Economics

1 Jan 2014

Ice Storms Highlight Canada’s Obsolete Infrastructure

As we enter 2014, well into the 21st Century, one lesson for me from the year just past was that Canada seems to be hobbled with 19th century infrastructure. Let me explain.

During 2013, my home in Ontario was subject to not one, but two, different ice storms – in April and December. Both brought down large chunks of trees and both caused multi-day electrical power outages. In decades, this is the first time I can recall losing power for more than 1 day. To have this occur twice, with a combined 8 days of power outage, in a single year is even more striking.

After the first ice storm in April, I recall discussing this with a European colleague who was surprised by the very notion of a power outage. From a European perspective, he suggested the last power outage, of any length, that he could recall was 30 years ago. This started me thinking about why the difference.

In Canada, we have always prided ourselves on being one of the world’s richest countries, with modern infrastructure. However, much of our infrastructure was built for a different time and need. Much of it is really a testament to truly inventive Victorian design. It was indeed wonderful but no longer makes sense in the 21st Century. So, why indeed do we still have most of our electrical power lines above-ground on poles, while the rest of the (rich) world generally buries them? Why do our railways still rely on switches that freeze in winter and need to be operated by workers with propane torches? Why is a city like Toronto paralyzed by a major rainstorm?

Our homes, utilities, drainage and much more was built for a world predating our current period of rapid climate change. Surprisingly there remain in this world Luddites, who bizarrely continue to deny the fact of climate change. While we still have much to learn, on-the-ground results are here for all to see.

I gained significant insight into these issues when as a Director of Gore Mutual Insurance Company, a leading property insurer, I attended an enlightening presentation by the poignantly named Institute for Catastrophic Loss Reduction (ICLR). This industry-funded organization is a world leader, collaborating globally in research and advocacy around the causes and solutions for large scale insurance losses, known in industry jargon as a Catastrophe or even a Cat.

ICLR gathers data and works with many academic researchers to increase both understanding and awareness of what causes insurance losses. The data shows that the last ten years have seen huge increases in the number of severity of large scale losses, particularly from damaging wind, water and ice events, which are all significantly driven by climate change.

For example, with increased wind events (typically tornadoes in this area of Ontario), a call for more homes to be built with windows structurally rated to withstand 200 mph wind events makes sense.

Furthermore, climate change means that rainfall in 1 hour can equal what used to occur over 24 hours or more, with flash floods ensuing. In such an environment, instead of our historic practice of getting rid of water as quickly as possible, it is better to slow it down and buffer the potential for flash flooding.

For me, the power outages are a metaphor for how we in Canadian society need to look at our infrastructure with a sense of long term vision. We really need to invest to upgrade utilities, transportation and drainage for the needs of the 21st century. This in no way takes away from the heroic efforts of Hydro workers over the holiday season. I’m simply surprised that attention has never been focused on the root cause and long term prevention.

In an era of political infighting and embarrassing city Mayors, I’m wondering where the leadership necessary to achieve this will come from?

A GO Train is stranded on flooded tracks in Toronto on Monday, July 8, 2013. THE CANADIAN PRESS/

Have Lean Startups Helped Us Scale Larger Technology Companies?

Building larger technology companies is critical for our future economic well being, yet somehow we seem to pay more attention to the seed and startup phase. This post and a subsequent missive, Wisdom from Recent Waterloo Technology Acquisitions, aim to analyze some recipes for building technology businesses to scale first from the perspective of recent companies and then specifically through the lens of local acquisitions. This pair of posts will be based on extensive data, but the findings are intended to start discussion rather than be the last word.

Meeting Productivity: Central Planning Versus the Market

The 20th Century was defined by an ill-fated search for a better world, inspired by late 19th Century, Victorian thinking. The irony, then, is that the 20th Century turned out to be probably the most destructive in human history, based on often misguided applications of powerful new technologies.

If you define a utopian society as one where governments plan to have zero unemployment, stable economic growth and high personal well being, how have we done in planning for this world? Up to now, in a word, wretchedly.

