Tag: government

Ending the motor industry’s 1950s delusions

Can governments kick their habit of supporting the motor industry and focus on 21st Century industry investments?

Today Ford announced the pending closure of its Australian manufacturing operations, bringing to an end ninety years of the company building automobiles down under.

Ford’s announcement is small on a global scale – the Broadmeadows factory built 40,000 cars out of a worldwide supply of sixty-three million – it does illustrate some major structural issues facing both the global automobile industry and the Australian economy.

An Automotive Depression

Over capacity has been the curse of the automobile industry for decades as governments have propped out producers around the world.

KPMG’s 2012 Global Automotive Survey forecast the global industry would be 20 to 30 percent over capacity in 2016.

This doesn’t seem to worry industry executives or their government supporters, as KPMG reported;

Alarmingly, most auto executives still seem to regard the risk of overcapacity and excess production as a necessary evil to remain competitive. As the rapid growth of recent years eventually slows down, manufacturers that fail to address overcapacity could face some tough decisions.

Ford’s Australian executives could at least be credited with facing some of those tough decisions.

Many governments though are still in denial as they continue to subsidise motor manufacturers in an effort to copy the industry model that worked for the US Midwest during the 1950s.

Indeed, the Australian government in 2008 committed 5.2 billion dollars to support their domestic industry through to the end of this decade. Ford’s announcement today coupled with General Motor’s cutbacks last year show that policy is in ruins.

At the Ford and government press conferences, journalists pressed the Prime Minister and the Ford Australia’s CEO about repaying some of the millions of corporate welfare doled out to the multinational over the last decade. Naturally little was to be said about that.

In a stark comparison to Ford Australia’s announcement, US electric car manufacturer Tesla Motors repaid a $465 million US government loan.

While no-one can say Tesla’s future is certain, at least US investors are putting their money on 21st Century technologies instead of propping up declining industries of the last century.

Australia’s predicament

The car industry is just one sector that faces global overcapacity – ship building, real estate and mining are just three with similar excess production.

For Australia, the mining industry is winding down investment as worldwide production capacity expands. At the same time, the blue sky projections of China’s resources demand are being challenged.

While the mining boom comes to an end, Australia now has to face the consequences of the nation’s economic decision to focus on resources and property speculation in the 1990s and early 2000s.

As the Thais and Indonesians found in 1997, and the Irish and Icelanders a decade later, economies based on unsustainable foundations seem to work fine until suddenly they don’t.

It may well be that Australia is about find out what happens when the economic tide suddenly changes.

One bright side is that the government has the best part of five billion dollars to invest in new industry – assuming Australia’s politicians can wean themselves off their 1950s view of the world economy.

Image of Ford Australia celebrating 50 years of Falcon Production courtesy of Ogilvy Communications.

Training for mediocrity

Australian treasurer Wayne Swan’s cap on education expenses is a path to mediocrity

In researching the tech angle of the 2013 Australian Federal budget for Technology Spectator last night one thing kept really bugging me – the government’s cap on tax deductible education expenses.

The decision to cap self education deductions was made earlier in the year by Treasurer Wayne Swan.

The Government values the investments people make in their own skills and recognises the benefits of a tax deduction for work related self-education expenses. However, under current arrangements these deductions are unlimited and provide an opportunity for people to enjoy significant private benefits at taxpayers’ expense.

So the government is going to save $500 million dollars over the next few years by capping legitimate educational expenses on the grounds they were ‘unlimited’.

We could ask why negative gearing continues to be unlimited where taxpayers claiming the expenses of property speculation cost the Federal government eight billion dollars last year.

So Treasurer Wayne Swan says a salaried worker has effectively no limits on claiming losses from property speculation against their taxes but is subject to a ludicrously low limit for claiming education expenses.

This one comparison – between negative gearing and self education expenses – shows the magic pudding fairyland that Australia’s political leaders live in and their cowardice.

What’s bizarre about this policy is that most industries are undergoing major changes and almost every worker will have to reskill a number of times through their careers.

Many of those workers will be able to get their courses and education expenses under the limit, many others won’t.

As the New Australian points out, Wayne Swan – like most lifetime Australian political apparatchiks – has never to worry about reskilling as the party has nurtured and cared for him all his adult life.

