Is GDP really a good measure?

The World Economic Forum had an interesting video about the downfalls of using GDP.

The standard economic model based on “growth” is outdated and massively flawed. This is a topic for a lengthy debate but GDP per capita and median income are already much better metrics to determine the health of an economy. Debt, disposable income and skill base would be used for the next level of analysis.

Growth per se cannot lead to conclusion of societal improvements or development. For like an access to financing per se cannot be enough for it take the right allocation of that capital, it is the sense given to growth that is critical and this is the fact of a retrospective judgement growth per se cannot provide.

However, it is not so much that GDP is a flawed indicator. The problem resides in the fact that it has often been promoted as the sole measure of societies’ well-being – which it was not designed to do. As Simon Kuznets pointed out: “Distinctions must be kept in mind between quantity and quality of growth, between its costs and return, and between the short and the long run… “Goals for ‘more’ growth should specify more growth of what, and for what”. (The New Republic [1962])

GDP still has its place but only in complement with other measures which cover other social and well-being dimensions of societies. It’s a good objective measure for what it is. It’s not perfect. But what is?

Economic and Environmental Analysis of Tradable Permits

The following is an analysis comparing and contrasting the cases of tradable permits in theory and reality in terms of historical and theoretical backgrounds, geographical areas, distribution of permits, goals, the size of the project, involved players, the amount of financing in accordance with costs, effectiveness, efficiency and uncertainty.

The main idea of tradable permits is to create private and transferable property rights to pollute and to create an incentive to reduce emissions in a market system. Tradable permits were introduced to confront and deal with large scale environmental issues such as air or water pollution and CO2 emissions as a result of the greenhouse effect, mainly due to the economic activities of production and consumption, which is a world-wide scale environmental concern. Environmental issues are closely related to negative externalities that are the activities of one party make another worse off without paying the costs of doing the activities outside the market and price mechanism. It is based on the tragedy of commons which include extraction of natural resources such as over-fishing, over-grassing, logging of rain forests, and so on. Such open access natural resources are rivalry and non-excludable from using them which ultimately leads to depletion of those resources and furthermore, environmental damages. Hence, the fundamental goal of tradable permits, as a market mechanism, was to solve the environmental problems by firms or consumers, the polluters, receiving or buying permits from government.

The remarkable feature of tradable permits is that firms could transfer entitlement and right to pollute. Tradable permits are well-known for its effectiveness and efficiency. It is effective because the quantity of pollution is limited which is targeted and set by environmental policy so if one firm needed additional emissions, it would have to buy existing permits from another in the trading market and this another firm would have to decrease accordingly. Some firms can reduce their emissions at lower costs than others that cost much higher to reduce emissions. Thus, those with lower costs would sell permits to those with higher costs, and such practice of trading permits will ultimately lead to reallocation and reduction of emissions, having the total costs of emission reduction minimized. The graphs below show graphically that how optimal amount of pollution, abatement and costs are different among firms.

pollution abatement 1 pollution abatement 2

It is first initiated by government but this fact would not carry significant impacts because, once it has been initiated, it becomes a market instrument so its transfer and price highly depend on demand and supply in the tradable permit market. A government plays an important role when it comes to set a cap by determining the total amount of allowed emission which is based on the historical data or previous years. It seems that tradable permits have been developed in a relative short time and have become popular and pervasive across the world, being supported, recognized and encouraged to practice by economic/environmental organizations and many nations due to its effectiveness and efficiency.

Unlike the carbon/energy tax which easily invokes strong opponents and conflicts, tradable permits have become popular because it does not put much pressure on paying more taxes due to industrial emissions or require the exiting tax structure to change. According to Koutstaal and Nentjes (1995), tradable permits in environmental economic policy were developed by Dales in 1968 but the very fundamental concept has a longer history of trading coupons among consumers in the system of allotting production. It was already started throughout and after the Second World War because people suffered from famine and scarcity of resources and then first practiced for air pollutants through the Environmental Protection Agency (EPA) in the USA from 1975. Especially fisheries, which are known as open access resources have suffered from negative externalities for a long period of history. So, New Zealand which has one of the largest markets for fishing has established an individual transferable quota system to overcome the managerial problems under command and control regulations of season length, areas that are open to fishing, the size of vessels, etc. because such regulations failed to check all the details – administrative uncertainties, ultimately jeopardizing fish stocks. Again, the unique feature in the individual transferable quota system is that the involved firms are able to purchase, sell and trade quotas which are determined by the market to achieve efficiency.

