianism, not to mention its predicates, Shirky's conclusion sounds like a platform Tigger could heartily endorse.
In the end, I must make a plea for a both/and. New technologies make people neither more noble nor more depraved. It's equally true that, as Carr notes, terrorists use the Internet and that, as Shirky cites, eBay's tools allow strangers to trust each other sufficiently to transact sight unseen. For all the creativity and group genius to be found among hacker communities, it's just as easy to see sheep-like following: a recent study at the University at Buffalo found that young adults who watch lots of so-called reality TV carry the behavior of the show's characters into their "production" on social networking sites. According to one of the study's authors, "Promiscuous frienders may be reproducing the fame-seeking behavior that is modeled by reality TV characters." (http://www.buffalo.edu/news/9312) [For the full study, see Stefanone, Lackaff, and Rosen, "We're All Stars Now: Reality Television, Web 2.0, and Mediated Identities," Proceedings of ACM's Hypertext, Culture and Communication, June 2008 (forthcoming).]
Carrying on a rich tradition of argumentum ad antiquitatem (appeals to tradition), Carr is wrong to imply that because these technologies are new, they must be bad (and that previously prevalent behaviors, relationships, or arrangements were good simply because they were old). For his part, Shirky is generally more nuanced, acknowledging that all manner of changes -- "some good, some bad, most too complex to label" (14) -- are coming into play, affecting the people and institutions in which they are situated. More often than not, Shirky's narrative feels like an assertion that new forms of technologically-enabled social networks are here and that it's time to a) accept that fact, and b) start to understand some of those changes that are still "too complex to label." As an agenda, I find "we don't know yet" much more appealing than Carr's version of "our new digital destiny" (the book's original subtitle). I simply can't see evidence of a world in which the final promise of such exciting new technologies is for old people to await their end, left with only pre-digital memories to sustain them.
Clay Shirky, Here Comes Everybody: The Power of Organizing Without Organizations (New York: Penguin, 2008)
In many ways, Nick Carr and Clay Shirky are mirror images of each other. Carr attended and later worked at Harvard; Shirky graduated from Yale and teaches at NYU. Carr worked at Mercer Management Consulting, Shirky at a web startup. Both publish heavily visited blogs. Carr sits on the Encyclopedia Britannica editorial board; Shirky contributes to Wikipedia. Each published in "old media" earlier this year, their books appearing mere weeks apart. They address many of the same issues, but often draw different conclusions. In doing so, they situate themselves in a timeless dialogue about the nature and cost of technological progress.
Judging by the rapid sales of the book based on his "Last Lecture" at Carnegie Mellon, computer science professor and terminal cancer patient Randy Pausch has clearly struck a mass-market nerve. The book elaborates on the themes addressed in the lecture and in subsequent national television appearances, imparting life lessons from the perspective of a dying 47-year-old who will not watch his children mature, marry, or multiply. For our purposes, the key point of the book is Pausch's distinction between two kinds of people: Tiggers and Eeyores, based on the characters from the world of Winnie the Pooh.
Carr exhibits many traits of an Eeyore. After arguing that computing (via Google, Amazon web services, and other instances of "the World Wide Computer") has become a utility sharing many attributes with Edison's successful flavor of electricity, Carr shifts the book's focus. On page 110, he states that the consequences of grid/utility computing "are the subject of the rest of this book." After that point, the news is often interpreted as bleak. More on Carr's inner Eeyore in a moment.
Carr's treatment of the electricity metaphor is less than robust. "In contrast to the switch-over to electric utilities," he notes, "buyers don't face an all-or-nothing choice when it comes to computing."(117) Two immediate problems emerge. First of all, the invention of electrical distribution wasn't a switch-over: for most consumers, radio, television, and air conditioning were not "switchovers" from other tools but appeared sui generis, and the move from candles or oil lamps to light bulbs was more momentous than an economist's substitution. Secondly, people and enterprises often face real alternatives among utilities: ovens and clothes dryers and even air conditioners frequently run on gas, and furnaces run on oil or propane. Automobiles generate power off the grid; batteries store it.
The more important point here is that even though utility models allow capability to run through a pipe or wire, there remains considerable expertise in the construction of the appliances that run on the utility. But information, and information processing, differ substantially from electric current even though all three can run over networks; an information appliance may not compare neatly to a toaster. I think Carr is wrong, and focused on the technology rather than the information, when he asserts that "Business units and even individual employees will be able to control the processing of information directly, without the need for legions of technical specialists." (118) I suppose there is wiggle room, depending on how you define "legions," but the complexity of enterprise information -- its politics, accounting, and governance much more than its hardware du jour -- will not be eliminated any time soon.
