economy | Paul Wallbank - Communications Professional

BlackBerry and the transition effect

BlackBerry are the classic case of a transition effect company that benefits, and then is squashed, by industry innovation.

Three months ago this site speculated if BlackBerry had shipped their last smartphone with the Android based Priv handset.

Yesterday BlackBerry announced disappointing sales of the Priv in their latest quarterly financial report, so things aren’t looking good for the company’s hardware business.

It looks like BlackBerry is a great example of a transition effect where a product, occupation or business has a brief period of success as an industry changes before being rendered obsolete by those same forces.

The need for executives to access their emails on mobile devices was the reason for BlackBerry’s success so when the iPhone recast the definition of the smartphone and included email as a standard feature of the device, the reason for BlackBerry handsets existing evaporated.

In many respects, BlackBerry are the perfect example of a disruptor being disrupted.

BlackBerry’s hope to remain a stand alone company lies in the security software and services space, a field where management have been investing heavily in recent years. How well they travel will depend now on how quickly they can jettison old business ideas.

Playing Innovation Buzzword Bingo

Can discussion over Australia’s 21st Century challenges move beyond shallow buzzwords?

One of the frustrations of being a technologist in Australia is how the media, and population in general, doesn’t pay much attention to technology stories beyond the latest shiny consumer device or quirky stories from the weird and wonderful internet.

So when one of the nation’s main political TV programs, Q and A, decides to do a program on the government’s Innovation Statement with a panel involved in the tech and startup sectors it’s a must watch.

As usual the Q and A format lets the viewer down with the panel suffering from having an unwieldy six guests of which two are major party politicians who tend to trivialise the discussion with party talking points. Regardless of the topic, the show usually ends up an unsatisfactory experience for anyone wanting to explore the evening’s issue.

Startup focus

In the case of last night’s panel the initial focus of the discussion reflected the startup obsession of most commentary around the Innovation Statement.

While encouraging Australians to start new businesses and take entrepreneurial risks is worthwhile, it’s concerning much of the thinking is based around the current Silicon Valley startup model which is based on easy access to venture capital and ruthless marketing.

Coupled with that is a surprising hostility towards the research community and education establishment, while there the panel featured no discussion of how little Australian corporations invest in research or development.

Lacking diversity

This little genuine research and development carried out by corporate Australia exacerbates the nation’s poor economic and business diversity. The effects of that are crushing for those studying in high tech fields.

One audience question came from a young woman, Elana Nerwich who is studying mechatronics. She correctly noted in Australia, it’s unlikely she will get a private sector job in that field and some of the panelists advised her to stick with it and build their own startup.

While admirable, that advice overlooks how high level workers can’t advance their skills in the Australian economy. This in turn results in more derivative taxi and pizza delivery apps rather than genuine innovations using cutting edge technologies being applied in the private sector, which are the real drivers of economic growth.

Concentrated economic power

Another issue for the Australian economy is how the nation’s economic power is concentrated in the inner parts of Sydney and Melbourne, something briefly flagged by panellist Holly Ransom. The startup obsession exacerbates that concentration of talent and business in the same way it does in San Francisco, if anything it illustrates the weaknesses of applying the Silicon Valley VC model to other societies.

Sadly a deeper discussion on how the Innovation Statement’s benefits can spread beyond the affluent parts of Sydney and Melbourne was beyond the scope or focus of the Q and A panel. That the challenges of regional Australia are restricted to the occasional token program in a country town illustrates both the limitations of Q and A format and the nation’s Sydney centric media.

The greatest take away from the Q and A innovation panel though was how Australians are dependent upon government. Almost all the discussion around how the nation becomes ‘innovative’ was around government policies and not on how does a nations of complacent conformists create a competitive 21st Century economy.

Explaining innovation

Which leads us to the biggest unanswered question from the Q and A show – what does ‘innovation’ really mean?

For the average viewer watching this program the conclusion would be ‘innovation’ is a meaningless string of buzzwords put together by a group of people lobbying for government support.

Those pleas for government funding illustrates the greatest weakness in the current Australian mindset, the nation’s real problem is the private sector’s reluctance to invest in new industries and technologies. Rather than throwing money at startup incubators, the most important thing the country’s politicians can do is reform taxation and corporate governance rules to encourage productive investment over property speculation and incumbent ticket clipping.