The EU emission trading system is based on the idea that global warming and climate changes are due to human economic activities that causes emissions creating greenhouse gases so the system puts a limit on the quantity of emissions and allows companies to trade emissions allowances as needed, giving some flexibility to achieve the most cost-effectiveness. The extension of the system is quite large covering more than 11,000 power stations and manufacturing plant, including 28 EU member states, Iceland, Liechtenstein and Norway, limiting 45% of total EU emissions by the system, inspiring other parts of the world. The goal of the EU emission trading system is to lower the greenhouse gas emission by 21% in 2020 compared to 2005 by reducing 1.74% each year. Therefore, by 2050, it will be reduced by 80-95% compared to 1990 levels. Companies have cost-effective options in dealing with reduction in their emissions: investment in efficient technology; use of less carbon-intensive sources; purchase of extra allowances on the market – trading permit; any combination of the options to pursue the most efficient way.

The trading system covers the carbon-use and energy-intensive industries including oil refineries, steel words and production of iron, aluminum, metals, cement, glass, ceramic, paper, cardboard, acids and bulk organic chemicals that emit such as carbon dioxide, nitrous oxide or perfluorocarbons. There are mainly two options of distributing permits/allowances. One of them is known as grandfathering which is to provide permits to pollute for free based on the historical records to the existing firms from the government. So, the firms can save their costs and raise profit since they only have to pay for additional pollution.

This leads to the second option which is auctioning. For the additional amount of pollution, firms have to buy more allowances in accordance with the increasing amount at auction. Since it implements the concept that polluters should pay and puts new entrants at disadvantage because they have to bear a lot more emission costs, EU aims to abolish grandfathering by 2027.

The trading system also creates positive externalities in technology because companies have more incentives to invest and innovate related technologies such as carbon capture and storage, and innovative renewable energy technologies to reduce emissions, being financed by the sale of tradable permits to construct and operate such large-scale technological developments. However, the tendency differs by geographical areas. For example, the ability to invest in environmental-friendly technologies with sufficient amount of financing is not as high in eastern Europe and developing countries. Some of them are highly dependent on direct extraction of natural resources to sustain their life or their knowledge or concept to conserve the environment has not highly educated or developed although the trading market has grown up tremendously popular as shown in the graph provided in European Commission:

trading volumes in EU emission allowances

During the first phase of the European Union Emission Trading Scheme from 2005-2007, 2,100 million emission allowances were distributed for free to about 11,000 entities and they were allowed to trade on their own as needed within the EU. The distinctive feature of the phase two, which lasted from 2008 to 2012, was that firms were not allowed banking or borrowing. So, during the phase one and from the phase two, banking was allowed. The following graph shows allowance distribution and actual emissions by sector in 2006:

allowance allocation

As shown, power and heat sector is responsible for 72% of total emissions in EU and received 70% of the total allocation, resulting in a net shortage of allowances. The most of emissions were covered and below allocations but the gap between the allocation and emissions might be due to over-abatement or over-allocation. Also, the problem of uncertainty arose significantly in the phase one because the EU did not have reliable information about actual emissions when they started the market, so the allocations mostly depended on industry projections which contain incentives not to reveal their true costs, resulting in uncertain measurement problems. Besides disapproval of banking and borrowing during the phase two, another feature was that the EU ETS was encouraging and promoting the tradable permits through auctioning among the firms. The governments tried to increase the limit of 5% auctioning up to 10% in the second phase for a number of reasons: it increases efficiency; it reduces the distortions/uncertainties in free allocation; it increases predictability for investors by agreeing to target price ranges before, creating more stable EU ETS market. In the long-term, it provides carbon price signal by recycling revenue. Revenue is recycled to reduce other distortionary taxes on labour or capital in the economy, providing price certainty.

In the case of New Zealand emission scheme, since the launch in 2008, it has focused on transition measures to moderate the scheme’s impact, evolutionary practices to meet its 2030 target, and operational and technical improvements. The government has been supportive by funding in the supply management to meet the overall greenhouse gas reduction target which is %5 reduction from 1990 by 2020, 30% reduction from 2005 by 2030 and 50% reduction from 1990 by 2050. in 2013, the overall greenhouse gas emissions were 81 MtCO2e which was measured according to the measurement guidelines such as the Good Practice Guidance and Uncertainty Management in National Greenhouse Gas Inventories, Good Practice Guidance for Land Use, Land-Use Change and Forestry, the Climate Change Convention guidelines on reporting and review and the Kyoto Protocol guidelines on reporting and review. That number covered a number of sectors by order of the largest emissions: agriculture, energy, transport, industrial processes and other product use and waste . They were gradually phased into the system over time and it was enforced to be mandatory for some parts with voluntary opt-in for other parts in the sectors. 2,536 entities are registered and covered in the system and 2,468 of them have obligations to surrender permits – surrender obligations – reported in June 2015.

