Amazon Will Spend $ 700 Million To Retrain Its Workers

WASHINGTON –
Amazon, the global e-commerce giant, just announced that it is planning to
spend $ 700 million over the next 6 years to retrain about one third of its
630,000 workers (about 275,000 of these are in the US). This is an almost
monumental undertaking. But this is not about philanthropy. This initiative is clearly
motivated by corporate self-interest.

Need to stay ahead

Indeed, looking ahead it is clear that Amazon, a major user/developer of the ultra- sophisticated ICT systems absolutely vital for the management of the millions of daily shipments that represent the core of its colossal e-commerce empire, MUST have the state-of-the-art technical tools. In order to retain its global leadership ranking in e-commerce, this giant must have the best of everything –and that includes top of the line engineers, ICT specialists, warehouse managers and also line workers who understand and can successfully interact with more and more complex and sophisticated equipment.

Amazon fully
realizes that the technologies that will inevitably affect all its systems and
operations and therefore its ability to beat the competition on price, speed
and overall quality of service, are being updated/transformed/disrupted
practically on a daily basis. And this means that the skills of an average
manager or worker at any one its warehouses or distribution centers, while
adequate today, will likely be behind the curve tomorrow. Hence the need to
invest –massively—in the retraining of Amazon’s work force.

Just the beginning

All this
looks smart, forward looking, and anticipatory. Still, we should understand
that this Amazon announcement is barely the beginning of an economy-wide
complex and mostly uncertain process that will have to be extended to almost the
entirety of the US and global work force, unless today’s global leaders –whatever
the sector they operate in– accept that they will be inevitably overtaken by
new companies whose workers and managers will be in full command of tomorrow’s
technologies.

A hypercompetitive global economy

Today and tomorrow being part of the global economy means and will mean accepting the challenge of operating in a hyper-competitive, turbo-charged global market place. Only the super smart and technology savvy corporations will have a shot at the top ranks.

Competition is an old concept. But the speed of this never ending race is a new phenomenon. And this race will require the adoption of a new psychology on the part of all participants. Everybody, from ultra-paid CEOs down to programmers and factory floor workers will have to embrace a culture of continuous change and constant disruption as the new normal.

Disruption is not new

Let me clarify this. Obviously, technological change and the disruptions that it causes are not new. If we go back to the history of the industrial revolution that began in Great Britain in the early 19th Century, it is mostly a history of disruption, sometimes very dramatic disruption, that caused dislocation and pain before the positive effects in terms of new jobs replacing old ones, higher productivity, better wages and lower cost of improved and more varied goods could be felt by society.

So, nothing new here.
Schumpeter’s definition of capitalism as a process of “creative disruption”,
keenly accurate decades ago, still applies today. Except for one thing: Speed.
And this is clearly a double-edged sword.

Speed is good and bad

Of course, today’s ability to innovate at a rapid clip, with the attendant ability to move quickly from concepts and prototypes to commercially viable applications ready for the market, is a major advantage.

All users, from companies to governments to the average consumer can avail themselves of the latest in technology, software, electronics, pharmaceutical products, banking services, and more, with obvious advantages in terms of greater efficiency, lower cost and improved quality of life.

That said, everybody has to know that retaining a technological edge is not an option. It is a “must have”. Mastery of the most up to date tech is absolutely essential for those companies that want to retain a top ranking or aim to have a decent shot at joining the top ranks in the never ending global competitiveness race.

No exceptions

Let’s be clear. There are no shortcuts. There is no way to stay on top unless you have full command of a powerful innovation/commercialization engine. If you don’t because you fell behind, or because you never got there (think about scores of poor, under resourced struggling countries), then you do not have a chance. You are in the dust, looking at the others forging ahead.

And this brings me back to Amazon and its bold announcement of its large work force retraining program. This one and other similar programs already adopted or soon to be adopted by other companies, if well structured, will have a positive impact on the company and its profits, on the employees themselves, and on millions of customers. Assuming that many other companies will follow Amazon’s lead, hundreds of thousands of workers, may be millions, will learn new skills and most probably will become employable in more challenging jobs that require a higher degree of ICT knowledge and technical sophistication.

Life time learning

But the real issue and challenge here is that for this approach to work as intended, training and retraining must become part of a “life time learning” culture and approach to employment. This culture must be understood and embraced by all or most workers –not just at Amazon, but everywhere.

And here is the thing. All this sounds good. But in reality it is hard, really hard. Human beings are of course intelligent and generally flexible, adaptable and capable of learning new things. However, for millennia, with very few exceptions, (craftsmen, artists, scientists, and very few inventors), a person’s occupation consisted in doing again and again (until they retired) what they learnt as a young person, And this applied even to the few who went to school and/or apprenticeship programs. Even after the onset of the industrial revolution, the new factory workers usually learnt and practiced a few, relatively simple manual tasks. Their jobs were about repeating the same operation again and again.

Change was slow

At a different level, the disruptive changes brought about by industrialization took a long time before they could be felt by the broader society. Even after the introduction of major innovations, the old ways survived for a long time.

For instance, the invention of the automobile more than a century ago did not mean that overnight all professions and crafts focused on horses (horse breeding, stable boys, blacksmiths, saddle and stage coach makers), disappeared. It took many decades for the car to affirm itself as the default, cost-effective modality for individual transportation on a large scale. It took Henry Ford, the assembly line, and the Model T for cars to be mass produced and finally become affordable. And even that radical transformation took decades. In other words, change, even very disruptive change, used to take a long time. And this long time frame allowed for some kind of transition and adaptation from the old to the new.

A different world

Today, we are literally in a different world. In certain sectors, including most ICT or IT related fields, the notion of the rapid obsolescence of even the most sophisticated innovation is a given. Focus on R & D and related high levels of funding must be a priority at all times. Even a major breakthrough –think of the first Apple iPhone— soon enough is copied, mass produced and eventually commoditized, while an eager public public waits for the next breakthrough.

All this is exciting. But it is also very problematic for the millions and millions of workers who have to embrace this life learning philosophy, unless they want to be left behind because they lack the skills of tomorrow.

It is great that a behemoth like Amazon, with more than 630,000 employees worldwide, has the resources, the vision and the internal organization to launch such an ambitious, multi-year retraining program.