A personal defining moment was when I journeyed behind the Berlin Wall to East Berlin in 1989. This was just before the Soviet Bloc, along with its vassal state the German Democratic Republic, spectacularly imploded on 9 November, 1989. While I had previously sympathized with the notion that a socialist government could plan to make the world a better place, the dismal comparison of the East and West that I saw then graphically disabused me, forever, of that notion. East Berlin was a drab, grey, unpainted city in which even the prominent public buildings still had 45 year old bullet holes from World War II.

Communism, coupled with its less extreme relation socialism, and fascism were the defining, centrally planned ideologies of the 20th Century. Then, everything was planned and and organized from the top down, from prime time television, to the Stalinist 5 year plan to the Nazi Thousand Year Reich. With that hopeless track record, will we ever figure out how to move closer to a utopian reality?

Today I will explore some of the innovations in our understanding that might lead to that end.The book Infotopia, by Cass R. Sunstein is a truly outstanding study of the power of democracy in decision making for our internet age. Rather counterintuitively, this insightful book presents a well-researched argument that in group decision making, Deliberation (or central planning) almost always produces inferior results to Democracy (the wisdom of many people, driven by markets, to reach the truth).

Some key insights are:

The Condorcet Jury Theorem, which says “that the probability of a correct answer by a majority of the group increases toward 100 per cent as the size of the group increases.”
Two key sources of failure by Deliberating groups are informational influences and social pressures, which might be paraphrased as browbeating and peer pressure, which among other things, tend to amplify, rather than remove, errors.
Polarization is a particular risk of digital media in which political (or other) views tend to be reinforced by people filtering out any information which contradicts their existing world view. Thus, rather than reaching consensus, digital technologies can make the right wingers more right wing and left wingers more left wing, leaving little middle ground.
Prediction Markets are a new paradigm which harness price signals of the market to help in decision making, based on the insight that people tend to make better decisions when price signals are involved.
The Web 2.0 trends of Wikis, Blog, and Open Source Software all provide great evidence for this new paradigm of the wisdom of the crowd which Sunstein has so ably analyzed.

This book should be mandatory reading for politicians, business leaders and anyone wanting to shape the world of the 21st Century. From how to conduct better meetings to how to make the world a better place, Infotopia provides a solid foundation of how to harness better decision making for the future.

6 Mar 2009

Fail To Understand the Net Generation at Your Peril

The Net Generation (born 1977 to 1997), also known as Generation Y or the Millennials, is an ill understood lot. Don Tapscott, noted thought leader on digital technologies, is a real cheerleader for them in his recent book Grown Up Digital.

However, while some of his examples may represent the bleeding edge thought leaders of this generation, almost everything he says is well reasoned and researched. I would suggest this book is a must read for the rest of us who will watch this demographically dynamic generation increasingly dominate all aspects of our society, including business, culture, education, politics and entertainment. Many of us are looking at this generation from the perspective of the previously dominant demographic group known as Baby Boomers or Boomers (born 1946-1964), also known as the TV Generation. I would note that already, the Net Generation outnumbers the Boomers.

Perhaps the defining characteristic of this group is that they are the first generation to have been immersed from birth in digital technologies, such as the internet, computers and online media. Because of this, they are sometimes labelled “digitals“, with others who find these technologies more challenging to even baffling being called “analogues”. The Digitals don’t even think about technology, it is just part of the landscape for them. Analogues, by contrast, either avoid it like latter day Luddites or struggle to keep up with the Net Geners.

I’m part of an interesting hybrid group of people who were born analogue but has adopted many of the digitals characteristics. In essence, people like me might be described as a digital immigrant. Consider my digital pedigree:

