Tag: government

Taking responsibility for algorithms

In a smart connected world awry algorithms pose a number of risks. What should regulators do?

Who is responsible for the effect of renegade computer programs is going to become a serious legal topic as an increasing number of things become ‘intelligent” and connected to the internet.

Britain’s Financial Conduct Authority (FCA) is one of the first regulators to start looking at how companies’ algorithms. In their just released rules for wholesale traders, the FCA sets out the responsibilities for companies and their managers.

“We are determined to embed a culture of personal responsibility within the banking sector,” says the FCA’s Acting Chief Executive Tracey McDermott. “Clear individual accountability should focus minds, drive up standards, and make firms easier to run and to supervise. And if things go wrong, it will allow senior managers to be held to account for misconduct that falls within their area of responsibility.”

The definition of ‘misconduct’ when an algorithm goes awry will undoubtedly prove contentious, as will the idea of ‘personal responsibility’ in the banking sector.

While it’s too tempting to be dismissive of such move in the financial services industry, the FCA’s regulations are a pointer of what most industries are going to face over the next ten years as the more devices make decisions for themselves or communicate with other equipment over the Internet of Things.

In many areas the question of who is responsible for a rogue computer program will be left to the uncertainties of the legal system with no doubt many surprises, injustices, inconsistencies and unintended consequences so the earlier regulators develop a framework for dealing with mishaps the better.

Should the IoT start delivering on its promise of a connected world a poorly designed algorithm in even what should be relatively trivial devices or services may have the potential to cause massive disruption and damage. It’s hard not to imagine many other regulators in other industries are looking at how to attribute responsibilities, if not minimise risk, in a smart connected world.

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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.

global-startup-cities

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.

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Reinvigorating Australia’s research sector

How an outward focus might reinvigorate Australia’s besieged research sector

Could Australia’s poor track record in commercialising research be turned into an advantage? Data 61’s CEO Adrian Turner believes so.

Australian research agency Data61 was formed last year following the science hostile Abbott government’s slashing of research budgets coupled with a merger of the National ICT Australia organisation (NICTA) with the long established CSIRO.

The intention behind Data61 was to create a world leading data research agency. At the time of the announcement then communications minister and now Prime Minister, Malcolm Turnbull said, “Having a single national organisation will enable Data61 to produce focussed research that will deliver strong economic returns and ensure that Australia remains at the forefront of digital innovation.”

Having been in the role for six month and now, in his words, having his feet finally under the desk, Data61’s CEO Adrian Turner met with the media last week to discuss the directions he intends to take the organisation.

Business in a data rich world

Coming from a corporate Research & Development background and having spent over a decade in Silicon Valley tech businesses, Turner is conscious how industries are being changed in a data rich world.

For corporate R&D model shifting as industries are changing he says, “their challenge is they can’t hire the digital and data talent that they really need.” Turner sees one of the opportunities for Data61 in providing access to the high level expertise large companies are struggling to find.

Giving Data61 is global focus is Turner’s main objective with an aim of capturing a tenth of one percent of the world’s private sector R&D budget, describing how he will sell the organisation’s scientific expertise to global corporations, “we can plug them into the Boeing and GMs of the world and introduce them to the people to short circuit the sales process.”

“We’re going to go around the world where corporate R&D dollars get allocated and convince these companies that Australia is a place where primary R&D can take place,” Turner continued, “we’ve got the talent and we’ve got the capabilities to do the research.”

Good at the basics

Turner highligthts an ongoing problem in Australian science and industry. The nation historically has been good at basic research but poor at getting those developments to the marketplace, something the World Intellectual Property Organisation’s Global Innovation Report has regularly flagged.

While Australia ranks at 17 overall in the 2015 WIPO report, the nation’s business community flounders at 38th in the world for its collaboration with researchers and 39th for knowledge and technology output. Put bluntly, Australian businesspeople are not very sophisticated or research orientated.

Adrian Turner puts that down partly to the nation’s being weak at product management, “I think it’s a function of global companies seeing Australia as a sales and marketing outpost so we don’t have the product development expertise.”