Supply chains

But what about everybody else? What about medium sized tech companies in Malaysia, Vietnam, Mexico or Romania? Most of them today do reasonably well as suppliers and vendors to bigger companies. But what if the big company tomorrow needs a completely different set of parts or software? Can the medium size vendors quickly adapt, absorb the new technologies and deliver according to exacting specifications? Inevitably some will not be up to the task.

Efficient production is now based on ever more complex global supply chains. However, for this model to work smoothly everybody has to deliver their product or service according to a plan that will inevitably include the latest innovations. What is some key links of the chain falter because the workers in supplier X do not fully understand what they are supposed to do? This would cause delays or interruptions. And this upsets everything.

The new task of education

My last point is about the mediocre to poor quality of public education, in the US, but also other countries. This absolutely vital life learning approach has to be embedded in young people’s minds from a very early age, so that it becomes a good habit, and not a burden. But I am not sure that we are doing this today. May be this is happening in some elite, top schools. But not in your average American or European public school.

So, here we can see a huge disconnect between the pressing needs of corporations for adaptable workers eager to learn new things on a daily basis and a public education system usually based on imparting some discreet knowledge to students, giving them the misleading impression that this will be enough for their future professional life.

Well, it is
not enough. Hence the need to retool education, both in terms of its content
and in terms of the broader message given to young people: “Remember that school is just stage one of your life learning process
and obligations. If you do not embrace this constant learning approach wholeheartedly,
you will be left behind”.      




China To Become Green Super Power?

WASHINGTON – Many Western environmentalists and commentators openly praise China for its declared energy policy objective of turning itself into a truly “Green Super Power”. They claim that, unlike Trump’s America, (ignorant and backward), China (smart and forward-looking) truly understands the threat of global warming, and is actually doing something very serious about it.

Hundreds of billions for green power projects 

Indeed China has committed hundreds of billions of dollars to renewable energy projects. It is leading the world in massive investments in wind and solar projects, with more to come.

Contrast that with heretic America now led by a President who believes and publicly affirms that global warming is nothing but a hoax. Indeed, instead of leading the way in renewable energy investments, President Trump’s America promises to revive (dirty, high emissions) coal production, while he just signed executive orders that will re-start two major oil pipeline projects that had been blocked by President Barack Obama, at least in part because of environmental concerns.

Responsible China

So, there you go. Communist China’s leaders are acting as responsible stewards of our Planet Earth, while democratic America is the prisoner of anti-science bizarre bigotry that ignores “the facts” about green house gases and global warming, and the dire consequences of disastrous energy policies still based on fossil fuels that will end up cooking the world.

The truth is more complicated 

Well, this is how the critics of American policies would like to frame the argument. But the truth is far more complex. It is indeed true that China is investing very substantial amounts in green energy projects. But it is also true that renewables are and will continue to be a small fraction of China’s power generation capacity. The fact is that China relies today and will continue to rely in the future mostly on coal –yes, old-fashioned dirty coal– to produce about 66% of its electricity.

In contrast, if you look at the current mix, U.S. electricity generation is on balance far greener.

Green America?

In the U.S. coal is now used for only 33% of power generation, a much lower proportion than China’s, (50% less, in fact). On account of the shale gas revolution that made natural gas abundant and cheap, America now relies on low emissions natural gas for 33% of electrical generation capacity. This percentage is destined to increase, mostly at the expense of dirty coal. While this transformation is driven by market factors, as opposed to government green policies, the added bonus here is that natural gas is a much more environmentally friendly fossil fuel.

If you add 20% of power generation produced by nuclear and 6% from hydro, (an old-fashioned source of renewable energy), the picture is not that disastrous.

Less coal, more natural gas 

While the contribution from other renewables is still rather small in America –solar represents only 0.6% of total power generation capacity, while wind is a still a modest 4.7%– the fact remains that America relies on coal for only 33% of its power generation, while China uses this dirty fuel for almost 70% of its total electricity generation.

So, looking at the numbers, (to date at least), America is far greener than China.

The truth is that coal-fired plants are and will continue to be for years to come the major electricity producers in China. Even at current levels of new investments in renewables, it will be a long time before China becomes green in a meaningful sense.

Biomass 

In the meantime, if we break down China’s renewable energy mix, we see that (if we exclude hydro) by far the biggest percentage is represented by biomass. As noted by Bjorn Lomborg in a recent op-ed piece published in The Wall Street Journal (A “Green Leap Forward” in China? What a Load of Biomass, February 5, 2017):

“It is peculiar—though unsurprising given the sensibilities of Western environmentalists—that those who celebrate China’s “Green Leap Forward” almost always focus on wind and solar technology. By far the largest source of renewable energy used in China is traditional biomass—that is, people burning charcoal, firewood and dung, as China’s poor do to stay warm. Biomass is the biggest source of killer air pollution in the world.”

Health concerns 

As biomass energy production entails burning animal dung, wood and charcoal, this type of fuel is hardly green, because of the fumes and soot produced by its combustion. If you consider that in China biomass is used for home heating and cooking mostly by the rural poor, this means that the fumes released by these “green fuels” cause a variety of respiratory diseases to vulnerable, low income people.

It will take a long time 

So, what is really going on here? It is true that China is committed to increasing the percentage of its electricity generation provided by clean solar and wind. In absolute numbers, China’s renewable generation added capacity is truly impressive. However, as a percentage of the total (keep in mind that China has a population of 1.3 billion energy users), this contribution from renewables is and will continue to be rather modest.

Still reliant on coal 

The fact is that major efforts in wind and solar notwithstanding, China still relies and will continue to rely on traditional dirty coal as the key component of its power generation mix for many years. In fact, while wind farms are built, China is adding more coal-fired generation.

It is therefore a misrepresentation to state that China is well on its way to becoming a “Green Super Power”. While the intention may be there, it will be a long time before China will be able to rely mostly on renewables for its power generation needs.

Let the markets decide 

The larger lesson here is that in the end it will be superior technology delivered at competitive prices that will tilt the power generation balance. When renewables will be really cost competitive without subsidies, then they will be adopted on a massive scale in China, in America and elsewhere.

Right now, at least in the West, the push for early adoption of still expensive technologies is not driven primarily by economic considerations. It is pushed forward by policy-makers through mandates, set asides and tax breaks created because of strong environmental concerns.