So how have they implemented the system in terms of allocation is intensity-based allocation for the industrial sector?

The government allotted 90% of free allocation for highly emissions-intensive activities whereas 60% of the permits were allocated for moderately emissions-intensive activities. The government discriminated the permits according to the intensity of emissions by sector. In the New Zealand Emission Trading system, it has no fixed cap in forestry to accommodate carbon sequestration but in non-forestry sectors, it has introduced auctioning in 2012 within the overall cap .In terms of enforcement, it imposes a penalty of NZD 30 for each unit of failing to surrender emission units. Furthermore, if entities failed to collect/submit data, they would be fined up to NZD 24,000.

However, in implementing the New Zealand Emission Trading system, it caused whole lot of social and cultural debates due to different subjectivities and perspectives between farming practices and the environmental governance in terms of mitigating greenhouse gas emission activities through political and economic justifications for market-based instrument – trading permits. In theory, the state would distribute tradable permits that require polluters to surrender the number of permits approved, based on a reference year to achieve economic efficiency but, in reality, strong opposition arose from the financial liabilities when the farmers comply with the environmental targets of the state, based on their identities, interests and institutional contexts. Also, there were disparities between farmers’ prevailing subjectivities and environmental subjectivities because some thought that the permit system limited farming practices to some extent although agriculture is a big portion in the economy in New Zealand and others resisted the idea of buying permits to continue to pollute. As stated, it involved a variety of complex aspects surrounding the permit system.

Switzerland also addresses a range of environmental issues associated with pollution of air, water and soil, reduction of biodiversity degradation and mitigation of climate change. In order to deal with the environmental concerns, they also adopted the “polluter pays” principle since January 2008, commencing the Swiss ETS, which covers 400 involved companies with permits to 3 million tonnes of CO2. The overall reduction target was to reduce the emissions more than 20% by 2020 compared to 1990 with the sub-target of 25% reduction for heating and process fuels amounts by 2020 The Swiss ETS has attempted to promote more efficient use of natural sources by investing more in energy-efficient technologies and the use of low-carbon energy sources. The Swiss ETS has been reaching cost-efficiency and flexibility of compliance through more access to a bigger and more liquid market in relation with the EU as well as the continuous support from the Swiss government for energy-intensive companies to connect with the ETS.

In deciding which one of tradable permits or carbon tax is better, it considers a number of factors. In the context of small trading countries like New Zealand, if the country was the first-mover to implement tradable permits or carbon tax before other countries, that country would have some advantages with the carbon tax policy because the producers of export and import substitution products bear most of the costs, capturing carbon leakage and reducing unnecessary industry structural adjustments.

Also, in terms of cost increment, the carbon tax system seems to be more appealing because it shows a greater stability and certainty. Also, with regard to the long term view of greenhouse gas emissions, the carbon tax system also shows a greater price stability. Another article stated that in Central and Easter Europe, the tax system is a more prevalent and popular system but it is too low to meet the environmental target but only builds barriers for more efficient policies.

However, it seems to be constrained to a geographical area and a small open countries and the tendency gradually turns to impose tradable permits which lead to a net gain in economic efficiency by equating marginal social benefits and costs stability. For instance, New Zealand switched to a tradable permit scheme in 2005, and 27 European Unions countries and Australia introduced the trading system as well after New Zealand. One reason could be that carbon charges create political resistance and conflicts between the state and certain involved industries having the disadvantage of increased tax which is the additional financial burden or changing the existing tax structure. Charging tax would require the involved industries considerable efforts to readjust their tax structure and even re-construct their internal system to avoid tax.

Also, certain geographical areas such as Southern EU member states strongly resisted the carbon tax scheme because the system only favours those with more developed economies with more financing to invest and support to initiate and operate the program more efficiently. Moreover, tradable permits deliver political expediency because it initially allows to efficiently and conveniently distribute the allowances free for those that fall under the eligible category.

So, it also has a feature of political convenience in the initial assignment of allowances. Under changing Economic environment, carbon tax is more vulnerable because in times of inflation, the tax would be decreased in the real value that the firms could relatively increase their emission whereas the total amount of carbon emission is fixed under the tradable permit system. Also, the trading system is feasible and practical to implement through grandfathering and auctioning as mentioned above. Hence, tradable permits are more politically desirable.