I first used computers at age 14, after being invited with a set of Math Contest winners to the University of Waterloo where I had the pleasure of using APL an early math-based timesharing system running on an IBM 360/44 . It is notable that, rather than learning the standard Fortran and programming on punch cards, I started programming using an IBM 2741, which is like an online IBM Selectric typewriter (typeball and all) connected via modem, with acoustic coupler, at 134.5 baud. Prior to this, I had read about computers and thought about them abstractly, but the plain truth is that computers were only accessible to a very small, privileged elite.
Recently, a friend sent me the directory listing of an old backup tape for the Honeywell 6050 TSS system which reminded me that I first used email in 1975. Yes, we even had mailbox and mbox files way back then. Of course, the email system only connected the almost 1000 users of this computer, yet barely two years later my friend Bill Pase then working at IP Sharp Associates, connected me into a truly global email system run by that pioneering firm. This is primarily of interest because many people I talk to assume that email began in the late 1990’s.
Around 1990, while CEO at MKS, I remember being at an X/Open meeting in Rome (where ironically, I ran into the self same Don Tapscott at the Capella Sistina of all places) we were working to develop many of the standards that would shape our modern, connected digital world. I vividly recall after hours discussions with other attendees about my misgivings about how an always-on, multi-media world would impact our overall quality of life. As you can imagine, Rome was a fantastic place to have that debate. Even more important, what was esoteric futuristic thinking 20 years ago has largely come true, for better or worse.

So, like Don Tapscott, having grown up with a constant backdrop of technology and really having been part of making this cultural form, I too am a cheerleader for this emergent generation. However, many others, the most famous being Mark Bauerlein, take a much dimmer view of this generation. His book The Dumbest Generation: How the Digital Age Stupefies Young Americans and Jeopardizes Our Future (Or, Don’t Trust Anyone Under 30) might well be the NetGen equivalent to Reefer Madness for the boomers. For me, this shows that many people totally misunderstand this talented generation. Sure, this generation has its flaws like any other, but like Don Tapscott, I’m pretty optimistic about it.

To give a taste of how fundamental, not to mention transformational, the Net Generation culture is, I list the 8 norms that Don Tapscott found and validated through his research. I would suggest that the following norms need to be underestand by the rest of society so that the generations can build bridges based on the strengths of each constituency. The alternative is to create a new generation gap based on misunderstandings, a neo-Luddite situation if you will.

Here are Don Tapscott’s 8 norms for the Net Generation:

Freedom: this generation demands the freedom to choose at work, in education and the marketplace. And, for them, freedom is so ingrained that it is not an option.
Cutomization: Growing up with computers and software, has made this the mashup generation. Everything from products to lifestyles can be customized. This generation is the living proof of Chris Anderson’s Long Tail phenomenon.
Scrutiny: Living in the epicentre of the blogosphere, twitterverse, SPAM and nonstop marketing, high levels of filtering and scrutiny are the only defence of a generation which has made separating the signal from the noise an artform.
Integrity: The laser beam clarity and transparency of an always-on, Google-indexed world has heightened this generation’s radar for anything that fails to ring true. When there is no place to hide, a lack of integrity becomes glaringly obvious with often severe consequences for people or companies who fail to understand this new reality.
Collaboration: A generation that grew up on group work and online games, now has adopted global collaboration and teamwork like never before. The Net Generation’s digital connectivity likely are another nail in the coffin for command and control organizational design not to mention one-way traditional education models.
Entertainment: Net Geners expect work to be fun and the line between work and play is much more blurry for this generation. This means that some of the pioneering approaches at the Googleplex, may well become mainstream in the coming years.
Speed: Among fellow computer geeks, many used to pride themselves on speed and belittle the slower blink rate of the old fashioned world. Net Geners have taken this to extreme in their always-on, instantaneous world, expecting immediate feedback on everything they do. This could well be one of the biggest intergenerational challenges.
Innovation: This is a generation of early adopters, living on the bleeding edge. Not content to have products and ideas pushed to them like 20th Century consumers, they push collaborative, user-generated approaches to even the products they consume.

In business, government or ordinary society, I think we ignore this tidal wave of new thinking totally at our own peril. The first step is to understand this generation. Then, and only then, can our generation harness the incredible energy, idealism, passion and drive to help us all build a better future.

15 Feb 2009

Getting Creative – “Yes We Can” or “Mind the Gap”?

In today’s challenging economic times, it is extra important for governments, academics and individuals to plan our future economic prosperity. Thus, it is timely that Richard Florida and Roger Martin from the Martin Prosperity Institute, Rotman School of Management, University of Toronto this month published Ontario in the Creative Age, which provides a detailed future-oriented policy blueprint.

