According to CLSA – formerly Credit Lyonnais Securities Asia and itself now fully owned by Chinese investment house CITIC – the quality of Chinese construction plant is rapidly approaching that of the Japanese and US industry leaders.
The Chinese have achieved this in a short period through a combination of joint ventures and strategic takeovers and that should worry its more established competitors.
How the Chinese have moved up the value chain in construction plant is a small, but important example, of how the country is positioning itself as a higher level producer as its economy and workforce matures.
For trading partners and competitors it’s worthwhile thinking how a more affluent and higher tech China is going to affect their businesses, thinking of China as just a cheap source of low quality labour isn’t going to cut it for much longer.
Is the automobile industry the driver for 21st Century economic growth?
One of the key drivers of Twentieth Century industrialisation was the motor industry. Today it’s an industry plagued by over production, distorted by government subsidies and increasingly dominated by a small group of major players.
In Australia, the Productivity Commission examined how the motor industry was evolving and its preliminary report (PDF) is a good snapshot of the current state of play in the global automobile sector.
Chronic worldwide overcapacity is what stands out most starkly in the report with most of the world’s manufacturers operating at less than the 80% production break even point that’s assumed in the industry.
Australia is a good example of how the motor industry was held as being essential to a country’s development. Like most of the world, the early Twentieth Century saw dozens of small automobile manufacturers pop up in the backyards of enthusiastic tinkerers – it’s like the surge in smartphone apps today.
Eventually only a handful survived the industry shakeout following the Great Depression and by the end of World War II the industry was largely dominated by US, British and European manufacturers, today that consolidation has increased with East Asian producers replacing the UK carmakers.
The lessons of World War II
One of the lessons from World War II was that having a strong domestic manufacturing industry was a nation’s strategic advantage. So governments around the world protected and subsidised their automobile industries along with other factories.
For Australia, bringing in the required labour to run those manufacturing industries was a seen as a key to the nation’s post World War II growth and it was one of the contributors to the country’s ethnic diversity that started to flower in the late 1970s.
Today the echoes of those policies remain with governments around the world still subsidising their motor industries despite the economic and strategic military benefits of automobile manufacturing being dubious at best.
Australia’s failure
In Australia the modest incentives provided by governments hasn’t been enough to keep local car plants operating, which was the reason for the Productivity Commission’s report into the future of the industry.
The report’s message is stark for Australia, as a high cost nation that hasn’t invested in skills or capital equipment there’s little reason for the world to buy Australian technology as there’s little being built that the world wants or needs.
With the nation’s advantages in agriculture and mining – not to mention solar power – Australia should be leading in technologies that exploit these advantages but instead the nation is a net technology importer in all three of those sectors.
To be fair to Australian industrialists, they responded rationally to government policies that favour property and share speculation over productive investment. Coupled with the drive to create duopolies in almost every sector of the Aussie economy, it didn’t make sense to invest when they could exploit domestic markets rather than invest in new technologies.
Becoming high cost economies
For nations moving up the value chain such as China, Thailand and Brazil; Australia’s failure to develop high tech manufacturing and inability in adapting to being a high cost economy is a powerful lesson in the importance of framing sensible long term economic policies.
The Australian Productivity Commission report illustrates how the motor industry does have a role in helping countries move into being industrial powerhouses, but once a nation becomes a high cost economy it takes more than dumb subsidies to maintain a competitive advantage.
Germany and the US illustrate this, and the fact both countries’ motor industries are running at greater than 80% capacity shows how their automotive sectors are evolving. It’s no co-incidence that electric car manufacturer Tesla Motor’s plant in Fremont, California was a former GM-Toyota joint venture factory.
As motor vehicles become increasingly clever so too are their manufacturers; unless car builders and governments are prepared to invest in the brains of their workers and modern technology then they have little future in the 21st Century.
For nations, the question is whether the Twentieth Century model of building a car industry is relevant in this century. It may well be that other industries will drive the successful economies of the next hundred years.
The UN has eight goals that were set out at the beginning of the century and in a progress report issued in September, United Nations Secretary-General Ban Ki-moon laid out the program’s successes.
Of the eight goals, Ban Ki-moon cites reducing poverty, increasing access to safe water, improving the lives of slum dwellers and achieving gender parity in primary schools as being successes under the plan, although there’s much room for improvement.
“The picture is mixed,” Mr. Ban said. “We can do better. The best way to prepare for the post-2015 era is to demonstrate that when the international community commits to a global partnership for development, it means it and directs its resources to where they are most needed.”