Another equally important case of tradable permits is the U.S. Acid Rain Program. According to the United States Environmental Protection Agency (EPA), the Acid Rain Program (ARP) is a market-based program aimed at reducing the overall emission of sulfur dioxide and nitrogen oxides, which cause acid rain. This emissions trading program predominantly targets coal-burning power plants, allowing them to buy and sell emission permits based on each firm’s own cost-benefit analysis.

In the 1980s, the United States began to have issues with acid rain. In 1990, the Clean Air Act declared that the government of United States aimed to reduce overall SO2 emissions by 10 million tons. There are two phases in this Act. In Phase I, by January 1, 1995, the program targeted on 110 electric power plants to reduce their sulfur dioxide emission rates to 2.5 lbs/mmbtu.Each of these power plants was classified by name and location, and a quantity of emissions quota was specified in tons of SO2 emissions annually. Moreover, new power plants built after 1978 were required to minimize sulfur dioxide to a lowest emissions rate of which is 0.6 lbs/mmBtu. In order to reduce emissions, for each ton of sulfur dioxide reduced below the emissions limit, a power plant received an emissions allowance they could use at another unit, keep for future use, or sell to other firms. The freedom to buy and sell emission allowances created a market of tradable permits.

In Phase II, all coal-fired power plants were needed to limit emissions of sulfur dioxide to 1.2 lbs/mmBtu by January 1, 2000. Phase II covers more firms and it also increased the penalties for firms who did not want to participate in emissions permit trading. Moreover, total emissions were limited each year based upon U.S. EPA regulations. Currently, only 8.95 million tons of SO2 emissions are permitted annually in U.S.

The 1990 Clear Air Act also aimed to reduce nitrogen oxide (NOxx) emissions. The key factors in NOxx formation are flame temperature and combustion (Chestnut and Mills, pg.254. 2005). Installing the low-NOx burners are the most common methods to emissions up to 50%. Therefore, many firms installed low-NOxx burners, which demonstrates Low-NOx burner technology was ready to use.

As part of U.S Acid Rain Program, the tradable permits of SO2 emission are proposed to motivate firms to adopt the most efficient strategy to reduce the emission. Every ARP operating permit highlights specific requirements and options that firms select based upon their specific needs. These requirements often require investment and upgrades in equipment in order to monitor emissions and pollution. For example, monitoring systems must be installed in smoke stacks that transmit daily emissions data on SO2, NOx, and other pollutants to the Environmental Protection Agency in order to monitor progress and provide credibility to the trading section of the U.S Acid Rain program.

There are several uncertainties that affect the efficiency and effectiveness in executing this program, which include the cost of fuels, the value of emissions permits, and the operation of markets. For example, firms renegotiated contracts with a goal to be risk averse and more flexible in choices.

The U.S Acid Rain Program has successfully decreased the annual emissions of sulfur dioxide by 8 million tons, nitrogen oxides by 2.7 million tons from 1995 to 2009. Moreover, in U.S, SO2 emissions have decreased 40%, and acid rain levels have declined 65% since 1991.

However, the US Acid Rain Program has not reduced SO2 emissions as much as the EU emission trading system, which reduced SO2 emissions by more than 70%. Therefore, the effectiveness of the Acid Rain Program has been criticized. A significant issue with this Acid Rain Cap and Trade Programs is that the cap is high enough that some firms do not need to reduce their emissions. Despite these recent positive outcomes, the ARP still remains less effective than EU pollution regulations. Thus, it is clear that the tradable permits of U.S Acid Rain Program need to be re-evaluated in terms of their economic distribution and regulations. Also the cap of emission and pollution need to be set lower to achieve more efficiency and effectiveness in this U.S Acid Rain Program.

In operating the tradable permit system, countries run into difficulties, limitations and critiques. For example, the EU ETS at an international scale, companies that emit more based on the historical records would receive more permits, conveying the issue of fairness among the involved firms in the industry. Also, the system also invokes the issue of significant amount of transaction costs because: companies cannot monitor and record their emissions; there is a possibility to contain measurement errors in data; the permit price could be expensive on high demand or not available. For the fisheries in New Zealand whose trading mechanism is individual transferrable quotas, it is distributed, again, based on the historical records not by the sustainable yields and the trading market boom in New Zealand abolished small firms out of the market.

