Dec 072014

On Sunday the Murray Report into the Australian Financial System was handed down with a range of recommendations on ensuring the stability and future of the nation’s banking and finance institutions.

Choosing David Murray, the former CEO of the nation’s biggest bank, was controversial but it turns out he and his team have delivered a sensible overview of the opportunities, risks and challenges facing Australia’s financial sector and economy. Many of the recommendations though require a change in both the culture of banks and that of the country’s population towards investment and savings.

A key part of the review is identifying the lessons learned from the Global Financial Crisis of 2008 in an attempt to reduce the country’s vulnerability to external economic shocks and limit the taxpayers’ exposure to any consequential bank failures.

In proposing ways of strengthening the nation’s banks against similar future shocks The report identifies a cultural problem in the finance industry.

Culture of financial firms

Since the GFC, a persistent theme of international political and regulatory discourse has been the breakdown in financial firms’ behaviour in failing to balance risk and reward appropriately and in treating their customers unfairly. Without a culture supporting appropriate risk-taking and the fair treatment of consumers, financial firms will continue to fall short of community expectations. This may lead to ongoing political pressure for additional financial system regulation and the undermining of confidence and trust in the financial system.

Interestingly, exactly this sentiment is echoed by last week’s World Of Business on BBC Four where host Peter Day reported from the recent Drucker Forum spoke to various economists, bankers and market commentators.

Breaking the debt culture

A key point raised in Day’s story was best expressed by Gary Hamel, Management expert and professor at The London Business School who said; “I think what the global financial crisis revealed — in addition to a lot of mendacious bankers who had lost touch with their social role — was the fact we’d been sustaining living standards through debt. I think that overhang is still there.”

The Global Financial Crisis was a warning the late Twentieth century model of using debt to sustain living standards was coming to an end, of all the western countries Australians had been one of the most enthusiastic nations about using debt to underpin consumption and that debt obsession had allowed the nation to skirt the worst of the GFCs effects.

With personal debt still at astronomically high levels it’s unlikely Australia will be able to avoid the next global financial shock and part of Murray’s recommendations are aimed at making both the economy and the banking sector more resilient to those shocks.

A fall in income

For the bankers this means lending less money and stricter financial controls; it almost certainly will mean their incomes will fall and it will be harder for millions of Australians to borrow money for easy speculation in the property market.

Creating a more resilient economy will take a culture shift in more than just highly paid bank staff, it will require a change in the way all of us think.

Nov 282014
Digital bus stop

Last Thursday in Sydney a group of industry groups, telcos and local councils launched their 2030 Communications Visions initiative; a project “to shape a digital vision and set of goals for Australia to achieve global digital age leadership”.

The project is a worthy one, particularly given the failure of Australia’s National Broadband Network, which I’m writing about early next week in Technology Spectator however one thing that bugs me is what exactly is ‘digital age leadership’.

If we look at the rollout of technologies like the motor car, electricity or telephone through the Twentieth Century it was a mix of private companies, community groups and governments that championed the development of roads, mains power and phone systems. People either demanded their towns became connected or raised the capital to do it themselves.

So on one level, the champions need to be us. We have to lead our communities and industries by using the technologies and showing what can be done, that also makes our businesses more likely to succeed in the future.

On another level, we need to consider the genuine leaders of the ‘electrical age’ or ‘motor car age'; people like Thomas Edison and Henry Ford built businesses that led the world and still exist today.

For countries, it’s no coincidence that the United States is the richest nation on the planet after having most of the leading business in their industries over the last hundred years.

That latter point is really what the Digital Visions project is about; do Australians want to remain a wealthy nation in the Twenty First Century?

Governments have a role in this, as the UK is showing, and political leaders need to be encouraged to take the digital economy however governments can only do so much and successes like Silicon Valley are more a fortunate by product of spending rather than the consequence of strategic policy.

Ultimately, leadership starts with us — we can’t afford to wait for governments, big business or someone else to take the reigns.

Aug 312014

One of the mantras of technologists like myself when challenged about where jobs will come from after existing industries are automated or become redundant is “we don’t know where they will come from, but they will.”

Assuming that is true and the jobs will come in industries we’ve barely begun to contemplate there remains the question of what happens to the families and communities that depended upon the displaced industries.