A sad statistic is that aid to the 40 poorest countries fell by 7.9% in 2012 and the Doha round of global trade talks, where the hope is trade liberalisation will help the most disadvantaged economies, remains stalled.
From a technologist’s point of view the adoption of the internet and IT is of interest with the report claiming the number of internet users in the developing world grew 12% while broadband penetration increased by a quarter.
While those numbers are encouraging, it’s hard though not to think that in the poorest countries access to more fundamental agricultural technologies and infrastructure – such as reliable electricity, water and roads – is more critical to development than the internet and ICT.
At Christmas, it’s worthwhile those of us in the affluent developed world consider how fortunate we’ve been to be born in a place and time that makes us the best fed and most comfortable humans that have ever lived.
That good fortune isn’t shared by everyone on our planet and that’s something we should be considering when we look at the consequences of our personal economic, political and technology choices.
While the Bloomberg story focuses on the contrast between Lee and her father who benefitted from the post World War II economic boom, the real story is Lee’s work history.
Key to her work history is her setting up a business in 1986, that business failed in the late 1980s recession and Lee ponders what might have been had she not made that investment.
Lee sometimes can’t help dreaming about the trips she’d be planning if she’d invested the $150,000 she spent to start a construction company.
This is the downside setting up your own business that those currently peddling the cult of the entrepreneur don’t mention. If the business fails, and many do, then the costs can be high in lost savings and damaged career opportunities. Being an entrepreneur is high risk, hard work.
We may well find though that more people find themselves launching businesses in their older years as the economic realities of the post baby boom era start to be felt by communities.
In many respects though Lee is ahead of the curve, the generation behind her have no expectations of a long and affluent retirement, “the government will abolish the pension about two years before I retire” is the common theme among Gen Xer and Ys.
For GenYs and Xers this attitude is realistic, the demographic sums that worked for Lee’s father are now working against them while the post war economic system that guaranteed Lew Manchester a safe job and company pension ceased to exist in the 1980s.
Had boomers like Lee been thriftier, they would have still been hurt by a shift to 401(k) accounts from pensions in the 1980s. Thirty-seven percent of the elderly in the U.S. collect pensions, which provide some guaranteed income until they die. Fewer than 10 percent of boomers collect pensions, and that number is quickly shrinking.
Lew’s generation were the lucky ones, while the boomers – particularly the early boomers born between 1945 and 55 – believe they are entitled to similar benefits as their parents, their reality is going to be a much harder and precarious existence into old age.
While Lee is paying the price for interrupting her career with a stab at running her own business, in many ways she’s better prepared for a future that is going to require people of all ages to be more entrepreneurial.
In fact, many of those baby boomers forced to become entrepreneurs may well enjoy it, “launching the business was the most fun I ever had and my way to fight a frightening medical diagnosis” says Lee.
As the reality of their financial situation dawns upon them, many of Lee’s contemporaries are going to find themselves launching businesses long after the age they thought they were going to settle into a sedate retirement – lets hope they have fun too.
While the British government sees this as being an investment in grabbing the nation a share of what they believe to be a £400 billion global market, it’s also an opportunity to rejuvenate the county’s cities, as this video clip explaining what being a smart city has to offer Birmingham.
Like Barcelona and San Francisco tech and smart city policies, the UK initiative was born out of the 2008 Global Financial Crisis which forced the British political and business establishment to rethink the nation’s economic position and policies.
A key part of that rethink is how infrastructure spending can be co-ordinated with new technologies and this is something Barcelona is doing with its own smart city project in rolling out fiber networks as part of scheduled maintenance around the town.
The Glasgow Future Cities Demonstrator aims to address some of the city’s most pressing energy and health needs. For example, developing systems to help tackle fuel poverty and to look at long-standing health issues such as low life expectancy.
Glasgow’s objectives go beyond the usual open data and parking spot strategies and attacking low life expectancy and poverty are strong social challenges.
With buy-in from the national government, the UK is making a strong big to lead the smart city industries. The challenge now is for British businesses to step up and find the commercial opportunities.
How did San Francisco become the darling of the tech scene?
Regular visitors to San Francisco would notice how the city has changed in the last few years.
Companies that were setting up in Silicon Valley are now basing themselves downtown, the business community is energised and the seedier parts of the town are looking substantially spruced up.
Laurel is the council’s Director of Business Development and we discussed how the local government has worked with the community and business leaders to drive San Francisco’s economic growth.
The shift from Silicon Valley
A striking change in the tech industry is how the startup focus has shifted from Silicon Valley fifty miles away to downtown San Francisco. Laurel puts it down to a shift in the priorities of the sector.