Also, industries like fisheries are seasonally sensitive so when the stock is full for high demand, the market prices are high, resulting in price volatility. Transaction costs take quite a portion across the participating countries because in the process involves traders and brokers who match buyers and sellers in the commission range of 3% – 25% which varies by locations or sector. Moreover, the volunteer opt-in provision has its structural problem because the practical problem of setting a baseline for permits arises by discouraging low cost firms from joining the tradable permit system which only have to bear uncompensated costs. Also, for those who do not comply with the tradable permit system, high penalties are applied in all the European systems along with hard caps. However, the involved firms would pay the low penalties rather than paying the high marginal costs to comply with the cap. In principle, regardless of the initial assignment of allotting permits, the trading system will achieve goals of equity and cost/effectiveness but in practice, initial allocations may have some impacts on improving feasibility of the system or proving inadequately addressed equity concerns in the system of trading permits. So, there seem to be some disparities between implementing the tradable system in principle and practice.

 

Demand vs supply in the music industry

An article in Medium argues that the biggest phenomenon that has shaped it in the 21st century has been an utter divergence between supply and demand. In short: our ability as humanity to consume music is (roughly) a constant, yet the amount of available music is cumulative and growing exponentially. Anyone with a rudimentary understanding of economics can figure out what infinitely growing supply meeting stagnating demand does to value.

Another argument could be stagnating demand. Volume of hours of listening to music likely increased worldwide. And we have to separate the recorded music industry (the one we mostly talk about where sales went down by 50% and are starting to go up again) from the entire music industry (e.g. publishing, live). Music in films, in games, in elevators, everywhere.

Big hits are big hits and will remain to be financially lucrative. There are just less of them, but bigger (“short head getting shorter”). This is the red part of the attached image. Hobbyists will remain hobbyists with no interest nor real opportunity to make money. This is the yellow part. This used to be thicker and shorter, but is getting longer and thinner by the day as the market gets more saturated. The middle is where there used to be some $ to be had, but not so much anymore.

popularity vs products

 

Brand transformation can be painful and hard

Transformation without pain is not real transformation. Today, most of the brands are going through a transformational journey. They want to change from a caterpillar to a digital butterfly. They want to go through a dramatic change in form and appearance.

They don’t do it because it is cool. They do it because they need to change, or else.

But transformations are a lot like revolutions; Bloody, painful, messy with winners and losers. We just have to look back in history at the French, The Russian Revolution, The Arab Spring, and Cuba. After dismantling their existing system, they tried a new model that had never been done before, at least in their environment. This means a new structure, policies, people, culture, and economics. They didn’t get it right in the first shot. In fact, it took years to make the revolution work. In some cases, it didn’t work at all. Countries had to go back to some version of the old system.

Real brand transformation is a painful and messy journey, with no guarantee that’s going to work. But the other option is a slow death, where everyone loses.

It’s striking though, as most simply don’t acknowledge, or perhaps have the will, to change. A striking forecast is that 40% of the current top 200 companies on the stock exchange won’t be there in 10 years.

A big part of the problem is cultural. They are not designed for constant change. They want predictability as public companies.

It is also unrealistic to expect a public company to dissolve into chaos while they get the formula right. There are examples of successful companies who have or are in the process of transformation. The leaders of these organizations set forth a measured path forward that doesn’t require dismantling as much as forging a new identity from existing strengths and talent. It’s not always pretty, but it is structured and it feels safer and less risky for employees and shareholders making it much easier to accomplish. Microsoft under Satya is a great example.

The job of advisors is:

1. To show them the slow death so they’ll have the motivation.

2. To verify they are strong enougth for the journey ( and if not – help them get stronger)

3. Once they are ready – guide and support them during the journey, creating a balanced set of moves with diverse attributes of risk, investment, time and expected results

Another challenging part of transformation is managing the knee-jerk reactions of stockholders. Their reactions feed the fear that lead to rash decisions, and a rush to make the company appear healthy. Many investors are not in it for the long haul and have little patience for you “getting your act together”. They demand quick returns — and sometimes unrealistic demands for turnabouts, growth and profit. And every step and process requires you to consider profit maximization.

In addition, many companies don’t do much about managing the expectations of the various sectors involved: what the many stages and the real pains (both tactical and psychological impact) of transformation involve. It’s akin to the stages of mourning.

Nor do they provide substantive support during the various phases. They decimate staff and dismantle teams without fully understanding the impact, and look to the remaining staff to hold the pieces together whilst they hemorrhage in a multitude of ways. They cut off limbs and do little about triage and give even less thought to healing.

Most sectors are left to fend for themselves in a state of confusion. They do a big “kick-off”with visionary talks, plying on heaps of encouragement and thanks, then they disappear.

Strategic transformation has a lot to do with strategic diversity management. Survival and health depend on the skills of the leaders and their ability to see and plan for the big and the small, the broad strokes and the nuanced details, to manage the complexities.