While this is understandable, we should not muddy the waters by arguing that if China can go all the way with renewables, so should America. China is doing something important. But, on close inspection, a lot less than what is stated by Western environmentalists.

 

 

 




Fight Inequality With Improved Public Education

WASHINGTON – In the course of a popular national radio show, an important journalist declared that “the Big Issue” that Americans will have to contend with in 2016 is how to reduce “inequality” through public policy measures. The respected quarterly journal Foreign Affairs agrees, and it goes one step further. The cover story of its current issue is “Inequality“. And inside one can read several articles focusing on inequality from every possible angle: global, regional and domestic. 

Ideological parochialism

This is really amazing. This is the triumph of ideological parochialism over reality. The very term “inequality” assumes that there is a preordained, presumably mandatory level of equality that we are all supposed to comply with. Veering away from the golden middle is unjust, unethical, and immoral. In fact it should probably be illegal.

This is profoundly wrong and terribly misleading. There is no such thing as a “proper balance” between rich and poor, between the income of those at the top and those at the bottom of any society. There is no formula that can correctly assess when someone has “enough” and when enough gets to be “too much”, or “too little” for that matter. These are all political notions, based on personal ideological preferences and biases. There is no healthy “natural equilibrium” that we should all strive for and then comply with.

And, more to the point, “inequality” is not a problem to be solved. It is instead a symptom: the result of complex dynamics that go well beyond the simplistic notion of an unfair allocation of national wealth.

Real inequality 

Of course, we can talk ad nauseam about specific cases in which inequality was or is the direct result of a political set up. In the Soviet Union only party elites had access to education, good jobs and perks. In today’s China, notwithstanding a vibrant private sector, the Communist Party senior leaders enjoy immense advantages that cannot even be dreamed about by the average citizen. In apartheid South Africa only Whites could aspire to have anything. In other societies small elites by mixing force, intimidation and cunning (Cuba, Venezuela, Burma, Saudi Arabia are good examples) have managed to control almost everything, while the majority of the people is left with crumbs.

But these are extreme examples of politically or ideologically sanctioned inequality. This is not the rule in most Western countries, and certainly not in America. In the West laws apply to everybody, while discrimination is forbidden. We have open markets in which everybody can compete. Besides, there is accountability, transparency, an independent judiciary, and social mobility. Inequality does indeed exist; but in most cases not because someone gamed the system.

People feel squeezed

That said, I am not surprised that “inequality” is getting so much attention right now in America and in Europe. Most people in western countries are squeezed. While some segments of society, most of them made out of  people working in the financial or high-tech sectors, are doing extremely well, most of the others are not. This builds resentments and a great deal of conspiracy theories in which many villains are featured.

The illusion of “social justice” 

But here is the thing. While it is legitimate to question what value if any is added by people and companies who charge enormous fees for manipulating existing wealth without creating anything new, it is silly to believe that if their excessive wealth were taken away from them and redistributed through taxation, welfare programs, or other public policy mechanisms, we would all be better off. The fact is that this is a dangerous illusion. Redistribution is a social justice policy with temporary and very modest results. It is “feel good” stuff that will not even begin to attack the roots of inequality.

The point is that the growing inequality we are experiencing in America is largely the effect of other problems. It is the byproduct of systemic changes mostly beyond our control. Which is to say that it is wrong to believe that you are not doing so well only because someone else (more powerful and more influential) gamed the system and got all the goodies.

Millions of new Asian workers changed the global labor market dynamics

Here is the story. For the past 20 years, the American middle class (a broad definition that includes factory workers with generous union wages and other perks) has been hammered by the ill effects of globalization.

All of as sudden, (beginning circa 1990), an enormous addition to the global work force, mostly due to literally hundreds of millions of better educated Asians willing and able to perform many jobs at a fraction of what it costs in America, meant the loss of millions of manufacturing jobs in the US (we call this “outsourcing”) and the squeezing of wages for those lucky enough to retain their employment.

Technology eliminated jobs 

At the same time, rapid technological progress also hurt the old middle and lower middle class. Robots replaced and will keep replacing people in factories, while most routine white-collar office functions are and will be increasingly performed by intelligent machines.

Those who do well 

In very simple terms, this means that in this new world those who design, produce, manage and service the high-tech machines, the value chains and supply chains connected to them, and the software on which they run are doing well, while all the others are not. If you are a lead engineer at Boeing or Intel you are fine. You work for a market leader with state of the art technology and a global presence. If you work at the local small tool and die factory, you are on shaky ground. You do not make anything unique, and Chinese competitors are coming in with cheaper products. 

Disappearing jobs 

The grim reality is that if today you are working in any sector that is challenged by better robotics or new IT applications your job is in jeopardy. You are probably only one step away from unemployment. This being the case, you have no bargaining power with your employer. You are lucky to have a job. Forget about wage increases or additional benefits.

And so you, along with millions of others, have the sinking feeling to be stuck in a dead end job, or falling behind; while few people at the top of market leaders are doing very well.

Some are doing well 

Indeed, those who started or invested in high-tech companies that fuel this enormous technological and economic transformation make millions or even billions, while the shrinking old work force has only known jobs losses and wage stagnation for the past 20 or 30 years.

In addition, it is clear that only those who have a good or superior command of the new technologies and how they relate to the unfolding “knowledge economy” have an opportunity to do well, or very well. Their skills are in high demand.

At the opposite end, a factory floor worker is a small, fungible cog that can be replaced or eliminated at a moment’s notice. Same thing for an accountant who performs back office repetitive functions.

Negative global trends 

While this is not the entire story, it is clear that increased inequality in advanced western countries is mostly due to the negative effects of globalization and rapid technological change that resulted in automation. There is unfortunately an overabundance of “old-fashioned” semi skilled or skilled labor, while robots reduced the number of necessary factory jobs. Furthermore, those who do not have the education to climb up to the next skills level in this more complex environment are stuck or, much worse, they fall behind.

This being the case, politicians who point at inequality as the big issue to be resolved by taxing the rich a lot more are deceiving themselves and the voters. Inequality is mostly the result of these global trends that cannot be stopped, let alone reversed.

Well, then what can we do? How can we reverse the impoverishment of the working class and what used to be a large and thriving middle class? There is no easy answer.

Focus on quality public education 

Still, as a minimum, we must address the quality and focus of American public education. It is obvious that in a high-tech world only those who master the new technologies will thrive.