In the real world though, Australia’s economic future will depend on the workforce picking up the skills to operate in rapidly changing times.

That Australia’s politicians and economic policies are focused on encouraging property speculation over skills only guarantees mediocrity.

Although mediocrity might be the world that suits Wayne Swan, Tony Abbott and the rest of Australia’s political classes.

Building tech cities

What does London’s attempt to build a tech city teach others that want to create a Silicon Valley in their own town?

With the apparent success of the Silicon Valley business model, every city seems to want to emulate it. One region that’s probably gone further than most is supporting their local tech sector is London with its Tech City program.

But is it succeeding? The Guardian did an audit on the Tech City project and came away with some findings that aren’t particularly different from other cities.

What I personally find interesting is how the Digital Sydney project which I was involved in setting up during 2009-10 shares the flaws The Guardian has identified in the London initiative.

Identifying tech

One key criticism The Guardian has is that too many businesses are identified as being in the technology sector;

of the 1,340 companies, 137 are tech companies, 700 are PR or design agencies and 482 are “miscellaneous” – which includes charities, pubs, cafes and fashion boutiques. The remaining 21 companies were either entered more than once or entries with no information or link to an external site. So just 10% of companies in Tech City actually do technology, 53% are PR or design agencies, and 37% are “miscellaneous”.

This was true of identifying Sydney’s ‘digital hub’ – the vast majority of business surveyed were not actually tech businesses but movie post production, graphic designers and publishers. The technology sector was only a small group and the bulk of employment and investment came from large multinational corporations like IBM and Google.

Now it is possible to argue that businesses like post-production, publishing and broadcast media are ‘tech’, but then almost every industry could be thought of as ‘tech’ if you cast the net wide enough.

The problem is counting those businesses as being tech just on the basis they are heavy users of IT skews the numbers and gives an inflated view of how big the sector really is.

A capital city focus

One of the biggest criticisms of the Tech City initiative is that it is too London centric and The Guardian makes a good case about this, looking at cities like Brighton, Cambridge, Newcastle and Manchester.

A similar criticism could quite rightly be made about Sydney’s project, which focuses on the inner city enclaves of Surry Hills and Ultimo while ignoring most of the city or any of the state’s regional centres.

When I started at the New South Wales government I was warned by one old hand that “to these jokers NSW stands for North Sydney to Woolloomooloo.”

And so it proved to be.

Focusing on London’s Silicon Roundabout or Sydney’s Surry Hills also smacks of a ‘people like us’ syndrome where the support goes to nice middle class white folk – just like the politicians, public servants and captains of industry who run these programs.

Overemphasising tech

Another problem, not mentioned in The Guardian story, is the over emphasis on technology startups.

Projects like Tech City and Digital Sydney focus on last decade’s opportunities which Silicon Valley dominated. Governments look at California’s success and think we need to copy that when what we’re seeing is actually the fruits of the previous wave of opportunity.

It may well be that we’re repeating the mistakes of the 1950s and 60s where countries around the world imitated Detroit hoping to replicate the US’ success with the motor industry.

The costs of that error are still a millstone around taxpayers’ necks two generations later.

To be fair to those setting up projects like Tech City or Digital Sydney, they are attempts to harness the energy in their own cities but it may just be that government programs aren’t the best ways to bring entrepreneurs and inventors together.

Hopefully though their efforts will succeed although it’s more likely the next Silicon Valley will be just as much the result of a series of coincidences as today’s is.

What is a fully informed market?

Controlling how a stock market receives information is becoming a huge task in the modern economy.

Given the stock market movements following last week’s Associated Press Twitter Hack it may be time to reconsider the way exchanges and listed companies share and control information.

One of fundamental principles of modern stock exchanges is that the market is fully informed – that everybody buying or selling security gets access to the same information at the same time.

In an Australian context, this is covered by a term called ‘continuous disclosure’, should a company’s management become aware of any issue that could affect they must advise the market immediately.

What’s interesting with this principle is the way that information needs to be made public, specifically clause 15.7 of the ASX listing rules.

An entity must not release information that is for release to the market to any person until it has given the information to ASX and has received an acknowledgement that ASX has released the information to the market.

This puts the Australian Securities Exchange, a private company with an almost monopoly position in the Australian investment community, in the position of being the ultimate gatekeeper of knowledge.

