Failed states are great for the Chinese economy
by Eric Garland
Go to your newsstand and pick up a copy of Foreign Policy magazine’s July/August 201o issue entitled “The Committee to Destroy the World.” It’s a fascinating, broad analysis of all those countries who don’t play by the rules set out by industrial powerhouses – and why they don’t. If you sweat about the failure of American pension funds, Icelandic treasury bills, or German austerity, then cast also an eye toward North Korea, Zimbabwe and Iran for contrast.
One particular item of interest – failed states aren’t all bad, according to the magazine. They make for cheap and pliable partners for China when it comes to natural resources. We reported on this trend back in 2007 with our STEEP Report series, how China’s massive investment in infrastructure requires a broad range of partners, most of whom then become warmer to the rest of the Middle Kingdom’s strategic goals.
Click on the image for a map of China’s investments in natural resources.
Google Chrome OS: The last few 20th century business models break down
by Eric Garland
So Google is coming out with its own operating system, which shouldn’t really surprise anyone. It will likely be lightweight, simple, cool and functional like pretty much everything they do. And also evident is the fact that Microsoft should now be hyperventilating, as this development takes direct aim at its aging business model while also pointing at the future of computing.
Google is now threatening to bust the trust owned by the world’s richest man. You may remember a fantatastic, precient essay by Neal Stephenson entitled “In the Beginning Was the Command Line,” in which the author of Cryptonomicon and Snow Crash pointed out the near absurdity that the world’s wealthiest businessman made his money selling operating systems, as opposed to chemicals or railroads or minerals or something real and industrial. The untold riches in the production of user interfaces really did seem surreal at the time.
If you think about it, though, their business model was strikingly industrial in the Henry Ford, mass market vein. In the Golden Age of Microsoft, computers all hungered for standardization and interoperability if they were to function as something other than an electric paper weight. Whoever could forge that infrastructure could make stupid amounts of money – not unlike the railroad or the telephone. Not only did the infrastructure model pay off for Microsoft, they also harnessed Henry Ford’s mass production model, shipping out millions of individual boxes of “software” to individual users about the globe. It “scaled up” but at massive profit to the manufacturer.
And now you can officially say the 20th century is over. Even Microsoft, a digital age company, has succumbed to the new business models of the future. Google’s new operating system is harnessing all the aspects of the next generation business model. Google OS will be free, perfect for a variety of small, light devices intended to access the internet and cloud-based services. It’s not that you won’t be able to run Microsoft’s operating system and software tools – it’s just that they will no longer be the only game in town. Their competition will need to come from innovation, customization, and service rather than size, exclusivity, and scarcity that stems from limited technologies.
Record companies have learned this the hard way.
Newspapers are learning this the hard way.
Telecom is learning this the hard way.
No doubt, large and unwieldy, Microsoft will learn it the hard way as well.
Now…what about your industry? What will it need to learn? And will you be proactive, or will you be happier learning it the hard way?
Obama tests Keynesian economics in 2009 – new hotness, or old and busted?
by Eric Garland
I thoroughly enjoyed the NPR segment yesterday entitled “Obama tests Keynes” in which a couple of young guys dig into the often-bewildering rhetoric of the economic stimulus package. Funny, relevant, and worth a listen.
It’s important that in this case it’s young journalists taking a fresh approach to the economic arguments of Baby Boomers. I don’t think the Boomers at the head of our institutions often recognize that the political ideologies discussed were born long before we arrived on the scene, and often have no connection to reality for Gen X & Y. The snarkiness between taxcutters and economic stimulators often generates as much deep-seated passion as comments about “Hanoi Jane” Fonda – it’s a reference to a fight that started well before our births, and may need minutes of explanation to even make sense.
Case in point: the radio program deals primarily with the multi-decade conflict between Keynesians, who believe that well-timed government spending can save flagging economies, and market fundamentalists who belief that the entire economy can be managed through tax cuts and manipulation of the interest rate. The Keynesians protest, “government spending led to winning World War II and got us out of the Depression!” Market fundamentalists tend to argue that the slump of the 1970s proved that it’s not a cure-all – and that only deregulation, tax cuts, and Greenspan’s masterful operation of the interest rates saved us from big government stagnation.
The radio program concludes by saying that after all the discussion about this once-in-a-lifetime event, the Obama plan is basically pure Keynesian economics. After this, we’ll be able to see once and for all if it works or if we were imagining it the 1940s. The exciting bit is, this may be the first verifiable test of classical economics!
This kind of thing makes me insane.
Here we are, heading straight into the meaty part of the 21st century, experiencing an economic emergency that could only be created by a combination of today’s special mix of globalization, Internet, post-hegemonic power vacuum, unchecked assumptions, and 6.8 billion people at an unprecedented moment in history. And the only topics our elites can discuss is:
“So should we spend a lot of money on credit or fool around with the interest rate?”
Every day, people wake up and turn on the television or radio or Web site of their choice and begin worrying about a select group of numbers that are forced at them daily. We hear these measures so often, people are mistaking them for important or relevant.