Leaving aside for the moment the adult population, let’s think of the next generation and its prospects. If you are an inner city minority kid attending today a mediocre or bad public school, your chances of “making it” in this ultra competitive economy are practically zero.

If you are not fully literate, let alone skilled in computers, and IT and therefore capable to manage sophisticated equipment, you cannot aspire to get any of the good jobs. You are condemned to compete –you and millions of others– for low skills, low pay jobs in basic services. Yes, you can become a janitor, a landscape worker, a store clerk, a bus boy or a waiter. But even assuming that you are lucky and get one of these jobs, there is no chance that they will become rungs on your upward mobility ladder. You have no ladder.

Since you have no higher education, no high-tech skills, and no chance to go to college in order to acquire engineering, business or management skills, you are stuck.

Better education, less inequality 

So, at the very minimum our society should seriously work to drastically improve the quality of public education. Sadly, in this ultra-competitive global economy in which only the well-educated have a chance the seeds of future, stubborn inequality are planted in bad schools serving poor children.

Demanding a mandatory higher minimum wage is a silly feel-good remedy. Uneducated people are paid little because they add little value. By creating politically mandated higher wages we improve their conditions only by a little, while hurting some low margin businesses that can survive only because of low labor costs.

New sectors? 

All right, is that all? No, for sure there is more. It is quite possible that new technologies will open up new sectors and possibly new employment opportunities. Which sectors? I have no idea. At some point politicians were talking about millions and millions of new jobs to be created by the green economy. Well, this has not happened, yet.

High-tech jobs only for skilled workers 

Still, whatever the new economic sectors that will be generated by scientific and technological progress, it is obvious that only those who have the appropriate math and science education and the additional high-tech skills that will enable them to manage complex machinery and programs will have a seat at the table.

Yes, these highly competent individuals will have jobs and promotion opportunities. And they will make a lot more money.

But all the others will not.

Not a conspiracy 

Politicians who argue today that growing inequality is a moral outrage and obviously the outcome of a rigged game are delusional. In truth, the game is occasionally rigged. Yes, some sectors of the economy get preferential treatment. Some corporations should not get subsidies and should pay more taxes.

But this global technological and workforce tsunami has not been concocted in Washington by a few clever lobbyists. This is the product of globalization and of the current direction of technological progress.

Give tools 

Instead of promising to fight inequality by taxing the rich, political leaders should work to give to as many people as possible, especially young people moving their first steps into society, the best intellectual tools to compete in this new world.

Good or excellent public education (including re-training for adults) will not provide a complete remedy against inequality. But for sure without it we shall make no progress. Uneducated people cannot compete. They will remain poor and marginalized.

 




Fight Global Warming With Disruptive Innovation – Not Mandates

WASHINGTON – The Paris event on climate change will probably yield nothing really concrete. The fact is that, despite the rhetoric and the contrived “emergency mode”, there is a huge disconnect between the desired result to stop and possibly reverse global warming and the tools available for this enormous undertaking.

Impossible targets 

Whatever the environmentalists may preach or demand, it is essentially impossible to put the entire world, or even most of it, on a stringent, low-carbon diet. Western politicians who claim that they have a plan are pandering, posturing, or dreaming. We could do this only if we had viable, truly cost-effective technological alternatives. And we do not have them. At least not yet.

Renewable energy? Not quite here yet

Of course, there is renewable energy, the miracle cure. We have solar and wind power, and a lot more. But, so far at least, these are not really cost-effective solutions. Otherwise, they would have been already adopted –on a massive scale.

Sure, today we can install solar power plants in Namibia and Arizona or Morocco, and in other countries where there is a lot of sunshine all year round. As prices for this technology are coming down, this is beginning to make economic sense. But what about Sweden, Siberia, or Belgium? Not much sun there.

Mandates are a bad idea

The worst public policy mistake has been to mandate the adoption of still imperfect renewable energy technologies, so that politicians could show that “we are doing something”. This is a bit like governments, circa 1980, mandating the purchase for every public office of the first generation of PCs running on the first Microsoft operating system. This would have created a rent position for PC manufacturers and for Microsoft, therefore diminishing the incentives to innovate and out-innovate each other.

Real innovation, not subsidies 

Indeed, if I know that whatever renewable technology I produce today, it will be adopted for political –rather than cost-effectiveness– reasons, why bother to invest more, refine it, perfect it and make it wonderful, as opposed to barely passable? I know that, because of the mandates, utilities are forced to buy my stuff. I make enough money this way. Then why push the envelope?

No real results out of Paris

So, here is the thing. The big Paris gathering may yield something. But it will not be much. And we can be sure that measures promised eventually will not be implemented, at least not in full.

By the same token, it is obvious that poor countries do not have the luxury to tax carbon, or to subsidize solar.

In fact, guess what, the use of coal –by far the most hated carbon-based fuel– is going up, worldwide. Yes, up.

More coal plants in Japan

Look at Japan, for instance. The Japanese have come up with a new generation of cleaner burning, lower emissions, coal-fired plants. They are better, for sure. But they still pollute a lot more than comparable gas-fired plants. Let alone zero emission solar.

Coal everywhere 

And yet the Japanese are merrily marching ahead. And they are actively marketing their “clean coal” plants in Indonesia, and elsewhere. India depends heavily on coal. And so does China. Ditto for America, even though coal in the US has been gradually displaced by cheaper (and much cleaner) natural gas.

Add to the mix parts of Africa, beginning with South Africa, the number two economy in the Continent, heavily dependent on coal. So, forget about abolishing coal. Right now, it simply cannot be done.

The revolution 

Can this change? Of course it can. But we need some truly disruptive innovation in non carbon energy that does not need political coercion for early adoption.

Look, imagine that tomorrow we get state of the art, truly affordable and super efficient solar power. At the same time, Tesla or some other manufacturer comes up with a really cheap electric car that you can drive for 400 miles without recharging. Assuming all this, we are done.

It would take no more than a few minutes for millions and millions of price conscious consumers, and later on the whole world, to switch to the new technologies.

The end of coal, gas and oil 

Millions would install cheap and highly efficient solar panels on their roofs, this way making their own electricity, at home. Then they would dump their cars with gasoline engines and buy an electric vehicle that they can charge at home at almost zero cost. People would make this switch not because they are pious environmentalists, but because they want to save money.