Hence, it takes tremendous partnership — earnest and generous collaboration from top-down, down-up, across and diagonally. What often ends up happening is that the “ones in charge” become overloaded and overwhelmed. They haven’t thought it through; they haven’t planned thoroughly enough; they’ve glossed over the details; they just didn’t have the skill-sets to properly manage the transitions of transformation — nor the ability (or inclination) to ask the right questions of the right people and to really listen to what is being said.

We’ve become shamefully obsessed with immediate gratification. In our organizations, our politics and ourselves. 90-day earnings calls, ROI’s and KPI’s as sticks to beat and bludgeon employees with. We’ve lost all sense and appreciation of patience and perspective. Immediate is not immediate enough.

Along the way we have burnt out our brightest and most passionate. We’ve created disillusionment not inspiration. We’ve extinguished the flame rather than nurturing the flame of possibility. The long game should not be misinterpreted for procrastination or conflict avoidance. It should be seen as the prudence and pragmatism from which greatness can emerge.

Indeed revolutions and rebellions have been a part of society for millennia from the Set rebellion during the reign of pharaoh Seth-Peribsen of the Second Dynasty of Egypt in 2730 BC to Catalonia’s referendum for independence from Spain in October 2017. Dissatisfaction with the status quo whether it be civil, political, religious or other has harkened action by those with their vision of something transformative and perceptually better.

True transformation is indeed painful, intense, stressful and often time’s not successful for many of the reasons you and others have mentioned in their comments thus far. What determines the success of a business transformation is the continued viability and sustainability of the firm through its customers who vote with their wallets and have a positive view of the brand’s equity. 

 

 

Lack of economic opportunity dooming more Americans

The loss of the middle culture is serious. A recent Citylab article discussed the connection of economic and health inequality in the US. Most of us bounce around the middle for good reasons.

Generations before us have seen how quickly reckless or silly-thinking behaviour can lead to disaster. How many in-laws are concerned at weddings? They know they may have to pick up the pieces. Too much success can lead to a lifestyle that kills, and can lead to the killer effects of poverty.

From an early age, the second is an undercurrent of awareness, that may be in most people’s minds. Some risk all for the big win, but you don’t hear people bragging about the big lose. Momentum in either direction can compound. What is interesting is the power of confidence. There is an element of acting in our lives. People warm to the aura of success and avoid the reality of hard truths. 

We do need government policy to protect people from themselves and others. This is what development economics refers to. We do need government subsidised education to give opportunity. We do need to fund training to supply skills so people can rise again. There is youth unemployment but there is also an increase in older unemployment.

But it can be dog eat dog at times. There are people who want to know us when they perceive a social or financial advantage in association. What is surprising is how quickly we can be in a position of vulnerability. Our western society is more like a Dickensian world every day. Though the way debt and taxes are going, individuals will also have to be more responsible for the risks they take.

Poverty is a very insidious disease. But the momentum of fear is dangerous. The mindset swings in societies, where it generally over react or go too far. People can be very sensitive to each other’s narrative and contagious in their emotions. It only takes a minor government adjustment to create a large effect. We need government and banks to support the risk in enterprise, but if government and banks allow too much reckless behaviour in markets, we may end up in another crash.

What is staggering is the amount of gambling behaviour that is encouraged now. It’s right through our western culture. One lesson we learned from the last crash. A previous Trump attitude allowed a free range of activity, without overarching control, leading to a chaos of activity. And we know what chaos brings.

Some areas of the USA can be mistaken as a 3rd world country. People would be shocked about some of Detroit’s neighborhoods’ devastating situation. A city destroyed and hit hard by the worst kind of American capitalism. America is measured by the weakest, poorest and sickest people. The United Nations have seen the poorest in the United States and comparing some of our areas to the worst parts of Asia and Africa.

Lack of affordable preventative healthcare and poor food options/inability to afford healthy meals is a huge part of this statistic in economically disadvantaged populations.

 

Data engineer will soon be at the top emerging jobs lists

LinkedIn recently released their 2017 U.S. Emerging Jobs Report.

Data Engineer (DE) should be near the top of the list but the industry hasn’t standardized on this term. Right now, the people with the skills to do data engineering are spread across 20+ LEGACY job titles. If these 20+ job LEGACY titles were mapped to the emerging title ‘Data Engineering’ then there would be a big spike in the data.

