Tag: economy

We’re crazy, not stupid

Alibaba’s Jack Ma has a fascinating snapshot of how global trade is going through a radical period of change

“We’re crazy, not stupid” is how Jack Ma describes his Alibaba team in an interview at the World Economic Forum in Davos, Switzerland, yesterday.

Much has been written about Jack Ma and the spectacular success of Alibaba and the WEF session with Charlie Rose is an opportunity for Ma to flesh out the story and destroy some of the myths.

One of the fascinating anecdotes Ma tells is how US cherry growers are preselling their harvests to Chinese customers through Alibaba and cites various other primary producers doing similar campaigns as how American small businesses can sell into the PRC market.

Ma’s interview is a fascinating snapshot of how global trade is going through a radical period of change, the shifting of China’s economy and where the future lies for many industries.

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Measuring Facebook’s network effect

Has Facebook really been responsible for creating over four million jobs?

It’s always best to treat a business’ or industry group’s claims of economic benefits with a grain of salt and the survey released yesterday by Deloitte on measuring Facebook’s effects on the global economy is a good example.

Facebook’s Global Economic Impact looks at what the social media service added to the world’s economy and finds the company created 4.5m jobs and $227 billion of value in 2014 outside of its own operations.

Deloitte’s analysis breaks down Facebook’s effects into three general categories; platform effects, connectivity effects and market effects.

In coming to their figures, Deloitte’s researchers further broke the numbers down into the direct revenues of businesses using Facebook, the indirect impact upon suppliers and the ‘induced effect’ of employee spending patterns.

The basic formula, although the methodology gets quite complex in extrapolating the value added, is described in this illustration.

deloitte-calculation-of-facebook-value-add

The main areas of contention are the employment multiplier effect, which Deloitte marks at 3.1 in Brazil down to 2.1 in the UK with the United States coming in at 2.7, and the valuation of individual Facebook actions.

For example here is the description of how companies’  page engagement is valued;

Sales from Page engagement are estimated as
a product of the total sales of businesses with
Pages and the sales uplift estimated due to their engagement on Pages (see section A3 for how elasticities are estimated by econometric methods). The total sales of the businesses that have a Facebook Page are estimated using the revenues of the private sector in the economy based on national statistics. Survey evidence is then used on the percentage of businesses with a Page in the US and the UK.

For the rest of the world, the value of a liking action of a Page is estimated using relative GDP per capita of each country to the UK and USA to reflect the local economic conditions.

The gross revenue supported by Pages is then the product of the number of Pages liked and the value of a liking action of a Page.

The key here is the word estimated, there’s no doubt it’s in the interests of Facebook, the marketing agencies and the staff employed to manage social media to overstate this effect; it’s an arbitrary at best measure.

Marketing is claimed to be the most valuable aspect of Facebook, accounting for about two thirds of the service’s claimed economic value with a $148 billion contribution. Deloitte defines marketing effects as “the impact from businesses’ use of Facebook marketing tools to drive online and offline sales, and to increase awareness of their brand.”

Again this is subject to a number of arbitrary definitions and guesstimates which take us into the tricky area on measuring social media’s Return On Investment.

The reason why the numbers don’t pass the smell test is because of the sheer size; in Australia for instance the company’s effects are valued at $5.7 billion and employment generated at 63,000 workers. If we fully apply the 2.6 multiplier Deloitte attributes to the country this would suggest over 17,000 Australian workers are directly employed full time in running Facebook related tasks.

While it’s hard not to be sceptical of Deloitte’s numbers, it certainly is true that social media platforms have opened new roles for administrators, developers and other staff. We just need to be a touch cautious of overstating the benefits.

For businesses, probably the best lesson from Deloitte’s survey is to measure the genuine effects of social media on a business there have to be properly thought out measures and objectives. Guesstimates are not good enough.

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Daily Links – the poor part of Silicon Valley, Robert Crumb on Charlie Hebdo and life in Managua

The poor part of Silicon Valley, Robert Crumb on Charlie Hebdo and life in Managua

Being a Sunday some long reads; an interview with American cartoonist Robert Crumb on his reaction to the Charlie Hebdo murders, life in the Nicaragua markets and the other side of Silicon Valley.

East of Silicon Valley’s Eden

Silicon Valley is one of the world’s most affluent regions but it has it’s poor areas, across the road from Facebook’s head office sits one of the area’s most disadvantaged neighbourhoods. East of Palo Alto’s Eden tells the story of segregation and disadvantage that has left East Palo Alto behind the rest of Silicon Valley.

Robert Crumb on Charlie Hebdo

‘I thought, I gotta do it. They asked me. I gotta do it…Otherwise, everybody’s going to think: “Where’s Crumb? Why doesn’t he come forward? What the hell’s the matter with him?”’

Legendary US cartoonist Frank Crumb, now resident in France, gives his views on the Charlie Hebdo murders.

How a family survives on $4.50 a day

A good story on the tough life of Nicaraguan market traders who live on half the national minimum wage.