This way, in no time we would have eliminated coal, natural gas (power generation fuels) and oil (transportation fuel) as our key energy sources. Think of that. And we would have achieved the dream of a mostly carbon-free world.

Not enough R&D 

This is what we should aim for. Whereas, right now we get little investment in R&D in new energy technologies, and plenty of mandates, regulations, and subsidies for still rudimentary renewable energy solutions.

We should spend real money on “Moon Shot” projects. Bold stuff, out of the box ideas. Of course, most of these efforts will lead to nothing. Lots of money will be burnt on crazy ideas. But this is what happens when you go into uncharted territory.

Fantastic energy future? 

Nobody really knows what our main source of energy will be in 50 years. I hope it will be something fantastic, clean and cheap. But if we continue at this pace, chances are that in 50 years we will continue to have debates about “clean coal”, and “lower emission”, gasoline-fired internal combustion engines.

And, if that is so, forget about “solving” global warming.




You Cannot Kick Start Innovation

WASHINGTON – The Emirates News Agency a year ago announced a partnership between the UAE Ministry of Economy and General Electric, the giant US technology multinational. They just signed a Memorandum of Understanding whose objective is “to strengthen the culture of localised innovation, and inspire UAE government employees with deep insights on the innovation and entrepreneurship ecosystem”.

GE will show how to do innovation

The Emirates News Agency explained that “GE will organise leadership speaker sessions to be led by experts at the GE Ecomagination Innovation Center in Masdar City, a regional hub that promotes collaborative research and innovation, for 30 government employees nominated by the Ministry of Economy. The Speaker Series will specifically address the areas of FastWorks, GE’s new initiative to promote the ‘start-up’ culture, which emphasises the disciplines of lean manufacturing and agile software development.”

There was also an announcement about “discussions on entrepreneurship and innovation, the role of education in innovation, and the Industrial Internet, GE’s path-breaking approach to digital industrialisation through the power of big data and advanced analytics. All workshops are designed to promote the integration of innovative thinking into our everyday lives to achieve significant leaps in productivity and efficiency.”

And there was more. A variety of workshops on this and that, demonstrations of how 3D printing works, and so forth.

The UAE government promotes innovation 

This agreement with GE supposedly demonstrated how deeply the UAE government is committed to the promotion of innovation in the UAE. As a high level official put it: “The MoU with GE is a strong testament to the commitment of the Ministry, and indeed the UAE Government, to promote a culture of innovation and entrepreneurship nation-wide. With a focus on sharing best practices, the MoU will help provide deep insights into the newest trends in innovative thought processes, manufacturing, and technologies among the government staff through high-caliber workshops.”

And the article reported many other lengthy quotes from other high level UAE officials. It is all about “bringing new insights”, “creating a culture of sharing”, enhancing “co-creation”.

Mostly nonsense 

Looks promising, doesn’t it? Well, no. In fact, most of this is just nonsense.

Here is the thing. The UAE may have the money and the resources to convince GE, and may be other tech companies, to engage in these kinds of exercises. But they are generally futile.

And here is why.

You can import innovative technologies. But you cannot import a culture that breeds innovation.

No, “an innovation culture” cannot be imported, prescribed, or mandated. Innovation happens because a self-renewing, innovation friendly eco-system has been created, quite often by accident, may be around a research university, or another prominent R&D facility or laboratory.

Generally this happens in dynamic, open economies that encourage entrepreneurship, with a history of applied science and technology and successful commercial applications of new developments.

And this is certainly not the profile of the UAE, not even close.

The building blocks 

We know what the essential building blocks for an innovation-driven economy are; at least the big ones that make innovation possible.

For starters, you need a dynamic, free market economy. Then you absolutely need laws and a judicial system that protect private property and intellectual property. Then you need human capital that can be successfully mobilized. And this means that you need some very good science and engineering schools. And top-notch business schools. This type of high quality education system will create a chance that at least some of the graduates will develop a passion for working on new ventures.

Keep in mind that most of these budding would be entrepreneurs will try and fail. In some cases multiple times. But some of them will come up with something. Those who do will need additional support to bring their idea or prototype to the next level.

Hence the critical importance of networks created by top-notch academic institutions, research labs, and other R& D outfits. And, of course, you need developed capital markets, and a robust venture capital industry capable of spotting new comers and willing to risk real money on what look like good prospects that could very well turn out to be duds. And finally you need real and well-regulated stock markets where a successful new venture that plans to go public can receive new funding from willing investors.

Just the minimum 

Please note. This is just the beginning. These are just minimum prerequisites. You may have all this and still no consequential innovation is produced. And why so? Because “creating innovation” is still more art than science. Many would-be innovators fail. Some give up. Some don’t. Sometimes they pursue something, and then stumble into something else. Not infrequently, there are strange, totally unexpected discoveries.

What about GE in the UAE? 

Anyway, what has this to do with GE trying to foster a culture of innovation in the UAE? Plenty. The UAE may be trying to promote good things. But the notion that a Ministry can energize the creative juices of the people by signing an MoU with a large US multinational is mostly a dream, unless it is a mere public relations exercise.

Do the Emirates have an innovation friendly environment?

Sure enough, if indeed the UAE were a modern, market-driven free economy with lots of talented entrepreneurs already working on next generation stuff, then some practical advice delivered through workshops by real pros could make a real difference. But this assumes the existence of a solid foundation that we are not sure is really there.

You cannot copy successful models 

Here is the basic point. You simply cannot make things happen if the fundamentals are not already well established. For instance, the whole world knows about Silicon Valley in the U.S. And yet nobody has been able to replicate it. And this is because in Silicon Valley there is a unique culture, peculiar sets of non linear connections and relationships, and cross-pollination that sometimes may take place in counter intuitive ways. There is no formula for this.

There is nothing wrong in the desire to promote innovation. But the best that governments can do is to make sure that they can and will establish the essential preconditions, the “enabling environment” which may lead to the create a business friendly eco-system.

First of all, you must have genuine freedom

And the most essential of all preconditions is genuine, unfettered freedom. Yes personal freedom. What’s that got to do with science and technology? Plenty. If it did not, then the old Soviet Union , a country that gave eminent scientists a privileged status within its society, should have been a remarkably successful innovation factory. But this did not happen. And this is because those scientists were all state employees working on (mostly national security) assignments. They did not own their inventions. They could not market them. They could not start private companies. The state owned everything. 