Sadly little of that was discussed on the Q and A program partly as a result of its clunky format.

Australia faces a great challenge in pivoting from a successful late Twentieth Century economy into one that’s competitive in the 21st, sadly the Q and A program format left us with nothing more than more buzzwords while failing to convey the opportunities for the nation.

Rebuilding America’s communities

The Atlantic’s James Fallows explores how America’s communities are adapting to a new economy

One of the features of the Twenty-first Century will be how communities take over providing their own services as cash strapped governments find it difficult to provide the services citizens expect.

In many respects the United States is ahead of the rest of the world in this as the decentralised nature of US government sees many functions being the responsibilities of local county and city agencies.

Following the 2008 financial crisis many smaller cities and rural counties found their revenues crunched, for many of them this compounded thirty years of economic decline as local industries folded or fled overseas.

James Fallows in the Atlantic recounts a trip with his wife across the United States where they visited communities rebuilding themselves in the face of economic adversity.

In his long piece detailing how those different communities are rebuilding, Fallows comes to the conclusion a new political consciousness is evolving among the groups working to change their cities. While early, the common objectives of these groups will evolve into a movement.

Fallows marks what will almost certainly be a defining feature of today’s first world nations as their politics evolve around these movements.

Australia’s lost dreams of global champions

The tale of regulatory mis-steps and dashed political hopes of telecommunications policy illustrates the failure of Australia’s ‘go big, go global’ policies of the 1980s.

One the notable things about the Australian economy is how most sectors are dominated by a handful of corporations.

The concentration of Australia’s business power has its roots in the 1980s where the then Hawke Labor government decided the nation’s corporations couldn’t be globally competitive unless they had scale in the home markets, and so a wave of mergers and acquisitions started.

An industry that was particularly problematic was telecommunications. At the time Hawke came to power in 1983 there were three government owned telcos; Telecom Australia that operated the domestic network and the Overseas Telecommunication Corporation which handled the nation’s global links along with a small satellite provider, Aussat, intended for remote access and some defense functions.

David Havyatt at InnovationAus describes the late 1980s thinking that lead to Telecom and OTC being merged to become Telstra, the company that dominates the Australian telecommunications industry today.

The then political troika of Prime Minister Bob Hawke, Treasurer Paul Keating and communications minister Kim Beazley decided allowing OTC and Telstra to merge would give the company global scale, as Havyatt quotes from a policy discussion around 1990.

“A strong vertically integrated national carrier which is able to provide a one-stop-shop for Australia’s telecommunications services both domestically and internationally, providing economies of scale and scope and the prospect of a unified and enhanced international profile.”

Despite the lofty ambitions and a few half hearted attempts to grow global business operations, a quarter century on sees Telstra’s international returns at an almost derisory level.

Dodging global bullets

One could argue that Telstra’s shareholders dodged a bullet – Canada’s Nortel followed the same path and, after early successes, failed spectacularly in the early 2000s.

For Australians in general though, Telstra’s insular focus has been a disaster as maintenance and investments were deferred to make the company’s yields more attractive and the Howard government’s compounding the Labor party’s mistakes in fully privatising the business without breaking its monopoly power.

Which lead Australia into the folly of the National Broadband Network – while the original intention of investing in the telecommunication sector and breaking Telstra’s lock on the industry was a good idea and supported by this writer – it quickly morphed into a massive waste of money and remains so today. If anything, the NBN will only increase Telstra’s market power while delivering more expensive services to the nation.

Missed opportunities

The tale of regulatory mis-steps and dashed political hopes illustrates the failure of Australia’s ‘go big, go global’ policies of the 1980s. Today, Australia is more dependent on mining exports than it has been in more than 50 years while manufacturing and services have actually fallen since the 1980s as a proportion of outward trade.

Australian exports by sector: Department of Foreign affairs and trade

Notable in the above graph is how in the 1990s it appeared the ‘go big, go global’ was working but by the turn of the century, the combination of the mining boom and the nation’s business elites – particularly in banking, insurance, retail and media – had starting looking at exploiting their domestic markets rather than competing internationally.