Inward looking locals

The nation’s inward looking local corporations are also part of the problem, “for us to succeed as a country we have to have a global mindset. We can’t have the zero-sum mindset that I win if you lose in the domestic market,” Turner continued. “In that sense what we’re doing is creating a product marketing function.”

So to meet Data61’s objectives of meeting its own financial performance targets, developing an R&D ecosystem and having an impact on the nation economy, Turner sees the organisation having to go overseas for most of its partnering with private sector researchers.

Sparking the startups

All is not lost though for Australia with Turner believing Data61 has a role in helping the local startup community develop. “We don’t have the infrastructure in place to support the entrepreneurs to go out and build new business,” he says.

“In Silicon Valley over decades you have this infrastructure, you have this workforce, you’ve got the legal infrastructure, you’ve got capital, all of these things that have built up organically over decades and they stack the odds in favour of the entrepreneurs.”

Data61 was born out of an unfortunate period of Australian politics where for the first time the nation was lead by a government that was genuinely hostile to science. Now the political winds have changed and the organisation has a global focus, it may be possible to reverse the long-term neglect of Australian research and build a new business culture.

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An entrepreneurial paradox

Having a nation of entrepreneurs may not indicate a vibrant economy

Being an entrepreneur has become fashionable in western countries, but according to the Global Entrepreneurship Monitor it’s not the developed nations which are the most enterprising.

UK purchasing platform Approved Index took the GEM’s 2014 report and looked at which countries have the most entrepreneurs, defined as being “the percentage of an adult population who own (or co-own) a new business and has paid salaries or wages for at least 3 months.”

Surprisingly Uganda came out on top with 28.1% of the population meeting the GEM’s criteria for being entrepreneurs with Thailand and Brazil in second and third place. Of the developed nations, Australians were the most entrepreneurial at position number 26.

This raises the questions of what is the definition of an entrepreneurs and what drives people to become one?

What drives entrepreneurs?

Part of the answer to the second question is necessity. In Nigeria, a part time business is known as the “5 to 9 job” and, as the BBC reports, those evening enterprises are the way most Nigerians see as being a pathway to the middle classes which wouldn’t be possible for most wage earners.

That becoming an entrepreneur is often a result of necessity is borne out by Uganda’s profile in the GEM report where the authors note are scathing about the government’s support of business.

The biggest enabler of entrepreneurship in Uganda is its internal market dynamics. The most significant constraints are the unsupportive government policies, in terms of bureaucracy and taxes, and a lack of financing.

Indeed, the GEM itself noted in its 2014 report on global entrepreneurship that “there tends to be more entrepreneurial activity in less competitive economies” and Uganda ranked 122nd of 144 economies in the World Economic Forum’s 2014/15 Global Competitiveness Index.

Comparing the indexes

Looking at the Countries listed in the GEM’s top ten and listing the countries by the World Economic Forums competitiveness index ranking and the World Bank’s ease of doing business index starkly illustrates the correlation between business strangling bureaucracy and people setting up their enterprises outside the regulatory strictures.

GEM rank

Country

WEF rank

World Bank rank 

1

Uganda

122

122

2

Thailand

31

49

3

Brazil

57

116

4

Cameroon

116

172

5

Vietnam

68

90

6

Angola

140

181

7

Jamaica

86

64

8

Botswana

74

72

9

Chile

33

48

10

Philippines

52

103

 

Of the top ten countries by their entrepreneur ranking, only Chile and Thailand make the top 50 of either the World Bank’s Ease of Business index or the World Economic Forum’s Global Competitiveness Index. To summarise, the urge to be entrepreneurial is a reaction to a poor business climate.

Defining entrepreneurs

What we could be seeing is a poor definition of an entrepreneur although it’s hard to draw the line between a Ugandan housewife who sets up a market food store and an Australian family that buys a fast food franchise. Is one more entrepreneurial because they have more access to capital?

Perhaps the Silicon Valley definition of an entrepreneur – the founder of a technology startup – is a more appropriate however that excludes vast tracts of western economies and almost all the developing world.

On many levels the Global Entrepreneurship Monitor’s definition is probably the fairest as it indicates how many people are starting their own ventures regardless of their capital position or the nature of their business.