Free people have a chance to explore and discover 

In Western countries it is different. When educated people with advanced knowledge about science, technology and organizations feel genuinely free, then they are also free to think and experiment, sometimes in new and unorthodox ways. this environment is the precursor to innovation, sometimes very successful innovation.

Make money 

Because they are free to think out of the box, some entrepreneurs may very well find or make something really new and become innovators. And part of the incentive is that the would-be innovators know that they will own their ideas, and that the system will allow them to market them without creating artificial obstacles.

Yes, they will be able to make money through the products of their intellect. All this happens because free people who are free to be innovators want to try to be innovators (at least some of them) and hopefully gain from their successes.

They did not get this urge and passion to try new things because they attended a state-sponsored workshop in an oil rich country that at best has a culture of trade, but certainly not of industry.

 




Fusion: The Next Energy Revolution

WASHINGTONTIME‘s cover story (November 2, 2015) has this tantalizing title: “Unlimited Energy. For Everyone. Forever. FUSION, It might actually work this time”.

Fusion 

Yes, the long article is about “fusion”, the Holy Grail for all those who seek a way to produce and harness abundant, cheap, and emission free energy. However, this is still a distant dream. Indeed, the inside joke among those who have been working on nuclear fusion is that “fusion is about 30 years away, and it will always be 30 years away”.

Therefore, fusion is something theoretically possible, but so removed from practical reality that it is in fact only a fantasy. Indeed, even if we take it literally, “we shall have nuclear fusion 30 years from now” does not mean “never”. But it is a very long time away for a world that is seeking practical, commercially viable alternatives to fossil energy –today.

The global energy picture 

When it comes to energy, we know where we are. Contrary to even recent predictions, we still have plenty of oil and gas, not to mention enormous coal reserves. In fact, thanks to the US-led “hydraulic fracturing” revolution, now we can tap into large oil and gas shale reserves that we believed to be economically non viable until very recently.

However, energy from fossil fuels is still too expensive for many developing countries. Hundreds of millions of people in Africa and Asia lack electricity and modern transportation systems simply because they cannot afford them.

Emissions 

Besides, fossil fuels extraction, processing and consumption contributes to environmental degradation, while their emissions increase the amounts of greenhouse gases that cause global warming.

Those who really worry about climate change (they seem to be a majority) declared that, because of global warming, we have to curb the use of fossil fuels now, while switching to emission free renewable energy.

Good intentions 

The intentions are good. However, the problem with this approach is that it is not cost-effective, at least not yet. At its current level of technological development renewable energy (mostly wind and solar) is still too expensive and not reliable. In many cases, it is adopted only because of imposed legal mandates. This may make environmentalists happy, but it is bad economics.

Enter fusion 

How would fusion change all this? Well, if indeed fusion would move from quasi-science fiction to commercially viable reality, its impact would be equivalent to the invention of the electric light bulb.

Fusion is what takes place in the sun, at extremely high temperatures. Imagine that we would learn how to provoke fusion while properly containing it, and use the tremendous amount of power released by it. This would be a real revolution. As TIME put it: “Unlimited Energy. For Everyone. Forever.”

Cheap, no radiations 

And the beauty of all this is that fusion is cheap. The raw material for fusion is super abundant hydrogen. And fusion is much more powerful than fission (this is what happens in nuclear power plants), without the disadvantage of creating nuclear waste, or radiations. Besides, just like nuclear power, but unlike wind or solar, fusion would generate a constant supply of energy.

Imagine the consequence of this energy revolution. We could power almost anything at a fraction of today’s cost. Forget about drilling oil wells, transporting and then refining crude oil. Forget about coal mines. Forget about gas wells, and pipelines.

Energy for developing countries 

We could give clean, affordable energy to all poor countries, so that they would be able to kick-start their economic development without the huge up front costs associated with the construction of power generation plants, and the additional expenses related to fueling them and running them.

A game changer? 

Well, has there been any breakthrough? Have we removed the “we shall have fusion, 30 years from now” insurmountable barrier? Not quite. In this respect the article disappoints a bit. We are still not “there”. However –and here is the good news– we have entered a new dimension that may be indeed the prelude to a real game changer.

State-run programs

Here is the thing. Until recently fusion research was the domain of publicly funded researchers. And this was and is a systemic weakness. The allocation of (relatively scarce) public funds devoted to fusion research and experimentation is governed by too many rules, procedures and endless bureaucratic protocols.

And it seems that risk averse program managers dominate this process. As a result, everybody is doing pretty much the same stuff. New frontiers are not explored. Hardly any progress registered.

Mega international projects, such as ITER (International Thermonuclear Experimental Reactor) in the South of France, are years behind schedule and billions over budget. ITER started in 2008. It is now estimated that the reactor will be operational in 2027. In the meantime, projected costs ballooned from $ 5 billion to $ 20 billion.

Private capital 

But something has changed. And the change is that private capital is now bankrolling small and generally unknown start-ups. And these start-ups (like Tri Alpha, Helion Energy and General Fusion) are experimenting new technology approaches that seem to be more promising.

Now, this renewed enthusiasm about fusion is no guarantee of success. But it indicates both optimism and impatience among dedicated scientists, and beyond. Obviously there are many people, including funders, who believe that the science has been properly addressed, and now the trick is to move to the next step, by making the machines that will make fusion possible and commercially viable.

Getting there? 

Again, let’s stress that optimism and the availability of venture capital is no indication of ultimate success. However, many more smart people focusing on fusion may increase the likelihood of faster progress.

One again, the very idea of fusion seems to be the classic example of something that is “too good to be true”, and therefore impossible. Still we may, just may, get there. And may be sooner than we think.

 




Will Tesla Be The Electric Car Maker of The Future?

WASHINGTON – Thank God, US IT tech companies are still in the lead. It is hard to match the combined strength of Apple, Google, Intel, Facebook, Cisco, Microsoft, Oracle, and so many others.

A high-tech car company

But now we also have Tesla, the high-tech electric vehicle (EV) manufacturer, aspiring to be part of the super high-tech, high valuation technology companies club.

And here is a problem. Undoubtedly, Tesla is a tech company. But it makes cars, not software. Can Elon Musk, its founder, keep saying that because he is creating a technology revolution about to transform the automotive sector the metrics about unit costs and profitability that would apply to traditional car makers do not apply to Tesla?