While there have been successes such as Westfield in shopping centres, Lend Lease in construction and Brambles in logistics management, the bulk of Australia’s corporate leaders are inwardly focused on extracting maximum revenue from their captive local companies.

Global ownership

Increasingly, those dominant companies aren’t even Australian. The brewing industry is a good example where locally owned beer producers make up less than ten percent of the market dominated by New Zealand’s Lion Nathan and British based global conglomerate SAB Miller. Australians, it seems, cannot even brew their own beer any more.

Australia’s managers have been the greatest beneficiaries from the nation’s failed business policies as it’s insulated them from global competition, life is good when you’re the biggest fish in a tiny pond.

While good for managers, the lack of business diversity competitiveness and insular focus leaves Australia’s economy deeply exposed. The failure of the 1980’s grand vision where Australia developed a cohort of globally leading businesses is one that will be regretted by future generations as they pay higher prices for poorer products.

Australia’s contempt for technology

The contempt shown towards the technology sector by Australian governments betrays a deeper problem in the Australian mindset

“The minister sends his regrets….”

Yesterday I commented how the Australian Tech Leaders event would be a good measure of the state of the country’s technology industry. Instead it illustrated the sheer contempt the nation’s political leaders hold the industry.

One of the government’s key platforms in the upcoming election is its Innovation Statement and the accompanying Ideas Boom so it wouldn’t have been expected that a minister or at least an informed backbencher would address a room full of technology journalists.

Instead the government drafted one of their local MPs, Fiona Scott, to make the short drive up the hill from her electorate to haltingly deliver a poorly written speech that focused on her local electorate issues.

To be fair to Ms Scott, the outer Sydney suburban seat she represents is a bellweather electorate which tends to swing between parties as government changes. It also happens to have a workforce that’s beginning to feel the effects of a shifting economy. Her focus on local issues is understandable.

However as a member of a government aspiring to drive a technology driven jobs boom and the representative of an electorate whose workforce is in transition, it is remarkable that Ms Scott is so poorly briefed on tech issues.

What’s even more remarkable is the contempt shown by the government towards the country’s technology sector, a long standing problem in Australian society but particularly stark with the current administration given the Prime Minister’s fine words on the topic.

One of the saddest things about Australia’s squandered boom is how the nation turned inwards at the beginning of the Twenty-First century and decided to ignore the global technological shifts.

The contempt shown by the current government towards the technology sector shows a much deeper problem in the Australian mindset, if the country is to rely on more than its luck in the current century then it’s essential to shake off that way of thinking.

Gen X and the big economic shift

The costs of the 1970s economic shift are beginning to be recognised.

The single economic event that defines Generation X was the 1973 Oil Shock, the OPEC embargo on the west bought the post World War II era of economic growth to an end.

With stagflation gripping the western world, new solutions were sought and by the end of the decade governments touting ‘business friendly’ economic policies – more accurately ‘corporation friendly’ – were seen as the solution.

As Robert Reich described in the New York Times, these policies were not only a disaster for workers but also for the middle classes and business productivity.

A notable aspect missing in the above graph is US productivity growth has since stalled as corporations have focused on stock buy backs rather than investment. The problem has been compounded by the use of tax shelters that have resulted in huge amounts of American corporate profits being locked away in offshore bank accounts.

While those stock buy backs and arbitraging tax regimes have benefitted executives and a small cabal of fund managers, the diversion of capital from productive investment has weakened the US and global economy.

For the baby boomers, even those of the Lucky Generation who preceded GenX, that lack of investment now threatens their retirement lifestyles as incomes and government spending stagnates.

The ‘big business friendly’ ideologies of Thatcher and Reagan defined the late Twentieth Century and continue to dominate government thinking in much of the western world, it may be though that we a reaching the end of that era as the costs to the broader economy are beginning to be recognised.

For GenX and their kids, the costs are being borne now but their parents may be about to feel the costs too.

Legislating for innovation

Can bureaucrats define innovation? It seems Australia is about to find out as the country’s regulators struggle to decide what businesses will be eligible for taxation concessions under the government’s Innovation Statement.

That bureaucrats are tasked to identify what businesses are worthy ‘innovators’ is worrying for those of us who hoped the new Australian Prime Minister would end two decades of managerial complacency.

