Futurology Meets Professional Sports

Of all the things that I find interesting, it is the one about forecasting trends and trying to imagine the future that is most fascinating to me even if I find that most of its has dubious value. This is because there are many instances of imagined effects of technology and their applications but the development of technology tends to take unprecedented and unimaginable turns with every generation. However, this reading on the forecasts by futurologists has led me to make a connection to this article about a professional sportsman's painful experience.

On the one hand, the UK government's Department for Business, Innovation and Skills spent some public money and asked futurologists to imagine what will emerge from cutting edge technology. The report says that the report was meant to determine the shape of jobs to come and would be laughable if not for the serious implications that it suggests for trade in replaceable limbs. I do not think that any government should spend any sum to come up with the fact that there will definitely be fewer butchers on a per-capita basis in the next generation.

Tracing developments in nano-technology and the advancements in understanding of anatomy, the forecasts suggest that scientists are developing technology that will allow for the replacement of limbs in their entirety. Despite my hesitation in betting against science, I am doubtful that the supply of these limbs would be available in quantities and costs that would make them available for a majority immediately.

The two separate stories are connected by the fact that Rafael Nadal, no doubt a top tennis player retired from a match on account of unbearable pain on his knees. Media reports suggests that his trouble throughout last year with his knees is the result of his style of play which makes him particularly vulnerable to joint damage. Casual prognosis suggests that his high-tempo style means that his knees will get weaker and that his professional career may be substantially shortened. It is clear that an athlete of this level, and one who would hardly lose to Andy Murray on a trouble-free day would be on the demand side for replaceable limbs. So I see clearly that the demand perhaps exists but I am sure that it will remain a niche area for at least another generation. That is unless the science has gone much further ahead than I am aware of and the economics of it means that limbs will be cheaper than I imagine. Rafael Nadal may just have to avoid hard courts for the time being.

Differentiating Democratic and Republican Populists

"Ever since I started covering politics, the Democratic ruling class has been driven by one fantasy: that voters will get so furious at people with M.B.A.’s that they will hand power to people with Ph.D.’s. The Republican ruling class has been driven by the fantasy that voters will get so furious at people with Ph.D.’s that they will hand power to people with M.B.A.’s." David Brooks

When Design Undermines Function

I took time during the Christmas holidays to read Simplexity by Jeffrey Kluger upon the recommendation of a good friend. The book holds a series of different articles arguing that simplicity and complexity are not as straightforward as is conventionally held. Reading this article by Alice Rawsthorne in the NYT has reminded me about one of the chapters that posited an explanation for the increasing complexity in electronic gadgets.

As that story illustrates, the increased tendency to design digital functionality in many ordinary gadgets has made them almost incapable of common use. I would ask that what does it benefit a person to purchase and install a faucet so sophisticated that it requires an Internet search to turn off? It appears that designers are opting for sophisticated gadgets as a primary factor and thereby delegating to second choice the question of function. Other gadgets that are getting unnecessarily complicated are the common household entertainment gadgets which have a plethora of inbuilt functions that are rarely used.

As the book suggests, the greater driver of the digitization euphoria comes from the fact that most of the software designers are designing for themselves. They forget that a majority of people want good looking things but do not wish to have to refer to a 300-page manual to install and watch their Plasma screen. There's no doubt that programmers are smart people but there's no reason to show off with my Plasma TV or mobile phone.

Bank Tax is Sensible Policy

In my thinking about regulatory policy, I have maintained that unless the purpose for regulation is consistent with the chosen instrument, then it may help not to regulate at all. With this fairly abstract factor in mind, I have wondered whether the recent intention to levy a special tax on the largest banking institutions in the US is sound policy or not. As is bound to happen increasingly, response to this initiative has been rather predictable. The bankers are arguing that imposition of a special tax would impair banking operations unnecessarily while a majority of the supporters of the special tax retort that the all-round economic pain should be shared with the banks since they have regained profitability. On the basis of what is argued in most opinion pieces, one cannot find insight except to see the ideological orientation and the prejudices rehashed.

While I avoid quoting blog pieces, I found Gregory Mankiw's explanation here for support of the piece as extremely well considered and justifiable. David Stockman, writing in the NYT also dissects the issue with a very clear idea of the dynamics of the credit markets and the failures in monetary policy that have not been fixed thus far. I am therefore persuaded by the concise arguments by both gentlemen.