- The Dow Jones Industrial Average – a collective of large-cap equities, and the prices that Wall Street gamblers are willing to pay that day to take part in their eventual earnings
- Housing starts – the number of new suburban homes under construction, with the assumption that all human housing should eventually stretch to the planet Mars
- Consumer spending – The amount people spend on Guitar Hero and couches and other goods for their new suburban homes
- Interest rates – The rate at which money can be borrowed from banks to the Federal Reserve, to other banks, to people, through credit, through…oh cripes I have a master’s degree and still don’t really get it. Suffice it to say that the interest rate policy appears as logical as Aztec shamanism, and about as transparent as the election of the Pope
- Stimulus packages – The amount of fake money spent on real things, supposedly to be paid – with interest! – by future generations, who will repay this through all the fantastic, super-paying jobs that are right around the corner…so…uh…just let us retire in peace, um, and keep paying your taxes…
We follow these things excessively, and to the untrained eye, they don’t seem to be leading to better management of the world economy. In fact, the world has been managed exclusively through these kinds of measures, and our policymakers are stuck arguing on the radio about whether KEYNES got us out of the GREAT DEPRESSION using these numbers.
GUYS – CAN WE TALK ABOUT THE NEW STUFF HAPPENING?
U.S. manufacturing now resides in China. Our kids are in debt. The Internet is making new companies possible and other companies obsolete. Science and technology is rolling onward. This is probably just another phase of Kondratieff cycles or Schumpeterian creative destruction. We’re looking at a huge change of management between the Boomers and Gen X. The Boomers are going to start going to the doctor a LOT and will crush the private healthcare system. Mass media is about to go extinct. Europe is out of kids, while the average age of Iran in 24.
Now, how is it that the argument can still be down to deficit spending versus interest rate policy?
Here’s some new measure to try out on the TeeVee, just to inject a bit of new debate into the public sphere:
- The Gig Rate: Measure the percentage of people who just graduated with expensive student loans and got a job that pays for rent, food, and debt repayment
- The Grandma/Doctor Ratio: Percentage of grandmothers able to get to their doctors appointments as scheduled, not left at home, letting their prescriptions go out of date, because they can’t get transportation
- The Ebay Entrepreneur Stat: Number of cash flow-positive home-based jobs created through Internet technologies, allowing people to make money and still raise their kids
- The Youth Diabetes Drop: Number of young people diagnosed with Type II diabetes mellitus able to reverse their disease through diet and exercise, thus saving society billions in the long-run
- The Volunteer Volume: Number of people financially secure enough in their lives to donate time to a local charity, improving their communities at no cost to taxpayers
- The Revitalization Rate: Dollars generated through the repair of our natural and built environments, from wetland and waterways to city centers and school districts, creating economic prosperity while giving future generations even more opportunity
I don’t care if you use these – invent your own. Find a way of discussing economic prosperity in a way that doesn’t use these same, tired, busted statistics.
It’s time to leave John Maynard Keynes where he was: a Cambridge elitist who bounced around the London dinner party circuit, hating the working class and delivering all kinds of new, interesting ideas just for shock value. I think he’d be sorely disappointed in us if he thought that in 2009 we hadn’t moved past him, despite having gone to the moon, defeating communism, and inventing about 1000 new world changing technologies.
KEEP THINKING.
Interview for Korea’s KRX Magazine: Small, smart companies and more
by Eric Garland
With the release of Future, Inc. in Korean and Chinese, I’ve had the great opportunity to do interviews with Asian business magazines. I find that they ask more interesting, more insightful questions than many of their Western counterparts, so they are often fun interviews. The only problem is, once they are translated, I have NO IDEA what they said.
I just finished an interview with Korea’s KRX Magazine, which covers the Korean stock market and business in general, and I decided to post the whole text in English, so someone can appreciate it.
The questions:
Companies have hard time in business due to the global financial crisis. What new trends can we look for?
The most important trend is away from the philosophy of growth at all costs. For years, particularly in the United States, management has followed a typical playbook – get big, quickly, through borrowing money from private venture capital or public offerings. Then, you can go national or international, reaching bigger markets and gaining leverage over vendors and distributors. Once you have leverage over vendors and distributors, you cut costs by firing excess employees and force downward price pressure on the market. With the extra cash from operating expenses, you buy more national or international companies. For around forty years companies have repeated this formula.
The theme here was BIG BIG BIG. The problem with “big” is that it sometimes comes at the expense of “smart.”
Has American gotten used to failing infrastructure?
Roger McNamee has started an interesting polemic at Huffington Post this morning entitled Obama Needs to Think Bigger About Infrastructure.
His main point is that just dumping $750 billion in cash (borrowed cash, ahem) into the American economy isn’t as likely to improve the long-term economy as a strategic approach to strengthening the infrastructure we want to drive whatever business in which we specialize next – technology, manufacturing, mindless entertainment or other.
But I’m particularly struck by his observation that Americans have gotten quite used to failed infrastructure, a nihilistic attitude more common to people in the Third World. His thought:
When I was a kid, there was an ice storm in the Northeast that knocked out the power for a few days and the nation was shocked. A few weeks ago, a similar storm knocked the power out in some New England communities for more than a week and hardly anyone noticed. Why? Because the country has gotten used to the fact that things don’t work very well.
Meanwhile, China is spending 9% of its GDP on infrastructure.
About Eric Garland
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