Adding to the ‘business as usual’ under the revamped government was a speech by the Minister for Mineral Resources yesterday describing the glowing future of the nation’s resource industry in face of continuing Chinese demand.

While Josh Frydenberg was delivering that speech to Canberra’s National Press Club, the world’s biggest shipping line, Maersk, reported an 83% drop in profits in the face of slowing global trade and collapsing Chinese commodity demand.

Australia’s long term economic policy of riding on the back of a never ending Chinese resources boom is looking shaky, and the luxury of a tax system that favours property speculation over productive investment is increasingly looking unsustainable.

Rather than looking at ways to define ‘innovative’ companies, Australian governments would be better served levelling the playing field to attract investment into new businesses, inventions and productive infrastructure.

Just as a narrow group of tech startups are important so is investment into new plant and equipment for agriculture, manufacturing and tourism. Encouraging workers to attain new skills should also be an objective of the tax system, instead of disallowing school fees and book costs.

The treatment of taxpayers’ education costs versus that of property speculation expenses speaks volumes about the current priorities of the Australian tax system.

For a government wanting to encourage productive, employment generating investment and building a first world economy that’s competitive in the 21st Century, the first priority should be to put all forms of investments on the same footing.

Asking a committee of well meaning bureaucrats to create an artificial group of ‘innovative businesses’ seems unlikely to help Australian workers and businesses meet the challenges of a digital century.

China’s rocky economic pivot

China’s workforce problems shows an economic pivot is rarely smooth.

As the Chinese economy adjusts to new economic realities, some of the costs are beginning to be felt.

In China’s North-East where the economy is dominated by state owned enterprises in staid heavy industries, workers are moving to more promising regions and local leaders are worried.

However with the Chinese economy pivoting, things aren’t doing so well in the more laissez-faire South Eastern provinces either with workers giving up their precious New Year’s holidays to protest unpaid wages and unfair treatment.

For the Chinese government, this worker unrest is a serious problem. How the country’s leaders try to address the causes could well have global ramifications as the world’s economy faces the reality of massive economic overcapacity.

Out of the box thinking is needed, but it may not be enough to overcome the fears and needs of ordinary, angry workers. What is clear is that an economic pivot is never smooth.

Does venture capital really matter?

Venture capital investments are concentrated in a handful of cities, but does it matter?

Around the world governments are trying to replicate the Silicon Valley startup model. But does that model really matter?

On the Citylab website, Richard Florida looks at which cities are the leading centres for startup investment.

Unsurprisingly eight of the top ten cities are in the United States with San Francisco and San Jose leading the pack. While London and Beijing make up the other two, the gap between the regions are striking with the Bay Area being home to over quarter of the world Venture Capital investment while the Chinese and London capitals com in at around two percent.

While these proportions are impressive, the numbers are not. The total VC investment identified by Florida in 2012 is $45 billion, according to the Boston Consulting Group there was $74 Trillion of funds under management in 2014.

That makes the tech venture capital sector .06% of the global funds management industry.

In the US alone over 2013 small businesses raised $518 billion in bank loans, more than ten times the global VC industry.

What this scale shows is how small the tech startup sector really is compared to the broader economy and, more importantly, how the Venture Capital model perfected in the suburbs of Silicon Valley is only one of many ways to fund new businesses.

Even in the current centre of the startup world, it’s estimated less than eight percent of San Francisco’s workforce are employed by the tech industry although that goes up to nearly a quarter in San Jose.

None of this is to say the startups are not a good investment – Thomas Edison’s first company raised $300,000 in 1878, $12 million in today’s dollars, from New York investors including JP Morgan. The Edison Electric Light Company, while relatively modest went on to being one of the best investments of the 19th Century.

That twelve million dollar investment looks like a bargain today and it’s highly likely we’ll see some of today’s startups having a similar impact on society to what Edison did 140 years ago.

Edison’s success created jobs and wealth for New Jersey and New York which helped make the region one of the richest parts of the planet during the Twentieth Century and that opportunity today is what focuses governments when looking at encouraging today’s startups.

So it’s understandable governments would want to encourage today’s Thomas Edisons (and Nikola Teslas) to set up in their cities. The trick is to find the funding models that work for tomorrow’s businesses, not what works for one select group today.