Like Mankiw, I am uncomfortable with the populism that accompanies the arguments for this policy but it is clear that not all instances of financial creativity in Wall Street are useful for the economy. Instead, these are merely stunts that result in movement of money in circles but do not result in better allocation of capital. So prof. Mankiw argues correctly that it is a principle of economics that taxation of a good reduces the overall amount that is produced hence the levy will in probability cut off some of that activity. This tax also serves to restrain some banking activity that would cause further instability especially because the signalling has confirmed that very large banks will not be allowed to fail. And so having accepted the bail out, then bankers should take the full dose that goes with assurance of public support in the future. So the populist rhetoric aside and considering the subsidy that redistributed income from tax payers towards the industry, it is clear that this modest levy of 0.15% on the debts is modest even if it affects the more cautious firms that were not highly leveraged too.

Avatar is A Lesson in Economics

I have recently developed an interest in designing predictive models for important economic and business uses and intend to take a course on statistics and its applications once again. With this background and having watched the movie Avatar, I find articles such as this by Sarah Ball interesting and also of some concern. Since I read about the details of this movie, I have had a strong hunch that it would be quite successful though I could not guess what the box office figures would be. In spite of that inability, I am concerned that Sarah Ball proceeds to compare the two movies in terms of the nominal figures. To her credit, the article clearly states that the figures under comparison have not been adjusted for inflation but then goes ahead to ask whether an extra US$ 800 million of ticket sales is possible.

It is incontrovertible that every journalist must present pieces in a way that meets editorial policy and that is most easily understood by their readers. My view is that given the tendency for many professionals to substitute conventional wisdom for sound economic reasoning, the success of a movie like Avatar would present an ideal opportunity to teach readers about the time value of money. In essence, the opportunity is here to introduce the idea about inflation into the discussion without harming the comparison of the two blockbusters that many movie goers enjoyed. I have argued before that comparing a billion dollars across ten years without adjustment for inflation tells one nothing.

Political Risk and Investment in African Land

Reading this story in the Guardian, I am reminded of the fact that Africa has enormous resources in land and yet it is the continent that most advertises its problems with feeding its people. Recently, a number of corporations have sought to enter into long-term leases with African governments to bring land into more intense farming and thereby increase food production for local consumption with the possibility of exports. In the story referred to above, a number of farms are concluding leases of up to a couple of generations with the Ethiopian government in order to plant cereals for domestic and regional markets. It is clear to me that given the fairly intense farming methods that will be introduced in those areas, the farms will be very productive and the investing firms will be able to bring a lot of produce to markets thereby making enormous profits.

An earlier blog post here addressed a similar investment in the western part of Kenya and confirms the view expressed by the author of the story that many such deals are being pursued on the continent. A number of the land leases have raised concerns especially because they were meant entirely to generate food for export to the Asian countries. To my mind, the quest to expand agricultural productivity in Africa has been longstanding and the principle of investment based on factor abundance is altogether sound and worthy of support.

The one point of concern and which betrays serious naivette on the part of the managers and owners of the overwhelmingly foreign firms is the political risks that appertain to these long term leases involving land. First, it is worthy of taking into account that most of Africa is not governed by particularly transparent and democratic governments. So the leases will be seen as concluded with foreigners entirely at the behest of government and to the disadvantage of the local people. Secondly, these long-term leases involve a critical issue of land ownership which in most of these countries is a very highly politicized matter. A long-term lease of up to 80 years is almost certain to be interpreted by opportunistic politicians as an outright sale. Finally, in the quest to attract these investments, these governments that have bad reputations for corruption have negotiated lease agreements on absurdly cheap rates. Since most of these rates are nominally fixed, it is clear that because of the inflation endemic in these countries, they will in turn be ridiculously small while the profit of these firms will be rising.

The confluence of these factors suggests that most of these firms will increasingly rely on government protection or repression to ensure that the citizens of these countries do not violate their rights to the leased property. Indeed, whether there is improved public consultation or not, the population pressure and absence of other opportunities will lead to intense and nationalistic demands for surrender of the land. One would think that these firms should tread cautiously because whereas they are entitled to negotiate the best terms for themselves, that does not mean that those leases will be perpetually respected as representing fair deals.

Will Google Leave China?