Emergingjobs_top-20-emerging-jobs-chart_Revised.png.original

The titles, ‘Data Scientist’ and ‘Machine Learning Engineer’ don’t have this mapping problem. This is great news for all the DB architects, ETL specialists, DBAs, BI developers, RDBMs engineers and everyone else doing ‘data engineering’ today that haven’t updated their titles to ‘Data Engineer’.

Depending on the project, the healthy ratio of ‘Data Engineers’ to ‘Data Scientists’ ranges between (1 DE: 1 DS) to (4 DE : 1 DS). This means for every data scientist, there needs to be 1 or more people doing data engineering. For an average data science project 80% of the work is in data preparation, which is best done by the ‘data engineer’ role.

We have had previous tutorials on the demand function and supply function. Today, well qualified ‘Data Engineers’ are in short supply and the demand for this skill set is only going to increase.

From the executive search industry view point, there is an over arching demand for “data” talent. The lack of clarity in titles makes it challenging for many hr/ recruiting departments to communicate the needs of the managers and businesses they support. They are getting better, but the need and opportunities are definitely abundant!

However, there is one point that needs to be better clarified. The Data Engineer role is also spread into the Machine Learning Engineer and Data Scientist roles, and even more heavily than the legacy titles. These roles are the leads for projects and as there hasn’t been a clearly defined Data Engineer role, much of the Data Scientist and Machine Learning Engineer’s role is to clean and order the data themselves so they can do their most important work with it! 

In the startup world, the teams are smaller and people have to multitask more, but even when working with large organizations, the situation is quite similar! Even with a large team, those running the DS/ML projects have to closely coordinate with others to convey the need for, and reasoning behind, specialized collecting, labeling, and ordering of data. This job may not be split out for a long time, but it’ll eventually move in that direction as the field matures.

Many Data Scientists today are playing dual roles, ‘data scientist’ and ‘data engineer’ out of necessity. It doesn’t mean it’s the optimal solution. The best data scientists are usually the ones that have taken very different paths through life. While either can ‘play’ each other’s job roles, the best data scientist adds the most value when they are doing data science.

Similarly, the best data engineers add the most value when they are doing data engineering. There is always going to be a grey area between the two roles. The data engineering team should be encouraged to spread into data science.

Likewise, data scientists should always be learning more about enterprise class database systems. Cross training is extremely important for project momentum and quality.

However, the most value comes from deep domain expertise and ability to deliver high quality work in their respective roles. As they say: “Jack of all trades, master of none”.

 

A new model for Pareto Optimality

The folks at AEQUILIBRIA have been working a model to improve business strategy.

When seeking strategy ahead, they apply S3S4ME℠ -strategy/success=systemic solution seek for maximum effectiveness.

How does it work, for example in law?

Simple: compare the public policy interest behind the development of an area of law and the development of another. Run the “attention in agenda setting test.” Better yet, “the Carnot efficiency test” applied to an area of law.

A test? How? We can use family law and child custody and parenting time matters as example. How developed is the area of law when compared to secured transactions (a body of law that is quite developed, and thus ‘approximately complete’–i.e. it is close to efficiency and effectiveness in practical application)? When compared to contracts law? To non-intentional torts? We find that family law, and custodial and parenting time “best interest of the child” law is an area of law in its epistemic and applied-development infancy. Next step: attempt to develop stronger closer to quasi-complete new paradigm in family law.

Next boost innovation: apply 3S4ME℠ itself–systemic solution seek for maximum effectiveness.🚀 We end up with an app and a business idea that, when implemented, ensure path to Pareto optimality of solution via self-enforcing means.

Better yet, what’s beautiful about the solution that tends towards Pareto optimality based on self enforcement is that, like the picture suggests, it is a business solution like water, just as the river at Pont du Gard, and as the Roman aqueduct crossing it with what has been over centuries the civilizing effect of a benevolent hegemon that the Roman Empire and several inheritors in interest (and in cultural and legal traditions) has (have) been in part. Not always and not in the entirety of their conquests, but at least in part all resulting empires have manifested at least a little benevolent hegemony. Hence the natural spreading of their civilizing inventions and the lasting over the years and minimal further systemic evolution of those early genius solutions.

The Romans were great engineers, but they were great at so much more than engineering alone. The spread of civilizing Roman aqueducts is a validation of the constructal law of design in nature and human systems of Adrian Bejan. That’s because the aqueducts continued to spread much after the demise of the Roman Empire, through the continued role undertaken by the subsequent empires. Aqueducts of the same design are present in Mexico, where obviously the Romans themselves never reached.