“I think we benefited from a shift in the tech industry, being much more focused on design and user experience,” says Laurel.
“The people who are investing in that are people who want in San Francisco and people who want to live and work in the same city.”
“A lot of the entrepreneurs creating those companies are concerned their employees see people using their products, they want them riding the bus to and from work and see people interacting with their products.”
Changing the tax code
Like Barcelona, the Global Financial Crisis shook the city up, “with the economic downturn our whole city made jobs a top priority.”
Part of that review focused on the disadvantages of basing a business in San Francisco.
“It was bought to our attention that we were the only city in California that taxed stock options.” Laura says, “companies that wanted to go public were having to leave San Francisco to afford it.”
“We did an entire revision to our tax code which showed to investors they could count on San Francisco to be business friendly.”
Regenerating communities
Along with the problem of city taxes, the city was facing the problem of regenerating blighted neighbourhoods and the administration decided to address both problems together by offering incentives for businesses to setup in the mid-market district – I’d been warned not to call it ‘The Tenderloin.’
“We had a neighbourhood that was facing a lot of blight and we had not been able to successfully increase business and we had companies like Twitter telling us that our payroll tax was causing them problems and making it hard for them to grow in San Francisco,” Laura tells.
“So we combined those two problems and made it so a San Francisco company was able to move into a neighbourhood that needed more investment and business and it would be able to save some money while helping us improve the neighbourhood.”
The future for San Francisco
A common point when talking to city leaders and economic development agencies around the world is the focus on building a diverse economy and Laura sees that as part of the future for San Francisco.
In that vision includes manufacturing, biotechnology and tourism along with the internet based industries that are today’s investment and media darlings.
The focus though is on the city’s residents and how life can be improved for everyone, not just the business community and high tech investors.
“We are really focused on creating an economy for all,” says Laura. “We want to remain as diverse as possible.”
“Every San Franciscan, from no matter what socio-economic background, has a place that they can be.”
Governments are beginning to recognise manufacturing is part of any advanced economy, some though are struggling to abandon the last thirty years of ideology.
The latest Decoding The New Economy interview feature Laurel Barsotti, Director of Business Development at the City of San Francisco discussing how the city refound it’s entrepreneurial mojo.
A notable point about Laurel’s interview is how she has similar views to Barcelona’s Deputy Mayor Antoni Vives about the importance of industry to San Francisco.
For some time it was an article of faith in the Anglo-Saxon world that the west had become post-industrial economy where manufacturing was something dispatched to the third world and rich white folk could live well selling each other real estate and managing their neighbours’ investment funds.
“Opening doors for each other” was how a US diplomat described this 1980s vision according to former BBC political correspondent John Cole.
It’s clear now that vision was flawed and now leaders are having to think about where manufacturing, and other industries, sit in their economic plans.
Barcelona’s and San Francisco’s governments have understood this, but others are struggling to realise this is even a problem as they hang on to dreams of running their economies on tourism, finance and flogging their decidedly ordinary college courses to foreign students.
For some political and business leaders this is a challenge to their fundamental economic beliefs. It’s going to be interesting to see how they fare in the next twenty years.
What should measure the success of technology incubators and hubs? London’s Google Campus gives us some clues.What should measure the success of technology incubators and hubs?
What jumped out of that story is the quote from Benjamin Southworth, the former deputy chief of the Tech City Investment Organistion, that London’s first tech IPO is “probably 18 to 24 months away”
Southworth’s comments raise the question of how do you measure the success of initiatives like Tech City, does a stockmarket float indicate success of business or tech cluster?
The debacle of Australia’s Freelancer float which saw the shares soar over 400% on the first day of trading certainly doesn’t indicate anything promising about the startup scene down under apart from the opportunities for those well connected with insiders on Australian Security Exchange traded stocks.
In London’s case, Google’s Campus gives a far better indicator of what tech hubs and industrial clusters can add to an economy – £34m raised from investors in the 12 months to October 2013, 576 jobs created and 22,000 members of its coworking space.
Google’s statistics raise an interesting point about the different objectives for the stakeholders in incubators and hubs; entrepreneurs want money or glory, investors want returns, corporate backers want intellectual property or marketing kudos, governments want jobs and politicians want photo opportunities with happy constituents.
These different objectives means there are different measures for success and one group’s success might mean bitter disappointment for some of the others.
What the various partners define as success is something anyone involved in an incubator or hub should consider before becoming involved, in that respect it’s like a business or a marriage.
The internet of things promises to make industry more efficient, but what will happen to employment?