I confirm that I am one of those who has been implacable about Google's decision to accept the compromise of its pure search engine by adjusting it in order to make China's politicians comfortable and thereby gain entry into that country. To start with, this flexibility displayed a betrayal of Google's longstanding and declared principles so that it may have a chance to introduce a dedicated search engine in that large market. With that background, I was quite pleasantly surprised to learn that in a statement issued on the official Google blog here, Google declared that it intended to adopt a new approach to China. The genesis of this rethink relates to a serious of stealth attacks on its corporate servers and the loss of unspecified intellectual property. Of equally great concern is the fact that the privacy of some Gmail users was compromised by persons in China. the seriousness of this public information is the statement towards the end that Google China will shortly cease to censor any searches conducted through the service and that it would shut down Goggle.cn if an amicable settlement with the government does not obtain.

As a starting point, I would think that Google and China are examples of how small corporations and a large country could build deserved success by doing things sensibly and obeying a number of laws that respect markets. However, in the approach to freedom, it is clear to me that in spite of its success, China could do a lot more to expand individual freedom to complement the many things that it has done right over three decades.

Many cynics see Google's uniquely bold action as a desperate move for a corporation that is leader in search almost everywhere save in China. I think that this reasoning is a rather naive because even a second place in a fast growing China is still a good position for Google. While I am disappointed with the political risk analysis that Google received in trying a failed placatory approach, it is important to note that Google seems to think that as business with a commitment to some ethics, it may still withdraw and forgo the market even in a large economy as China's. While I hope but would not bet that Chinese leaders would consider this issue clearly, I am obliged to agree with Nicholas Kristof that Google's exit would be China's loss in the long term. To my mind, it would reflect the fact that China's leaders are frightened by the fact that its citizens may use Gmail and the search engine. That would not provide confidence for managing an increasingly growing and complex society.

Walmart Expansion is Good for Low Income Countries

A successful corporation tends to have detractors with genuine and less justifiable complains about its business practices and other internal policies. Among the several corporations that have a committed set of detractors is Walmart, which is most often attacked for driving prices low through its bulk purchases and for its enduring reluctance to allow its employees to join trade unions. In spite of this, I maintain that Walmart has a superior business model and its success is based on the many things that it does extremely well. Andrew Clark of the Guardian provides a narrative here of a corporation managing its business extremely well and responding to inevitable setbacks intelligently. Most interestingly, Walmart is seen as trying to expand outside the US stealthily to avoid undue attention and resistance.

I have always considered that for all the successes of Google as a universal search and advert corporation, the one corporation whose benefits are acutely required in developing countries is Walmart. My argument is based on the demonstrated ability of Walmart to ensure that its customers are able to get the most competitive prices for their money. So given the levels of poverty in substantial portions of Africa, Asia and South America, Walmart would be on the list of corporations target by governments seeking investments. And yet it is clear that many governments seeking investment would be looking for corporations that would seek extensive tax waivers and merely invest in extractive industries.

The introduction of mass retailing in developing countries would be useful for Walmart because the Chinese goods that it so successfully sells are also becoming available in African urban areas. One should not fail to notice that Chinese merchandise exporters have to rely significantly on the warehousing and logistics that Walmart has built in order to maintain their competitiveness in many markets. In this way, Walmart is enabling Chinese corporate success while also making profits for its owners and providing goods that households use. Admittedly, some of the suppliers in China have treated workers poorly and even filed false returns on payments made to their employees, it does not take away the fact that the keen attention to prices is essential for low income households. It is also clear that the violations are not the result of Walmart's policy but occur because of poor enforcement of regulations in China and other countries.

How to Defy the Terrorist

No doubt it is worthy of stating again that I think that the bunch of killers who hide in mountain caves and come out once in a while to announce that they have succeeded in killing multitudes of people deserve nothing but contempt for their cowardice. What the rest of society forgets is that our reaction determined to a large extent whether such people and their followers remain as heroes or are successfully defied. This discussion is relevant following the attempt by another terrorist to blow up a passenger airliner.

True to its reputation as a broken political system, politicians in the US led with all manner of overstatement about failures that hand over the initiative to terrorists. I find that Fareed Zakaria's piece in the Washington Post here is required reading for every person who understands the purpose and objective of the cave-dwelling cowards.

My own small chance of defying terror came about when i chose to make a trip to India in December 2008 right after the Mumbai killings partly summarized on Wikipedia. As the resident of a totally different continent, I figured that the deaths had occurred but the best way to deflate the euphoria among the killers is not to change travel plans that involved going to New Delhi through Mumbai. This does not make me particularly brave but at least I refused to be terrorized by a small-minded man attempting to alter my plans through public terror.