Private label is starting to defeat bigger brands

2018 is going to see a massive upswing in factory direct eCommerce brands from Asia into the US. Factories are hiring and investing top tier US-based eCommerce talent and agencies and building their own direct-to-consumer (D2C) brands, armed with the knowledge of what is hot and what is selling – essentially the Amazon Private Label equivalent of the non-marketplace D2C. This will likely hurt all US-owned companies who are not vertically integrated as they will not be able to compete on supply chain efficiency and price unless the cost of manufacturing is somehow impacted on one side in a big way which as of now is unlikely! As a country and as an economy, the US needs to refocus on growing its collective brand and start investing in building the world’s most advanced and sophisticated export framework and ecosystem and they need to teach their teams and leaders about competing in a global marketplace.

At this point, not too many Asian brands have enough brand equity to go D2C in the US. There aren’t very many examples outside of electronics and cars. But it is changing because of online reviews and forums.

There’s a smattering of Chinese companies that have been doing an incredible job of D2C. It’s not as hard as most people think, and they have price on their side. When you make millions/year off of Amazon, and you’re hungry, it goes to the next logical step.

In addition, the purchasing power of the average consumer in this part of the world has risen rapidly in recent times, and that has significantly increased the size of the opportunity compared to even as little as 2-3 years ago.

They’re watching the west import, mark up and prosper. It’s only a matter of time and they’ll be making big moves to get in on the game. Once they figure out how to line up their branding and marketing with the western consumer, it’s going to explode.

These companies are now advertising on TV and telling people to search and buy on Amazon. This trend will only accelerate in 2018 and the trade deficit will only continue to grow as we push further to bring in good from Asia.

This is already happening on a large scale on Amazon. In fact, Amazon spent a great deal of resources this past year running symposiums in China to promote this opportunity. They will likely start running their own ocean freight fairly soon.

India needs to prove they can be a quality manufacturer

India is considered to be a future powerhouse, but it is still lacking the ability to prove itself as a quality manufacturer. So why is it that India’s share in global manufacturing exports or as a percentage of GDP so low in global or Asian comparisons?

One argument would be corruption. There is a lack of discipline at every stage, whether applying technology, understanding quality, and applying it without making compromises. If they can understand quality, then quantity will follow. Quality should be way of life. This is the major difference which separates India with other developed countries.

It is a wonderful thought but the problem is deep rooted. Identity emerges from original R&D, and in case of Indian companies, developing such original product solutions is still a challenge. One great product where India has emerged as a Global Leader through domestic innovation is ‘Space Technology’ and the world swears by its name. Till the time more Indian Companies develop ORIGINAL global products, they will have to enjoy the FOREIGN Experience, ‘Made in India.

High levels of social inequality is also a barrier to general excellence in industry including manufacturing. Consider that in both Japan and Germany the pay difference between the CEO and the most junior person is much narrower. Everyone shares a part of the economic benefit and is much more motivated.

One of the main issue with the products which are made in India is the ‘fit and finish’ which highly influences the ‘perceived quality’ Most of them are actually more durable and reliable than they appear to be. India needs revolution to drive this ‘perceived quality’ issues.

Another issue is that unions and their political agendas have a significant impact on India‘s industries ability to transform to world class. If the unions and their members have a different agenda than management and promoters, no text book management operational technique will change that.

Bitcoin Bubble will burst and should be banned according to Nobel Laureate

Is bitcoin a bubble? Another tulip mania?

According to Professor Joseph Stiglitz, Nobel Prize Winner for Economics – it is absolutely – you’ve heard that before but here are some of the details:

1. Bitcoin is primarily for illicit activities – Who would use bitcoin ? Primarily for funding or trading illicit activities – eventually if it becomes prominent enough and associated with high profile illicit activities – governments will find reasons to clamp down on it – Governments haven’t clamped down on it but they may do so very soon.

2. It has no intrinsic value – it is artificially created demand as even though the number of bitcoins in circulation are limited – there is no reason why they should stick to bitcoin – there is no real underlying value – and that’s when eventually they will move on to other investments.

3. Finally – the underlying block-chain technology will eventually force some level of transparency by governments which will mean that this currency’s appeal will die out to its core participants.

However, his view may be motivated by vested interest regarding his own back catalog of material supporting a monetary system that increasing numbers are starting to view as an establishment extortion racket! They cultivated their intellectual supporters, polished their egos with nice prizes, etc.

Bitcoin being a crypto”currency” derives its value from: 1. Its value against other currencies and 2. Its value against goods & services it can be exchanged with. But its speculatively driven ballooning price is a big worry because it may not have a proportional relationship with money as specified in the quantity theory of money. Maybe after it burst we may find its true value. This happened when Tech Stocks went crazy not too long ago.