While there’s good regulatory and probity reasons for having a central clearinghouse – that the clearinghouse itself has some serious conflicts of interest is another matter – one has to wonder how long its position can be retained in a world where information is moving fast.

It may be however that we’re in a passing phase as the financial of the global economy has reached a stage where no stock exchange, futures market or clearinghouse can manage the data that’s flowing through it.

Time will tell, but the markets themselves are finding other ways to inform themselves.

Tasmania and the travelling circus

Big events are good for giving a local economy a short term boost, but how does Tasmania build its economic foundations?

“We bring in almost everything,” says V8 Supercars director Mark Perry as he guided journalists around Launceston’s Symonds Plains racing track.

Everything Mark showed us – a fleet of trucks, communications equipment, hospitality tents and the racing teams themselves would be packed up on Sunday night, shipped to Melbourne and flown to New Zealand for the next race.

The V8 Supercar management are very proud of their work, and they should be given the massive task they have, but it exposes a weakness in the Tasmanian economy in that almost all the high value employment and equipment has to be flown in.

Quiet times in downtown Launceston

Arriving into Launceston on the Friday before the races, it’s interesting how little hype there is around the event. In Sydney, San Francisco or Cannes there would be banners and flags around the city welcoming visitors, in Launceston there’s almost nothing despite the race meeting being one of the state’s biggest events.

It was also surprising how there were no downtown events to complement the main attraction.

Almost every major sporting event from the Olympic Games and FIFA World Cup to the AFL Grand Final and Australian Open has some inner city satellite venues with big screens for the locals who can’t make it to the stadium.

Having those satellite events adds to the buzz and hype in the host city. Something that downtown Launceston needs at 7pm on a Friday night.

That lack of support by the community is notable, particularly in light of the $600,000 per year the cash strapped Tasmanian government pays in subsidies for the V8 Supercars.

I’m against government support for events like these, but if that money is going to spent it may as well be spent properly to maximise the economic benefits.

Subsidies like this would be even better if they were part of some grander economic plan, but like all the payments given to the film production, motor manufacturing and other industries, they are based more on populism than any strategy – the politicians may as well be giving free beer out in Launceston’s main street.

Why the community support is so tepid for the Supercars event is so tepid is something I’m going to be exploring in the next few days as I meet various business leaders in Launceston and Hobart to hear how the state is positioning itself in the 21st Century.

In the meantime, the V8 Supercars “travelling circus” has moved on, hopefully Tassie will have some more long term jobs to show for it.

Paul travelled to Tasmania and the V8 Supercars courtesy of Microsoft Australia

Taxing the internet

Cash strapped governments are trying to find new ways of raising revenue. Can they find sources online?

On Friday the US Senate passed a motion supporting the rights of states to collect sales taxes on internet sales.

While not a binding vote or a law, this is the latest blow in the fight to control, and tax, online commerce.

The stakes are high, companies like Amazon have built their business models on basing themselves in low tax jurisdictions while many bricks-and-mortar retailers have complained they are at a disadvantage compared to out-of-state or international suppliers.

For consumers a few dollars in avoided tax isn’t the main reason they shop online, most internet shoppers cite a better range, convenience and, in many cases, superior service as the reasons they buy over the web.

But it is clear the online retailers do get an advantage over local stores.

While provincial governments cite protecting employment in their regions as part of the motivation for trying to tax online sales, the bigger issue is the desperate search for sources of revenue to balance cash strapped state and local budgets.

Those budget requirements aren’t going to ease – the global economy is restructuring in a way that doesn’t favour 19th Century levies like sales tax or stamp duty, while aging populations and declining incomes are increasing demands on government services.

With governments caught in a pincer of rising costs and falling revenues, it’s not surprising they are trying to find ways to get more money.

It’s not clear though they’ll win this battle though, the Senate vote is a symbolic gesture and the difficulties of being able to tax all forms of internet commerce can’t be underestimated.

The struggle ahead for local governments also can’t be understated, the public demands more services while administrators have to deal with rising infrastructure costs and the pension liabilities of retired public servants, teachers, firefighters and police.

Even the bravest politician struggles to find the political capital needed to deal with that challenge.

How we tax the internet is going to be a task that will define our governments and society in the first half of this century. We’re going to have to think very carefully about the choices we have ahead.