The Predictable Fate of Kibbutzim

In a blog post not long ago, I commended the enormous strides in economic growth that Israel has made through cutting edge innovation and formation of firms that create technology. In fairness, while applauding the lessons that Israel's development miracle implied, one should have mentioned the anachronism inherent in its Kibbutz settlements. In an article in the Israeli paper Haaretz here, it is reported that the Kibbutizm system has finally collapsed in spite of great subvention from over at least three decades.

Omer Moav, a professor of economics explains that most of the Kibbutz were doomed to failure because they failed to account for individual quest for advancement. So while they provided security and stable social structures, they suffered a natural erosion by the departure of younger members. Over time, it was palpable that in spite of the ideological inclination that some may have held, the collapse of the socialist system before their eyes was the irrefutable signal of the need to change. If only those who bear political influence could be easily persuaded by empirical evidence!

Google Launches the Nexus One

The preceding blog post was a summary of some of the most impressive achievements about the Google corporation and one thing that it emphasized is the fact that this corporation has managed to do several things very well. I also alluded to the fact that in spite of its main product being a search engine, the majority of its profits are generated from leveraging that product to generated advertising revenue. Google yesterday launched a smart phone by the brand name Nexus who technical specifications are available here.

While the launch of a smart phone has been expected, the product reviews here and here suggest that while it is a sleek product, it is not as much of an industry changer as the iPod has been. What the reviews note is that the physical object itself is well-designed and will probably sell in good numbers but is unlikely to overhaul the iPhone. Indeed, the story in the NYT confirms that the Google still considers itself principally as an advertisement corporation but would like to advance the use of its Android phone software.

My prediction is that the Nexus will indeed sell in good numbers and that Google's primary purpose is not necessarily to be a major manufacturer of handsets but that it aims to place the Android in competition with other software that power mobile phones. If this is true, then that very sleek and expensive gadget is merely a delivery vehicle for that software. It is also interesting to see the choices that Google has made in terms of the sale of the gadget. It has failed to conform to the trend by availing the option for the purchase of the phone on its own as opposed to the traditional tie-ups with specified service providers that most smart phone firms have required in the US and major markets.

This is smart strategy proving that Google's managers are literate in the subject of economics because they have opted to sell only the gadget without compelling the buyer to take up a predetermined service provider. As a result, the choice of the service provider is left to the person who will pay for the product and thus circumvented the requirement that limits entry for other networks.

Google's Decade

Fortune Magazine dedicated the cover of its magazine a couple of months ago to Steve Jobs and rightly named him as the CEO of the past decade. As a person who uses a small number of Apple's products, I think that that was not an exaggeration. Unlike most CEOs it is clear that Steve Jobs understands much better what to offer to consumers than many of his peers. While Steve Jobs won hands down as the CEO of the decade, I am convinced that the large corporation of the last decade has to be Google. The phenomenal growth of the corporation aside, I am impressed with the Google corporation because it reminds me of the fact that ideas matter enormously.

Unlike many of those who regard Google as either too dominant or utterly flawless, I give this corporation credit for defining precisely what the business model for the Internet will be like. In tracing its emergence and its technology innovations, Chris Thompson highlights the number of decisive ways in which Google changed Internet commerce through offering a new product and focusing on the utility of their products. It appears that products that work very well provide ample scope for profits. However, I do not think that the report is accurate in attributing the demise of newspapers to Google though and think that it is more accurate to state that Google proved that their business model was completely outdated.

Besides having made searching the Internet fairly easy, I am most impressed with the idea that makes it clear that as much of the world's information should be made available for people to search. That is the scale of ambition that could not be drawn up by an ordinary entrepreneur. It is that kind of thinking that gives me confidence that Google will still be a major corporation for a while longer. To me, Google has also proved that modern corporations cannot be defined by 20th century industry language for its most highly used product is provided at no cost and yet it is still very profitable.

Again, I found the mechanism that its founders chose for allocating its shares to the public really fascinating. By allocating its shares during the IPO through an auction, the price was derived from the structure of demand. Google seemed to bring lessons of applied economics to the fore. And as one can tell, they did pretty well in allocating the shares in accordance with the demand. A successful corporation in this age has to do several things exceedingly well.