Two stories this week from opposite sides of the world show how how poorly we’re answering that question; in Tasmania the Idiot Tax describes what happens to a region with no economic value while in the UK the ongoing Rotherham sex abuse scandal portrays a community debilitated by unemployment.

In both regions local industries collapsed through the 1970s and 80s and the local working classes became the welfare classes, stuck on benefits with at best poorly paid casual work available.

As the Idiot Tax describes in Tasmania’s Burnie, retired older workers reaped the benefits of a life of full time employment that town’s youngsters will never know.

History has no shortage of examples of cities that disintegrated when their economic reason for existing became no more — a process we’re seeing in Detroit today.

Now we’re seeing almost every industry being changed with far greater potential for job losses and fractured communities.

That we’ve dealt so poorly with the process over the last fifty years means we have to start thinking about how we as a society manage this adjustment.

Jobs will come to replace the ones lost, just as through the Twentieth Century new roles developed to replace those displaced from as nations like the US, France and Australia evolved from largely agricultural economies into industrial and then service industries.

But the human cost is real and there are no shortage of shrunken or abandoned towns that were once thriving market or railway hubs at the beginning of the Twentieth Century.

For technologists, this is an issue that has to be faced as we enter a period of economic and technological change far greater than the one we saw in the 1970s and 80s.

Car wreck photo courtesy of CBR1000 through

Aug 222014
communications is critical to modern business

In the early hours of this morning I spoke with Rod Quinn on ABC Overnights about what exactly is metadata in light of current Australian government plans to mandate a data retention law for internet service providers.

Part of the problem in the debate is defining exactly what metadata is, something I’ve attempted to do previously.

The attempt to bring clarity to the discussion isn’t being helped by the confusing explanations of politicians as shown in this interview with Malcolm Turnbull, the communications minister, shows.

One of the things that kept coming up in the conversation, which we hope to have available shortly, was people who have nothing to hide should have nothing to fear.

These two videos — Don’t Talk To Cops Parts I and II — feature a law professor and police prosecutor speaking about how innocent people can be caught out by the law.

First the law professor;

Then the police prosecutor;

A question the law professor asks, “did you know it’s a Federal offence to posses a lobster?” The answer is ‘yes’ and in every country there’s almost no way any individual can be confident they haven’t committed a crime under some obscure or archaic law.

This is why an adult discussion on laws that change the burden of proof and how government agencies conduct themselves is important.

Another key point from this morning’s conversation is how we need to reconsider the boundaries of privacy and personal information.

Jul 202014
cheap robots cleaning computers

Last Friday the Global Innovation Index was released rating nations on their ability to adapt and compete in today’s global economy, the authors though believe the measure is more than just economics.

The Global Innovation Index is a joint venture between Cornell University, INSEAD, and the World Intellectual Property Organization which measures 81 economic factors that across 143 countries.

Its release in Sydney last week was part of the B20 conference – the business offshoot of the G20 Heads of Government meeting taking place in Cairns later this year.

European countries top the list with Switzerland, the United Kingdom, Finland and the Netherlands making up the leading five. The US and Singapore break the European monopoly at the sixth and seventh positions.

As the results indicate, rich countries have a natural advantage in the index with index scores tracking national GDP – the highest ranked middle income country is China at 29th and the leading low income nation is Kenya at 85.

Innovation index versus GDP

Innovation index versus GDP

Kenya, and Sub Sahara Africa in general, is one of the highlights of this year’s report with with countries in the regions being nominated as ‘innovation learners’ with them performing above their expected level of GDP.

“What we find in Africa is growth rates are stabilising,” says Francis Gurry, the Director General of WIPO in discussing the report. “That creates the space for better policy and investments.”

Smaller is better

A key finding in the report is that smaller countries tend to perform better; “there’s a slight bias in the index,” says Gurry “as there’s more evenness across the economy.”

This works against larger countries like the United States while favouring countries such as Switzerland and Singapore.

Being affected by the 2008 financial crisis doesn’t help economies either; “the countries you see on top like Switzerland and the Nordic countries have been less affected than countries like Spain and Greece” says Bruno Lanvin, the Executive Director of the ISEAD Global Index.