You buy into the revolution 

Who knows really. As Philip Delves Broughton notes in a well crafted FT op-ed piece, (To be rational about Tesla is to miss the point, August 27, 2015), if you are buying Tesla’s stock you are buying into a huge bet. And the bet is that this particular EV technology will indeed disrupt the entire car industry, soon enough displacing the old, established players.

If this is indeed so, then forget about the traditional metrics. Forget about the fact that Tesla’s stock is absurdly over valued. Indeed, as Broughton notes, the entire company is worth about half as much as BMW, a competitor that makes 35 times as many cars.

You buy Tesla stock simply because you believe what Musk says about massive future sales based on the guaranteed success of new, affordable EV models that have yet to be produced.

Well, if Musk is right, then he is the man who will transform the world automotive industry. Again, if this is so, then Tesla stock at $ 200 or even $ 300 a share is a bargain.

If Musk is wrong 

But if Musk is just a clever marketer, your investment most likely will be worth nothing in just a few years. Indeed, what if Tesla EVs cannot deliver any real profits? What if there are other companies out there that will come up with a more efficient electric engine and/or a new generation of truly revolutionary low-cost, high charge, low weight batteries?

Well, then it is good-bye Tesla, the trail-blazer that got it only half right.

Subsidies 

And just one more thing. Tesla current lousy numbers would be a lot worse without the subsidies that Tesla and other EV manufactures receive from the federal and state governments.

Policy-makers love anything that replaces the internal combustion engine. Therefore Tesla buyers benefit from a tax rebate, while the company gets carbon credits that it can sell to others, this way making extra profits.

Look, nobody denies that Tesla already makes a great car. The Model S gets fantastic reviews. But it is not a cost-effective product.

The Concorde was great, but it kept losing money 

By the same token, when a French-British consortium launched the Concorde, back in the late 70s, many thought that we had entered a brand new era of cost-effective supersonic air travel.

Well, it was not so. Nobody said that flying the Concorde was a bad experience. On the contrary, it was wonderful. But it was a commercial disaster. Therefore, after a long agony, the Concorde was finally pulled out of service in 2003. This does not mean that supersonic commercial jets will never be made. It simply means that it will have to be something other than Concorde.

Now, are Tesla vehicles the real thing, or just the automotive versions of the old Concorde?




FT: Europe Undergoing High Tech Transformation – Really?

WASHINGTON – If you look at mainstream media, the news is that slowly but surely “Europe is back”. With a degree of optimism bordering on lunacy, we are told by many analysts and commentators that Europe’s economies are doing so much better, these days.

Europe is back

Yes, we are talking about a Eurozone growth rate for this year that may go beyond 1%. Can you imagine? More than 1% growth? Unheard of.

Well, this is Europe’s “New Normal”. A new normal in which debt to GDP ratios are now close to 100% in most countries, while in Italy the national debt climbs to 125% of GDP and in resurrected and officially “saved” Greece it is close to 180%. This is the new normal of structurally high unemployment (above 10%) with peaks around 25% in Spain and Greece. Not to mention catastrophic youth unemployment (about 30% or higher) in most of Southern Europe.

And yet, notwithstanding this rather dismal picture, the news is that things are essentially back to normal or getting back to normal.

Deluge of cash into high-tech startups?

Case in point an FT front page title encouraging readers to get to the story on page 9 says: “A deluge of cash – Venture capital is pouring into Europe’s tech start-ups”. “Deluge of cash”? Now here is a story. If the authoritative FT writes a special report on an explosion of venture capital supporting new high-tech enterprises in Europe, there must be something really important going on.

Well, no, there isn’t. And it is clear that there is no revolution when you read the article. It is true that now there is a lot more venture capital supporting European tech ventures. In the digital sector there has been an increase from $ 4bn a year in 2010 to $ 7.7 bn in 2014. This is indeed almost double.

Modest funding

However, compared to the $ 160bn invested in the US, of which $ 70 bn have been invested just in Silicon Valley, this is nothing. And yet the EU economy is just as large as America’s, (about $ 18 trillion).

The difference is that there is very little innovation in Europe. The long FT survey describes only a couple of major success stories. And some experts and practitioners quoted in the long article expressed strong skepticism about Europe’s chances to become a real high-tech hub.

And yet, while the actual news is not that good, the FT editors thought that it would be OK to dress up a not so interesting story about Europe’s so-so high-tech companies with a teaser that announces a “Deluge of cash”. As a minimum this is a distortion.

Lamentable record in innovation

The WSJ is more realistic. In a piece titled “Post Bailout Risks Loom for Eurozone Investors” (July 23, 2015), we read that: “Europe’s lamentable record in innovation and startups means a lack of fast-growing new companies with big investment plans”. Got that? Lamentable record in innovation and startups”. No mention here of any “Deluge of cash”.

Look, economic affairs reporting is not an exact science. But both papers cannot be right on the truly significant issue of innovation in Europe. The macro statistics about growth, public debt and unemployment support the WSJ: Europe’s  economies are stagnating.

Wishful thinking

Unless we want to cling to our hopes and say that the FT is right because it is anticipatory. Its reporters have identified below the horizon transformative trends in Europe that others have yet to grasp.

Look, it would be great if this were true. It would be great to witness a European economic renaissance. But it is not there.

And preposterous headlines that announce the massive capitalization of high-tech revolutions, when there is little evidence of anything truly significant underway, are very unhelpful.

 




After Gigantic Failures Is US Still IT Leader?

WASHINGTON – Whatever can be said about the not so vibrant US economy, there is usually agreement that America is and will be the world leader when it comes to IT. Indeed, US companies lead in microprocessors, software, networking systems, on-line retailing, on-line music distribution, smart phones applications, and now social media. You know the names: Apple, IBM, Microsoft, Oracle, Cisco Systems, Intel, AMD, HP, Dell, Amazon, Facebook, Linkedin, and many, many more.

Vulnerabilities

And yet, recent events show an entirely different picture. A picture of antiquated systems, gigantic failures and alarming vulnerabilities. Let’s start with the US Government. For whatever reasons, Washington is several steps behind when it comes to IT. There seems to be a systemic inability to stay on top  of things when it comes to modernizing old IT devices, software and networks. Reliance on obsolete systems means inadequacies and failures, while it creates opportunities for those who want to penetrate US networks, this way compromising or damaging complex systems of great national security value.