If the GEM’s definition is fair then the leader board indicates that maybe having a nation of entrepreneurs is actually the symptom of a constrained business community rather than that of a vibrant economy.

Maybe political and business leaders need to be careful what they wish for when they call for a more entrepreneurial nation.

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Rethinking education in a time of a declining middle class

Reskilling the workforce is essential to address middle class decline

The role of higher education is changing in the face of technological and economic change as this World Economic Forum article describes.

Education is one of the keys to staying competitive in an increasingly technology driven society on both a personal and societal level. Individuals and nations that neglect their education investment risk are left behind.

One of the starkest examples of this are America’s lower middle class and the rise of Donald Trump.

In an article for The Atlantic, former George W. Bush adviser David Frum, describes how economic uncertainty for America’s relatively unskilled workforce are pushing back against their falling living standards.

The angriest and most pessimistic people in America are the people we used to call Middle Americans. Middle-class and middle-aged; not rich and not poor; people who are irked when asked to press 1 for English, and who wonder how white male became an accusation rather than a description.

You can measure their pessimism in polls that ask about their expectations for their lives—and for those of their children. On both counts, whites without a college degree express the bleakest view. You can see the effects of their despair in the new statistics describing horrifying rates of suicide and substance-abuse fatality among this same group, in middle age.

That these people are supporting Donald Trump – and their counterparts in almost every Western democracy – is not surprising as they losing in the new economic order and the technological changes which are eliminating or devaluing their jobs.

For governments and communities, the question is how to restore these folks’ fortunes or at least maintain their living standards. With protectionism almost certainly guaranteed to fail, the obvious answer is to give these workers the skills to compete and contribute in the 21st century economy.

Sadly, most Western governments still locked in a 1980s Reagan/Thatcherite mindset see education as a cost to be reduced rather than an investment in both their communities’ collective wealth and society’s cohesion.

Education, like the rest of society, is changing. A rethinking of both how it is delivered and its role is essential for nations to be successful in today’s economy.

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When autonomous vehicles and humans collide

The interaction between humans and autonomous vehicles is not turning out well so far

With the rapid advances in driverless cars, it was only a matter of time before the question of what happens when people encounter them would be answered.

It turns out not too well for the autonomous vehicles reports Bloomberg citing a study by the University of Michigan’s Transportation Research Institute that found driverless cars have accident rates double those of normal vehicles.

As it turns out, those accidents are usually minor and are caused by humans colliding with the autonomous vehicles as the law abiding computers catch drivers unawares.

That people aren’t very good at driving cars isn’t a surprise but now we’re seeing what happens when distracted, mistake prone humans encounter cautious and usually correct computers.

We now have to start thinking about what happens when artificial intelligence encounters human frailty.

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Building a European Silicon Valley

Europe’s development of an equivalent to Silicon Valley faces many hurdles

The World Economic Forum asks can Europe build its own Silicon Valley?

It seems the answer lies in money, investors’ money to be precise, with a lack of VC funds to finance emerging businesses and a lack of acquisition hungry corporates providing high profile experts argues the WEF piece’s author, Keith Breene.

That appears to be a strong argument although there’s still some strong contenders for European tech hubs with the WEF identifying Munich, Paris and London as being major centres.

London’s claims are reinforced by the city’s strength in financial technology with KPMG nominating 18 of the world’s top 50 fintech startups being based in the British capital.

Interestingly, the Belgium town of Leuven which has styled itself as a centre for 3D printing and beer features on the WEF list of European startup hubs as well.

While it’s unlikely Europe can create a ‘Silicon Valley’ – even the post Cold War US would struggle to do so today – the presence of major centres like London and specialist hubs like Leuven indicates another important aspect of creating a global centre, that of having an existing base of businesses and skills.

That skillbase isn’t built up overnight, it’s a decades long process of commitment from industry, investors and governments and often as much the result of a series of happy accidents rather than deliberate planning.

It may well be the question of Europe creating a Silicon Valley isn’t really relevant with the bigger issue being how the continent’s cities and nations put in the conditions to develop long term industrial hubs. Trying to ape today’s successes for a project that will take decades to come to fruition could be a big mistake.

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