Europe’s growing divergence

“Yet Europe remains a land of innovation,” continues Lanvin. “Europe has no choice, it is an aging economy and it has to innovate its way out.”

“A divide has been recreated within Europe, the whole European edifice has been a terrific machine for convergence. This has disappeared with the crisis where we see a new divergence.”

“We see countries like Spain and Italy, not to mention Greece, where the proportion of research and development has been decreasing which has not been compensated by private investment.”

This lack of private investment is a concern that constantly came up in the B20 discussions; despite the world being awash with capital, little is finding its way into infrastructure funding and business lending.

Falling R&D spending

Another area causing concern for the index compliers is the falling rates of research and development spending, noting that support for R&D efforts seems to have lost momentum in some countries with most growth in this area over the near future expected to take place mostly in China, the Republic of Korea, and India.

Innovation by Region
Rank in Region GII 2013 Overall Rank Country Name
Central and Southern Asia
1 76 India
2 79 Kazakhstan
3 86 Bhutan
Sub-Saharan Africa
1 40 Mauritius
2 51 Seychelles
3 53 South Africa
Southeast Asia and Oceania
1 7 Singapore
2 10 Hong Kong (China)
3 16 Korea, Rep.
Latin America and the Caribbean
1 41 Barbados
2 46 Chile
3 52 Panama
Northern Africa and Western Asia
1 15 Israel
2 30 Cyprus
3 36 United Arab Emirates
1 1 Switzerland
2 2 United Kingdom
3 3 Sweden
Northern America
1 6 United States of America
2 12 Canada

While the index was notable for its stability among the top ranking countries, there were stand out performers with the United Kingdom charging from tenth in 2011 to third in 2013 and second this year.

Much of the UK’s success has been around policy reform, something discussed on this blog previously, and the social diversity of London and South East England.

The value of diversity

Along with ethnic diversity, the advantages of having deep, varied economies and societies is emphasised by the report.

“When you’re measuring all of these, you’re measuring the ability of a country to compete;” says Gurry. “The intensity of competition will only increase between countries in respect to both regulatory regimes but also between enterprises.”

For all the talk about the importance of innovation Lanvin sees limits to what governments can do; “innovation is not a matter that can be decreed or implemented by governments alone, government can give the right signals and create an environment.”

Creating a mindset

“In the end it is the dynamics between business, government, academia and civil society that create the right mindset for a country to become an innovator,” continues Lanvin.

Lanvin also observes that innovation is about more than technology, “clearly technological innovation will remain a critical component, but you should expect to see social innovation and political innovation.”

“When we need to address the major challenges of this planet like the environment you need more than technological innovation; you need creativity, new mindset and new attitudes.”

“That’s part of the innovation mindset.”

Jun 212014
capital is one of the great barriers for business

“95% of economics is common sense” says economist Ha-Joon Chang in his book The Little Blue Book — Five Things They Don’t Tell You About Economics.

In a presentation at this year’s RSA conference Chang explains some of the underlying themes of his book, particularly the point that the various schools of economics theory are based on their own sets of cultural assumptions and that every group struggles to explain the world, especially when asked to fit Singapore into their models.

Chang’s five points are a call for the average person to understand economics and be prepared to challenge the orthodoxies being trundled out by business and political leaders.

You should be willing to challenge professional economists (and, yes, that includes me). They do not have a monopoly over the truth, even when it comes to economic matters.

As economists have been allowed to become the high priests of modern society — or possibly the court jesters of the corporatist world — it may well be time to challenge them.

Jun 202014

Last week I wrote a piece for Business Spectator on the contrast between countries competing for tech investment and skills.

Irish Taoiseach Enda Kenny was in Silicon Valley promoting Ireland as an investment and operating location while in London the Queen hosted 350 British tech companies at Buckingham Palace.

Earlier this week President Obama hosted the first White House Makers’ Faire with over thirty inventors showing their ideas.

All of this contrasts with the Australian Prime Minister Tony Abbott’s recent North America where he touted the country was ‘open for business’ by offering mines and toll roads to Canadian pension funds.

It’s clear some countries’ leaders recognise they live in the Twentieth First Century while others are struggling with Twentieth Century.