One of the common worries about the internet of things and the automation of business processes is that many jobs are going to be lost as a consequence.
This is a fair concern however we need to keep in perspective just how radically employment has changed in the last century.
Concerns about technology displacing occupations is nothing new; in the eighteenth century the Luddite movement was a reaction to skilled workers being displaced by new innovations.
In an interview with GE’s Chief Economist Marco Annunziata, published in Business Spectator, we covered this topic and Marco had a valid point that the bulk of the Western world’s workforce was employed in agriculture a hundred years ago.
Today it’s less than two percent in most developed country as agriculture became heavily automated, yet most of those workers who would once have worked in the fields have productive jobs. “As an economist I look at this over a long term perspective and I’ve heard this concern about technology displacing jobs over and over again.”
Annunziata sees new roles being created, among them what he calls ‘mechanical-digital engineers’ who understand both how the actual machines work as well as the data and the software used to run and monitor them.
This isn’t to say there won’t be massive disruption – John Steinbeck’s Grapes of Wrath described the massive dislocation that happened in the United States with the first wave of agricultural mechanisation in the 1920s and the decline in rural communities is due directly to modern farms not needing the large workforces that sustained many country towns.
We can’t see where the jobs of the future will be and just roles like as Search Engine Optimisation and ecommerce experts where unheard of twenty years ago, our kids will be working in occupations we haven’t contemplated.
It’s up to us to give our kids the skills and flexibility of thinking that will let them find opportunities in a very different workplace.
Will communities have to volunteer their own labour to make up for service cuts by cash strapped governments?
In the English Midlands the leader of Birmingham City Council, the wonderfully named Sir Albert Bore, recently suggested a ‘citizens army’ be raised to provide services such as libraries that are being affected by budget cuts.
Bore’s suggestion is a response to his council cutting library services in the face of community anger and legislative obligations, to assuage both pressures it’s hoped local volunteers can continue to run and maintain the threatened facilities.
The bind Albert Bore and the Birmingham City Council find themselves in is a quandary all communities and governments are facing as an aging population causes tax revenues to decline at the very time the demand for government services increases.
Faced with cuts, many groups are going to have to take matters into their own hands to keep services running. Some communities will do this well while others won’t.
It’s also going to be interesting to see how this plays over generations with baby boomers being far more likely to volunteer than their GenX or GenY kids, something probably caused by more precarious job security in the modern job market and the need for younger couples to work harder and longer than their parents to pay their rent or mortgage.
Angry baby boomers demanding the ‘government ought to do something’ may well find the onus is thrown back onto them to provide the services they believe they’re entitled to.
What is the most fascinating part of this predictable situation is how governments around the developed world have blissfully pretended that this wasn’t going to happen as their populations aged.
Perhaps the biggest citizens’ army of all will be the voters asking why the Western world’s governments and political parties ignored obvious and inevitable demographic trends for the last fifty years. That would be a question worth answering.
“We’re not just going to back the big businesses of today, we’re going to back the businesses of tomorrow.” Cameron said. “We are firmly on the side of the high-growth, highly innovative companies of the future.
Three years later London’s tech scene is booming with more than fifty incubators across the city and over three thousand digitally connected businesses in the Shoreditch district.
Building London’s resurgence
Gordon Innes, the CEO of the city’s economic development agency London and Partners, puts this down to a combination of factors including a young and diverse population coupled with being a global media and finance centre.
At the time of Cameron’s speech the cluster of tech startups around Shoreditch’s Silicon Roundabout area was already firmly established and the British government was acknowledging the industry’s successes.
“What we did, what the mayor did, what the government did,” Innes said, was to make sure that we removed as many barriers as possible to let the sector grow as rapidly as possible.”
The value of teamwork
Part of that effort involved business leaders, London & Partners, the mayor’s and Prime Minister’s advisers meeting on a regular basis to thrash out what the tech sector needed for the UK’s tech sector to thrive.
“There were changes to the tax credits for R&D and an important one was the Enterprise Incentive Scheme,” says Innes.
“Linked to that was a recognition of the need to link angels and high net worth individuals to be educated about the sector. It’s not just enough to balance the risk through the tax code.”
Another success for the UK startup sector was the British government introducing an entrepreneur’s visa that makes the country more attractive to foreign founders of startups.
Having built an community of tech startups, the city is now looking at how to grow the sector. “The big priority over the next few years is growing your business in London.” Innes says.
“Making sure you’ve not only have access to angel finance but also to stage one and stage two venture fund capital, you’ve got access to capital markets through new groups on the stock exchange and the AIM market.”