While the Silicon Valley venture capital model receives the publicity today, it isn’t the model for funding most businesses. Founders, investors and governments have plenty of other options to explore.

Bringing the Internet to the masses

In India and Myanmar we may be seeing the effects of the internet on developing economies

For the developing world, broadband and mobile communications are helping

In Myanmar, the opening of the economy has meant accessible telecommunications for the nation’s farmers reports The Atlantic.

At the same time, Indian Railway’s Telecommunications arm RailTel is opening its fibre network to the public, starting with Wi-Fi at major stations.

What is notable in both cases is the role of Facebook. In India, Facebook’s project to offer free broadband access across the nation is meeting some resistance and it’s probably no coincidence Indian Railway’s WiFi project is being run as partnership with Google.

In Myanmar on the other hand, Facebook and Snapchat are the go to destination for rural communities, it will be interesting to watch how this plays out as farmers start to use the social media service for price discovery and finding new markets – as Tencent Chairman SY Lau last year claimed was happening with Chinese communities.

One of the promises of making the Internet available to the general public was that it would enable the world to become connected, thirty years later we may be seeing the results.

Silicon Valley and the rise of Chinese innovation

Uber CEO Travis Kalanick thinks China could overtake the United States in being innovative

Silicon Valley could be soon surpassed by China warns Uber’s Travis Kalanick.

While sceptics could dismiss Kalanick’s claim as his simply sucking up to his hosts in Beijing where he made the comment, or put the statement down to a PR campaign for his company’s renewed push into China, there may be a kernel of truth.

If for nothing else, the Chinese diaspora across the Pacific Rim is known for its entrepreneurial drive. From Bangkok to San Francisco and Sydney, Chinese communities have a reputation for being full of smart and hardworking business people.

Added to the Chinese cultural aspect is history. Fifty years ago car makers in Detroit and motorbike manufacturers in Birmingham, England, scoffed at the idea that their Japanese competitors could overtake them.

Within a quarter of a century they were proved wrong.

Another concern for Silicon Valley is that it could be losing its edge. As veteran journalist Tom Foremski points out, increasingly workers in the Bay Area live in a privileged bubble.

Foremski discusses how younger, creative and innovative workers are finding opportunities in cheaper and more diverse American cities like New York’s Brooklyn.

America’s diversity, and depth of its economy, will continue to be a strength for the foreseeable future but Americans, particularly those in the Bay Area, shouldn’t be resting on its laurels.

Travis Kalanick’s warning might be dramatic, but it isn’t beyond the realms of possibility.

Where the jobs will go

An Australian state government survey outlines the impact of automation on employment

That automation is having a profound impact on existing jobs is beginning to be appreciated by governments. A study by the New South Wales government’s Parliamentary research service examines what the effects will be on the Australian state’s economy.

Like equivalent overseas studies, the report finds over half the state’s jobs – a total of 1.5 million positions – could be at risk from computerisation.

An interesting aspect of this is the bulk of the impacts being felt in the mining, construction and logistics industries. While there’s no doubt those sectors will be hard hit, particularly for lower skilled workers, the assumption is higher level positions in management and supervisory roles won’t be as greatly affected.

Examples of this include ‘professionals’ only being at a 4.6% risk of being displaced and ‘General Managers’ at 5.0%. This compares to labourers at 96.1% and 95.7% of ‘filing and registry clerks’ losing their jobs.

While there’s no doubt the lesser skilled roles are at immediate risk, and have been for decades, the rise of artificial intelligence and business automation are increasingly going to put management roles at risk.

Quibbles aside, the report is a good read on the impacts of automation and computerisation on what has been one of the western world’s more successful economies.

The hollowing out process of Australia’s middle classes it describes show that phenomenon is not just confined to the United States and this probably creates the greatest challenge to politicians as populists seek to blame foreigners and minorities for much of the population’s declining fortunes.

Almost every government in the world is facing these issues and the efforts of public servants and economists to accurately describe what’s happening has to be applauded and encouraged.

For voters and workers, reading these reports to understand the forces changing their industries and communities is essential to making informed choices at the ballot box and the workplace.