Carr's overall point about information processing as a utility covers familiar ground, which is not to say he's off base: the scale of investment by major firms (from Amazon to Yahoo) in massive data centers is well worth contemplating and analyzing. The Big Switch he's talking about most passionately, however, is off the grid: regardless of the fate of corporate IT shops, utility computing is a Bad Thing for individuals. Consider:
-Privacy becomes obsolete:
"Soon, the World Wide Computer will know where we are and what we're doing at almost every instant of the day." (123)
-Inequality is amplified:
"[The Long Tail] is a vision of a world in which more and more of the wealth produced by markets is likely to be funneled to 'a small fraction' of particularly talented individuals." (147)
-Most people's jobs will lose meaning or even disappear:
"Computerization creates new work, but it's work that can be done by machines. People aren't necessary." (136)
-Great works of art will be marginalized:
"We may find that the culture of abundance being produced by the World Wide Computer is really just a culture of mediocrity - many miles wide but only a fraction of an inch deep." (157) and
"Two of the hopes most dear to the Internet optimists -- that the web will create a more bountiful culture and that it will promote greater harmony and understanding -- should be treated with skepticism. Cultural impoverishment and social fragmentation seem equally likely outcomes." (167)
-Evil will run rampant:
"There is reason to believe that our cybernetic meadow [itself the creation of "techno-utopians" like John Perry Barlow, who Carr implies are taken seriously] may be something less than a new Eden." (125) and
"The very qualities that make the World Wide Computer so useful to many -- its universality and its openness -- make it dangerous as well." (171)
-In the end, death is the last refuge for the inheritors of the Old Ways:
"The full power and consequence of a new technology are unleashed only when those who have grown up with it become adults and begin to push their outdated parents to the margins. As the older generations die, they take with them their knowledge of what was lost when the new technology arrived, and only the sense of what was gained remains." (233)
In relation to such a grim vision, it's not hard to position Shirky as a bit of a Tigger (something Carr does in his blog from time to time). Even his book's title -- Here Comes Everybody -- begs for an exclamation point. Inside, the stories cover much the same ground as Carr's:
-Amateurs can reach wide audiences and are eroding traditional business models, particularly for newspapers. (55 ff.) Shirky gives bloggers too much credit, however: for every story they uncover or refuse to let die, there are hundreds of traditional media postings that merely get linked or maybe piled onto in the blogosphere. Opinion, both informed and un-, is easy to find; news is a different story. Operating news bureaus is expensive, and writing hard or investigative news reliably and well difficult, so it's hard to imagine a world without professional reporters. That there will be fewer than there used to be, however, is not necessarily cause for alarm.
-Amateur publishing, formerly a contradiction in terms, is a function of the "scale-free" nature of the Internet: "the old habit of treating communications tools like the phone differently from broadcast tools like television no longer makes sense." (99) This in turn leads to the need for new filtering tools to allow people to cope with the glut of content. Shirky argues, not fully persuasively, that social filtering will address the need. For certain activities (he names hobbies), the crowd can definitely help. For others, the jury is still out. Holocaust deniers, Columbine re-enactors, and people ill at ease with modernity can find ample evidence (and audience) for their views regarding everything from the moon landing to climate change to black helicopters.
-These new communications tools make possible new sizes and types of social networks. These networks can organize and mobilize human knowledge to accomplish new things, both grand (Wikipedia) and small (organize a group dinner). Shirky's example of Voice of the Faithful (143-148), a Boston-based group of Catholic laypeople responding to the local diocese's treatment of pedophilic priests, is a strong point of the book. On the other hand, passionate hoards are sometimes just mobs -- it's difficult to see the output of sports talk radio and websites, to take one example, as Jeffersonian democracy incarnate.
-We are entering a phase in which the implications of modern technologies are playing out in deeper layers. On this, everyone here agrees: as Shirky states, "Communications tools don't get socially interesting until they get technologically boring." (105) There's an old saying that there's nothing so invisible as the familiar. Particularly for the generation currently about 30 and under (increasingly, a demographic independent of geography) cell phones, Facebook, Google, et al are as invisible as oxygen -- and typically as essential.
In contrast to Carr's conclusion which mourns (almost audibly) a lost golden era, Shirky's is upbeat: "Our social tools are improving our ability to share, cooperate, and act together." (304) This view could be construed as techno-utopianism, given that those same tools simultaneously improve people's ability to steal, to undermine, and to splinter. It resonates with me because like Shirky I work with students for whom the new modes are routine, and I don't yet see them pushing me, outdated, to the margins. In its optimism and communitarianism, not to mention its predicates, Shirky's conclusion sounds like a platform Tigger could heartily endorse.
In the end, I must make a plea for a both/and. New technologies make people neither more noble nor more depraved. It's equally true that, as Carr notes, terrorists use the Internet and that, as Shirky cites, eBay's tools allow strangers to trust each other sufficiently to transact sight unseen. For all the creativity and group genius to be found among hacker communities, it's just as easy to see sheep-like following: a recent study at the University at Buffalo found that young adults who watch lots of so-called reality TV carry the behavior of the show's characters into their "production" on social networking sites. According to one of the study's authors, "Promiscuous frienders may be reproducing the fame-seeking behavior that is modeled by reality TV characters." (http://www.buffalo.edu/news/9312) [For the full study, see Stefanone, Lackaff, and Rosen, "We're All Stars Now: Reality Television, Web 2.0, and Mediated Identities," Proceedings of ACM's Hypertext, Culture and Communication, June 2008 (forthcoming).]
Carrying on a rich tradition of argumentum ad antiquitatem (appeals to tradition), Carr is wrong to imply that because these technologies are new, they must be bad (and that previously prevalent behaviors, relationships, or arrangements were good simply because they were old). For his part, Shirky is generally more nuanced, acknowledging that all manner of changes -- "some good, some bad, most too complex to label" (14) -- are coming into play, affecting the people and institutions in which they are situated. More often than not, Shirky's narrative feels like an assertion that new forms of technologically-enabled social networks are here and that it's time to a) accept that fact, and b) start to understand some of those changes that are still "too complex to label." As an agenda, I find "we don't know yet" much more appealing than Carr's version of "our new digital destiny" (the book's original subtitle). I simply can't see evidence of a world in which the final promise of such exciting new technologies is for old people to await their end, left with only pre-digital memories to sustain them.
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