“East Palo Alto PA Airport Moffett Field P1190059” by David.Monniaux – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons

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Links of the day – Terrorism, deflation and London’s rebirth

The terrorist murders in Paris lead today’s links of the day.

Today’s links kick off with the worldwide reaction to the terrorist atrocity in Paris. The other links, which pale in contrast, include why we should really fear deflation, the decline and rise of China and how to understand a food critic.

Cartoonists unite over French terrorist murders

After the terrorist atrocity that saw twelve people murdered in an attack on a magazine office in Paris, cartoonists around the world have shown their reaction.

Why Europeans should fear deflation

Yesterday the main economic news was the Eurozone had re-entered a deflationary period. Irish economist David McWilliams explains why deflation scares governments and banks with some lessons from the Great Depression.

The decline and rise of London

In 1939 London reached its peak population of 8.3 million then saw declines for the next fifty years as war, government policies and economic restructuring saw the city’s attractions wane.

Sometime this week London will pass its 1939 peak and Citymetric magazine looks at the reasons for the decline and why the recovery began.

China’s incredible disappearing former leader

In November 2012 Chinese leader Hu Jintao stepped down from his post. Since then he’s effectively disappeared from public view Foreign Policy magazine reports.

At the same time many of his allies and supporters have been purged from their party positions as part of a major change in direction for the Chinese government. What this means for the parties’ cronies who’ve been propping up property prices across the Pacific and Macau’s lucrative casino business remains to be seen.

What restaurants should know about food critics

First impressions matter warns former restaurant critic for the New York Times and Los Angeles Times, Ruth Reichl, in a terrific interview with Open For Business.

Reichl’s advice is good for pretty well any business; make sure your first impressions are good, don’t rip off your customers or be too pushy with upselling and train your staff. It’s an entertaining insight into a field dominated by egos that’s largely becoming extinct.

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Work in an age of abundance

Our society is changing as we enter an age of abundant information and automation

We aren’t prepared for the changes technology is bringing our society warns Vivek Wadhwa in Our future of abundance—and joblessness.

Vivek makes the important point that in the near future many of the jobs we take for granted today will be replaced by machines, this is similar to the warning from Andrew McAfee that a wave of innovation is going to overrun businesses over the next two years.

That innovation is going to cause massive disruption; as Vivek notes we’re going to see the loss of jobs in occupations as diverse as taxi drivers, farmers and – probably the most underestimated of all affected occupations – managers.

Of course this is not first time we’ve seen massive changes to our economy and over the last century farming has gone from one of the most labour intensive industries to one of the most automated.

The automation that changed farming though created millions of new jobs; today’s retail and food industries employ far more people than agriculture did a century ago and most of those jobs were made possible by the same technologies that reduces the need for farm workers.

Vivek acknowledges this in quoting Ray Kurzweil in that jobs are lost only if we look narrowly at  the industries and communities affected.

Automation always eliminates more jobs than it creates if you only look at the circumstances narrowly surrounding the automation.  That’s what the Luddites saw in the early nineteenth century in the textile industry in England.  The new jobs came from increased prosperity and new industries that were not seen.

What we have to acknowledge though is the transition to a new economy won’t be painless and that millions of people will be dislocated and some communities will cease to exist – just as the bulk of the developed world’s populations moved from rural villages to industrial cities during the Twentieth Century.

The truth is we don’t know how that process is going to evolve; then again, neither did our forebears a hundred years ago.

A hundred years ago we were at the beginning of an age of abundant energy and that changed society beyond recognition in the course of the century, at the end of this century of abundance our society will be very different again.

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A need for cultural change

Creating a more resilient economy will take a culture shift and a change in the way all of us think.

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.

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Acknowledging the human costs of disruption

Disruption and change come at a human cost that we need to acknowledge

As we talk of the dramatic changes facing business and society today it’s worthwhile noting a  much greater displacement happened in the Twentieth Century as electricity, the motor car and communications drove the greatest increase in standards of living that humans have ever seen.

Our great-great grandparents lived through a period of change far greater than that we will see as their lives and communities were radically transformed.

Many common jobs in the early 1900s had ceased to exist by the middle of the century as cars replaced horses, mains electricity replaced town gas and refrigeration changed shopping habits. In the second half of the century affordable motor vehicles and television saw our cities reshaped around suburban life, a process now being reversed.

The structural change to economies saw a shift in population and jobs; a hundred years ago thirty percent of the US labor force was employed in agriculture, today it’s around two percent. Despite the shift, jobs were eventually found for those displaced from farms.

Shifting from an agricultural economy to an industrial society didn’t come without costs however,  the price paid by the affected communities and individuals was huge as documented by Steinbeck’s Grapes of Wrath and Dorothea Lange’s photos.

While it’s unlikely we’ll see the deprivation of The Great Depression repeated in a modern welfare state, it’s important to recognise the real human costs of technological change. For politicians and community leaders it could define how history judges them.

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