Gigantic failures 

Gigantic failures include the epic collapse of the brand new website that was supposed to allow millions of Americans to access the medical insurance exchanges created by Obamacare health law. It was an unmitigated national disaster. It took months to fix the issues stemming from poor design.

Most recently, the US State Department could no longer issue visas to foreigners for several days because of a computer system breakdown. Mind you, this is a key agency of the US Federal Government.

And then we have the unbelievable hacking of the Office of Personnel Management (OPM), the largest record keeper of all US Government employees. Notwithstanding deliberate efforts to obfuscate and minimize, now we know that 21.5 million (yes, this is million) confidential files that include background investigations, career records and much more pertaining to millions of past and present federal government employees are now in the hands of still unknown cyber criminals. Imagine that. Highly sensitive, personal information about millions of people ended up we do not know where, possibly in China. And apparently the US Government was unable to prevent any of this.

Private sector problems

When it comes to the private sector there are also major black spots. Just a few days ago UNITED, one of the largest airlines in the world, had to ground all its airplanes for a few hours because of computer software errors.

On the same day the New York Stock Exchange had to halt floor trading (it continued electronically elsewhere, on other platforms) for more than 3 hours because of software malfunctions. Can you imagine that?

All systems breaking down? 

Well, are these signs that the entire US IT infrastructure is breaking down? Not really. But these are signs that America is losing its edge. While we understand that federal bureaucracies are slow, there is no justification whatsoever for Washington’s chronic delays when it comes to adopting current IT technologies, while retaining old systems that are patently inadequate, not to mention highly vulnerable to cyber warfare and cyber crime.

And the private sector has some catching up to do. Most corporate networks are essentially unprotected against cyber attacks, while there are just too many unforced errors that indicate bad systems and poor programming.

Still the world IT leader? 

So here is the question. Given all these well documented failures, can America still claim a world leadership position when it comes to IT?

I am not so sure anymore. But I do hope that responsible people both in government and the private sector do appreciate that it is impossible to retain great power status when your IT systems –the nerve centers of all that matters in any advanced society– are accident prone and extremely vulnerable to attacks.




America Needs Structural Reforms

 

WASHINGTON – There is no doubt that millions of Americans are economically worse off because of the negative impact of a couple of global trends. First of all there has been the Asian awakening.

The impact of cheap labor

This translated into hundreds of millions of able-bodied Asian workers who almost suddenly joined the global labor pool, while offering their services at a fraction of the cost of their US and European counterparts. A lot of additional cheap labor supply, with no significant additional global demand for more goods, simply depressed the wages of US workers, while causing many US businesses to literally shut down, or move to low wage Asian countries.

Technology kills jobs

This is bad enough. But there is more. In the past, the effect of new technology was the creation of new sectors. The introduction of mass industrial production at the beginning of the 20th Century created millions of factory jobs, just as modern farming allowed food production with very few farmers, this way creating labor redundancies in the country side.

But now it is different. Now, advanced industrial technology means mostly automation. And this means that robots rather than humans make stuff. The factory of the future will be run by machines with only a few highly specialized humans at the controls.

This means fewer and future factory workers, regardless of demand increases.

Pressure on the US middle class

All this is enough to describe the plight of a huge portion of the American middle class. Jobs disappeared or pay a lot less, because US wages have to compete with the lower wages of Asian workers willing to do pretty much the same jobs at a fraction of the labor cost. At the same time technological progress killed other functions that now can be performed by machines.

Regain competitiveness

The only possible –but by no means certain– way out this is to regain global competitiveness by redoubling our efforts in innovation. We have to create new technologies, new systems, new products that will allow our corporations to lead.

This is not at all simple. Still, as a minimum, let us stipulate that public policy needs to be aligned with this paramount strategic objective of fostering innovation. But let me be clear on this. Good public policy is no guarantee of an economic renaissance. However, for sure bad public policy will hinder it, or prevent it altogether.

So, what is good public policy for America?

Here is my list.

The to do list

1) We need a vastly simplified federal tax code that will eliminate all tax loopholes, while reducing tax rates. What we want is a pro-growth tax code that encourages easy compliance, without discouraging business formation and new business investments.

2) We need a dramatic reform of all entitlement programs. We simply can no longer ignore the fact that all major entitlement programs (Social Security, Medicare, and Medicaid) were designed in another era, with vastly different demographics, and significantly lower costs.

3) We need a dramatic reform of the entire US public education system. The facts are known. US public schools, often at a very high cost, deliver a mediocre and at times horrible product. The impact of bad public education is immense. First of all, it creates an almost insurmountable obstacle to social mobility. The poor disproportionately depend on public education to get the skills that will allow them to advance in the American society. And, secondly, a smaller pool of educated people will make it a lot more difficult for America to become once again an innovation leader. Functionally illiterate high school drop-outs rarely turn into leading inventors.

4) And, yes, we should have sensible immigration reform. Make the borders secure. Create a path to legalization for most of the illegals who are here, and make it a lot easier for ambitious, smart people to come here and start a business. Let’s start with the capable people who are already here as graduate students in leading American universities. We educate them. Let’s give them a chance to stay and work here, if they so wish.

Health care is a mess

To this agenda  we should also add serious health care reform. But this is so complicated that I hesitate to place it on my wish list. Simply stated, by creating a system that is a horrible hybrid between private and public, with perverse incentives for doctors to over treat, and no financial reward for teaching prevention and “wellness”, we have created a real  monster. And so, we got the worst of everything: astronomic costs, (the US spends 17.5% of GDP on health), millions of Americans affected by (preventable) chronic diseases, and mediocre health care.

Plenty to do

Anyway, there is plenty to do. However, it will be difficult to hear clear calls for true reforms coming from the crowded field of would-be presidents. And this is a real shame. What I outlined above should be a pretty straightforward, non-partisan, to do list.

And yet our politics have become so ideological and vicious that we have done essentially nothing to advance on any of these issues for more than a decade. Between Bush’s foolish wars and Obama’s sterile populism, we have wasted precious time, not to mention trillions of dollars.

Focus groups policies

And now the risk is that the next president will be elected on the basis of what focus groups want to hear, (usually more benefits and lower taxes), as opposed to what needs to be done.