Tax image courtesy of ctoocheck through sxc.hu

Leadership in a connected world

How do managers and executives lead in a connected world?

Managing a business or government agency as information pours into organisations is one of the great challenges for modern executives.

As part of the Australian Cisco Live event, a panel looked  at Public Sector Leadership in a Connected World, many of the issues discussed apply to private sector executives as they do to public sector managers.

Cisco’s Director of Global Public Sector Practice, Martin Stewart-Weeks, kicked off the panel with the observation that “we now live in a world where information has become completely unmanageable.”

Martin quoted from David Weinberg’s book Too Big To Know, Rethinking Knowledge Now That the Facts Aren’t the Facts, Experts Are Everywhere, and the Smartest Person in the Room Is the Room. The author has a good explanation of his book in this YouTube clip.

Trusting the community seems to be the biggest problem facing politicians and the public service, policy consultant Rod Glover puts the general distrust towards governments on the failure of leaders to consult over changes and decision.

Economist Nick Gruen and Australian Industry Group adviser Kate Pound echoed this problem in that a change of culture is needed among leaders towards the way information is controlled and managed.

Nick sees that culture changing while Rod thinks there will need to be demonstrated successes before risk adverse public service leaders will be prepared to adopt new ways of managing.

Kate’s view is that culture change will require a realignment of incentives which will make managers accountable for the delivery of services. She cites a situation where businesses are obligated to register online but the agency’s website doesn’t work.

So the problem is as much gathering the right data along with processing the information inside an agency. Both are challenges for organisations with rigid hierarchies and  information flows.

Information is no longer power — it’s how you use it. But the structures are still based around access and control of knowledge.

The big culture shift for politicians, public servants and corporate executives is we can no longer hoard information.

For managers in both the public and private sectors, the task is now to share information and trust the right people will use it well.

Paul travelled to Cisco Live courtesy of Cisco Systems

Australia’s software disadvantage

What does Australia’s high software prices tell us about the nation’s economy?

This morning ABC Radio 702 asked me to comment on Adobe, Apple and Microsoft being summonsed to appear before the Federal Parliament’s IT Pricing enquiry.

As has been widely reported, the committee has asked the software giants to explain why there are such price differentials between Australian and overseas prices.

By way of example, Adobe Creative Suite 6 is available on the company website for $1299 US which is AUD 1263 on today’s exchange rate. The listed Australian price is AUD 1974 – a mark up of 56%.

This is not new

Australia has long been an expensive place to buy things, I remember my parents in the 1970s asking relatives to send over Marks and Spencer underwear as prices in Melbourne were so expensive.

Books and music have long been overpriced, the publishing industry openly printed the price of books in various countries and the Australian price has always been substantially higher than UK and US charges given prevailing exchange rates.

The high exchange rate has focused attention on the high prices, while the Aussie dollar was low consumers were tolerant of the rip-off. With the Aussie dollar high, consumers are wondering why the prices of many imported goods, particularly software, has remained so high.

A lack of competition

One of the biggest reasons for Australians being overcharged for many items is the lack of competition in the domestic marketplace. Most distribution channels are dominated by one or two players which lends itself to price gouging in areas ranging from technology to food.

A good example of this is the brewing industry, a revealing Fairfax article examined the Australian beer sector and exposed the failings and lack of competition in the market which results in the multinational duopoly extracting five times the profits of local retailers.

The conservative nature of Australian consumers is their own worst enemy as locals, including corporations and governments, prefer to buy major brands rather than experiment with local or lesser known providers.

Where alternatives exist, the price differentials rapidly fall. The price differential for an iPad is far less than the software apps that run on it. The reason for this are the range of alternatives available to the Apple product.

If Australian buyers were to explore open source alternatives, smaller suppliers or locally developed products then the prices of imported goods would fall.

Structural weaknesses

The pricing inquiry illustrates  the structural weakness in the Australian economy where the nation has become a price taker both in the domestic consumer sector and bulk export industries.

Where Australia finds itself is an expected consequence of a generation of economic policies which favours debt driven consumer spending underpinned by selling assets and raw commodities.

Hopefully Australians are realising the price of software is just one of the consequences of current policies and start demanding the nation’s political and business leaders have a clear vision for what the country’s role will be in the 21st Century.