One of London’s big challenges is linking the city’s strong financial sector to the tech industry with a range of organisations like London Angels and City Meets Tech.
Sharing the vision
A notable point about the successes of London & Partners and Tech City UK is the co-operation between the levels of government along with having a shared vision of where the city should sit in the global economy.
Having a unified, strong and consistent vision is probably the best thing governments can offer a growing entrepreneurial or industry hub.
“Government can’t create that but government can certainly support it or, if it’s not careful, can destroy it,” says Innes.
London is showing how to support a growing sector of their business community, other cities need to be taking note how they can compete in a tough global market.
How Barcelona is using smart devices to make their city better.
Spain and Barcelona have faced challenges in recent years as the economy was hit hard by the 2008 crisis. Now the city is looking to the internet for the next wave of prosperity.
This quest for reinvention isn’t new for the city, “Barcelona used to be an industrial city, that was badly hit by the economic crisis of the seventies,” said Deputy Mayor Antoni Vives. “There were some guys in the city at the time that decided that we had to keep on being an important city.”
“There’s a new generation of politicians, civil servants, of thinkers and people committed to the city that ten years ago started to work on a new phase of what the city was to become.”
Antoni Vives – Deputy Mayor of Barcelona
“We decided that Barcelona had to become the edgiest city in the world related to the new revolution and the new revolution was this one — the technology related to mobility, devices and mainly the internet.”
That vision resulted in Barcelona starting to rewire the city which was one of the reasons for Cisco choosing the city as the venue for its inaugural Internet of Things World Forum.
As part of the event, the City took delegates on tours of some of the connected infrastructure the city has installed. Here’s what we learned on the press tour.
The digital bus stop
Digital bus stop
The digital bus stop is one of the prides of Barcelona, not only does it display digital advertising and real time bus schedules it also offers tourist information, USB charging sockets and acts as a free WiFi base station.
One of the barriers Barcelona has encountered has been the Spanish telecoms regulators objection to the city providing municipal WiFi so services are restricted to the city’s property, which happens to include bus stops.
The bus stops themselves are connected to the city’s fibre network that runs most of the backhaul and connects many of the fixed devices.
Smart parking spots
Smart parking space
Connected to the city’s WiFi network are these smart parking spaces that detect the presence of cars through a combination of light and metal detectors.
The city’s plan is that payment and monitoring of the smart parking spots will happen online and with smartphone apps.
Powering the dot, which is a fairly dumb device, is a battery with an expected five to seven year lifespan. Interestingly, the dots don’t work with motorcycles.
One of the reporters on the tour questioned the durability of these devices given Barcelona doesn’t get extreme temperatures, the response from the Cisco and city staff indicates that ice or hot weather may shorten the lifespan of these devices.
Smart lighting and monitoring
Smart lights and monitors
In the square outside the Born Cultural Centre, the city has installed a row of streetlights with multiple features including CCTV, air monitoring and Wifi. All of these lights are connected to the city’s 500Km long undeground fibre network.
The fibre network itself is being installed progressively as the city carries out routine maintenance to roads and other underground services. By co-ordinating the work with other trades it reduces the installation cost dramatically.
Smart censors in the street lights
Smart rubbish bins
Smart rubbish bins in Barcelona
The connected garbage bins are one of the showpieces of the city’s services. By monitoring trash levels, the council’s sanitation team can plot the optimal routes for collection services.
Smart rubbish bins sensor
Again the sensors on the bins are fairly dumb devices that connect wirelessly to a base station, shown on the pole above the bins in the earlier photo, these track rubbish levels and later versions are expected to detect the presence of obnoxious or hazardous materials that might be dumped in the bin.
Single person operation of the connected garbage truck
Operators of the garbage trucks get real time updates to their routes which optimises their productivity. It’s cost savings in the city’s operations which is one of the key drivers for the city’s investment in these technologies.
Power savings
Smart lighting systems
One of the major cost savings identified by the Barcelona Council is in energy costs. Along with the expense of running garbage trucks unnecessarily are power bills.
Part of the smart lighting system is that it will dim when there’s no motion detected in the streets and lighten when pedestrians are around. This is intended to save money and help the city meet it’s zero carbon emission targets.
Barcelona and the future
Every single one of the technologies being shown today in Barcelona will be commonplace in most developed cities in the near future.
The problem for adopting these systems is going to be connectivity, in places where there aren’t the fibre optic services or easily deployed WiFi it will be difficult to install smart devices and monitor them.
Every major city is going to be facing the question of how they deploy these devices over the next decade as their residents expect better and more efficient service. Barcelona has taken the first steps that most others will follow.