If that vision for Australia is a quarry with a few retirement homes clinging to the edge, then we’re well on the way to achieving that. At least software prices will be the least of anyone’s worries.

Towards the post car society

Is the era of the automobile coming to an end as our society adapts to new technologies?

We don’t often think about it, but the design or our cities reflect the technologies of the day. Right now the way we live is built around the motor vehicle, but are we moving into a new era?

After a visit to Ford Australia’s Centre of Excellence For Design and Engineering, Neerav Bhatt has some thoughts on the role of the motor car in an era where people don’t have to travel to their workplaces.

One of Neerav’s points is that car use is falling among younger workers, a trend that’s happening across the western world.

Much of this is put down to the generations of Millennials and Gen-Ys being more interested in technology purchases rather than cars along with changing work patterns.

A more fundamental reason could be that we’re reaching the end of the motor car era.

If there is one technology that represents the Twentieth Century it is the motor car; the automobile has shaped our cities, our lifestyles and our culture.

However we are now in the Twenty-First Century.

The three eras of motoring

Roughly speaking, we could break the Twentieth Century’s love affair with the motor car into three phases; development, consolidation and dependency.

In the first period, the automotive industry was developing with thousands of manufacturers experimenting with the technology and production methods. At the same time governments were beginning to build road networks and communities were demanding improved links.

By the beginning of World War II, the motor car was an important part of life but ownership was largely restricted to affluent households and business.

Following World War II governments made huge investments in road networks and automobiles became cheaper to own.

This gave a generation a new taste of freedom as you could go anywhere with a tank of gas. It also changed the layout of our suburbs as people could now travel further to work, allowing them to move into bigger houses on the fringe of town.

As government investment was focused on road building, passenger train and tram networks were starved of capital with many cities abandoning their transit systems altogether.

Suburbs built in the early to mid Twentieth Century had evolved around trams and the legacy of that can still be seen today. However customers no longer wanted to fight for parking spots on crowded streets designed for horse drawn carriages and trams.

Responding to this developers started building supermarkets and shopping malls which became popular largely because they offered easier parking. Cheaper goods made available by improved logistics systems – another effect of the motor car – was the other main reason.

The beginning of dependency

With the advent of the 1970s oil shock, the role of the motor car turned from being a tool of liberation into one of dependency. The suburbs of the 1960s and 70s had been built around the assumption of universal car ownership and cheap fuel. When fuel ceased being cheap, then households budgets were affected.

Not coincidentally after the oil shock the reversal of ‘white flight’ – the movement of the middle classes to outer suburbs – started with the gentrification of inner suburbs that had been abandoned by the working class.

Through the 1970s and 80s the cost of owning a motor car became more expensive as governments stopped externalising the costs of maintaining roads and saw car use and petrol taxes as a revenue source.

At the same time the obvious effects of saturating society motor cars became obvious as roads increasingly became choked and planners began to realise that building more roads only attracted more traffic.

Times of decline

By the turn of the Twenty-first Century technology had also started to move away from centralised offices and factories. Today technologies like the internet and increasingly 3D printing mean that workers don’t have to commute vast distances. Automation also means many levels of management are no longer necessary.

Changing work patterns is also affecting incomes, with car ownership being expensive many employees – particularly young workers – don’t want to buy automobiles.

This all means that the era of the motor car is coming to an end, it’s not going to vanish quickly but the decline has started.

For business, this means the post World War II assumptions that saw the rise of the supermarket, shopping mall and big box discount store are no longer valid.

Some managers, most notably those of doomed department stores, won’t learn these lessons and will pass into history like the stagecoach companies.

Just as the end of the horse and carriage era saw the demise of buggy whip makers and blacksmiths, the rise of the motor car saw an unprecedented rise in wealth, employment and productivity. Not only were the lost jobs created elsewhere, but many more were created.

While the motor car isn’t going to disappear overnight, the decline has started and our society is adapting. For business and government leaders, the task is to understand those changes and adapt.

Image courtesy of a Norwegian motorway by Ayla87 through SXC

Proudly designed in Gyeonggi

Asian manufacturers are moving up the value chain. Could Korea, China and Taiwan start competing with Apple?

“Designed by Apple in California ” is the boast on the box of every new iPad or Macbook. That the slogan says ‘designed’ rather than ‘made’ says everything about how manufacturing has fled the United States.

Last year the New York Times looked at Apple’s overseas manufacturing operations, pointing out that even if Apple wanted to make their product in the the US many of the necessary skills and infrastructure have been lost.

Now the US is facing the problem that Asian countries are looking at moving up the intellectual property food chain and doing their own designs.

In some ways this is expected as it’s exactly what Japan did with both the consumer electronics and car industries during the 1960s and 70s.

The big difference is that Japanese manufacturers travelled to the US and Europe to study the design and manufacturing methods of the world’s leading companies. In the 1990s and 2000s, the world’s leading companies gave their future competitors the skills through outsourcing and offshoring.

In the next decade we’ll see the latest consumer products coming with labels reading “Designed by Lenovo in Fujian” or “Developed by Samsung in Gyeonggi”.

For western countries, the question is what do we want to be proudly be putting our names to?

Image from Kristajo via SXC.HU

Blind faith in the algorithm

Putting too much faith in computer programs may cause problems for the unwary.

It’s fairly safe to say Apple’s ditching of Google Maps for their own navigation system has proved not to be company’s smartest move.

The humiliation of Apple was complete when the Victoria Police issued a warning against using the iPhone map application after people became lost in the desert when following faulty directions to the town of Mildura.

Mapping is a complex task and it’s not surpising these mistakes happen, particular given the dynamic nature of road conditions and closures. It’s why GPS and mapping systems incorporate millions of hours of input into the databases underlying these services.

Glitches with GPS navigations and mapping applications aren’t new. Some of the most notorious glitches have been in the UK where huge trucks have been directed down small country lanes only to find themselves stuck in medieval villages far from their intended location.

While those mishaps make for good reading, there are real risks in these misdirections. One of the best publicised tragedies of mis-reading maps was the death of James Kim in 2007.

Kim, a well known US tech journalist, was driving with his family from Portland, Oregan to a hotel on the Pacific Coast in November 2006 when they tried to take a short cut across the mountains.

After several hours driving the family became lost and stuck in snowdrifts and James died while hiking out to find help. His wife and two children were rescued after a week in the wilderness.

Remarkably, despite warnings of the risks, people still get stuck on that road. The local newspaper describes it the annual ritual as find a tourist in the snow season.

Partly this irresponsibility is due to our modern inability to assess risk, but a more deeper problem is blind faith in technology and the algorithms that decide was is good and bad.

A blind faith in algorithms is a risk to businesses as well – Facebook shuts down accounts that might be showing nipples, Google locks people out of their Places accounts while PayPal freeze tens of thousands of dollars of merchants’ funds. All of these because their computers say there is a problem.

Far more sinister is the use of computer algorithms to determine who is a potential terrorist, as many people who’ve inadvertently found themselves on the US government’s No Fly List have discovered.

As massive volumes of information is being gathered on individuals and businesses it’s tempting for all of us to rely on computer programs to tell us what is relevant and to join the dots between various data points.

While the computers often right, it is sometimes wrong as well and that’s why proper supervision and understanding of what the system is telling people is essential.

If we blindly accept what the computer tells us, we risk being stuck in our own deserts or a snowdrift as a result.

Did online democracy ever exist?

The idea of democracy in an online world dominated by private interests is a misnomer.

“Democracy is dead” proclaim online pundits as Facebook closes down their corporate governance feedback pages.

The question though is whether democracy really exists online; the internet is largely a privately run operation which makes the hysteria about the International Telecommunication Union’s attempts to impose standards on the web all the so more fascinating.

As a consequence of almost every internet service being run by private organisations, rights and concepts like “democracy” are pretty well irrelevant and have been since the first connection to ARPANET.

When we use services like Facebook, or even our internet provider’s email account, we are only being allowed to do so within the companies’ interpretation of their terms and conditions.

Often those interpretations are wrong or bizarre as we see with Facebook’s War on Nipples and often the results of misinterpretation are costly for businesses.

But we have little recourse as these sites are private property and the owners can do pretty well what they like within the law.

Just a like a shopping mall, if the managements of Amazon, Google or Facebook want you to leave their service then you have no choice but to do so.

We can squeal about rights online, but in reality we have few.

That’s something we should keep in mind when investing our time or business capital into any particular platform.