It sets a policy agenda to help us unleash our full potential in the Twenty-first Century where economic success is increasingly coming from creatively-oriented enterprise versus our traditional strength in routine physical and routine service occupations. The report is backed by research which highlights both our existing strengths and weaknesses including those in education, income and even the gap in our creative/routine job mix compared to our peers. Starting from the base of today, the agenda suggests four main focus areas to drive future prosperity:

“Harness the creative potential of Ontarians”, including businesses’ role in changing job mix, education and even marketing of our capabilities,
“Broaden our talent base”, focused on significant increases to our post secondary educational levels and broadening managerial capabilities,
“Establish new social safety nets”, including early childhood development, better utilization our key immigrant resource and retraining of older workers from declining occupational groups, and
“Build province-wide geographic advantage” which strengthens connections (physical and otherwise) within and beyond the mega-region spanning Waterloo-Toronto-Ottawa-Hamilton-Niagara-Rochester.

Having read this paper, it is encouraging to see such a forward thinking analysis that will certainly drive future governmental, business and economic decision and policy making. With that in mind, and being of an optimistic “yes we can” mentality, I was, however, struck by how very little attention was paid to the biggest gap of all — Funding this agenda.

Without proper funding, our ability to transform our economy in these wise and necessary ways, will go unfulfilled. I’ve written about this “funding gap” numerous times and from different perspectives:

as part of my series on government policy aimed at preparing us for the Digital Age: Digital Policy #3: Startup Investment and Taxes
our recent Federal Budget was chock full of stimulus measures, but seemed totally blind to the creative transformation. For example, I discussed potential green technology initiatives in A Bright Green Federal Budgetary Stimulus Opportunity
much social enterprise, particularly that most creative sector – the Arts, is hurting badly: Another One Bites the Dust – and You Thought Business Was in Crisis Mode

I’m certainly not alone in this concern. Many others in positions of thought leadership have raised the issue of funding of investment, some with very specific policy proposals and others just highlighting the gap:

Avvey Peters from Waterloo’s Communitech blogged about Magic Words: Economic Stimulus right before the Canada’s Januaray federal budget, and her post contains some very specific policy measures.
Dr. Ilse Treurnicht, CEO of MaRS Discovery District, a leading Ontario driver of research and commercialization, provided a well-researched analysis of the major institutional and venture funding gaps of Canada compared to other jurisdictions in their latest newsletter.
Alec Saunders, CEO of one of Canada’s most promising web/mobile startups, Iotum, addressed the tech startup funding gap in the context of the proposed federal stimulus in his blog post Tech in Canada: Can We Do More Than Play Hockey? Also, a number of international discussions of technology competitiveness have been hosted on their innovative Calliflower service.
Peter Childs, an Ottawa social media strategist and tech luminary, has laid out a framework Tech in Canada: Peter Child’s Framework for Stimulus

Make no mistake, having surveyed funding sources for startups and social enterprise, Ontario (and Canada) significantly lags most regions in the US and Western Europe — our primary OECD comparables. The reasons for this are numerous and will be discussed in a separate posting, but this funding gap is our extra hurdle before we can be successful in driving the Florida/Martin challenge to transform Ontario to a creative economy.

And to be clear, this transition to the creative economy needs to be driven by the competitive, market economy. That implies that it will not the primary role of governments to provide the major funding for our transformation. Fundamentally, governments should not be picking winners and losers, but simply equiping market forces to go to work. And, given our long history and culture of relying on governments for answers, it is important to clarify that point. With the right framework in place, businesses and individuals will compete to drive the path to our future.

Thus, as their primary task, it is imperative that our federal and provincial governments develop a strong and co-ordinated policy framework, dealing with taxation, security regulation, and the like, to encourage the private sector to make such investments. And, in our current times of economic stimulus, the extra icing on the cake should be to channel some of those near term stimulus dollars toward growing the creative sector that is so essential to our future economic prosperity.

13 Jan 2009

Another One Bites the Dust – and You Thought Business Was in Crisis Mode

“Another one bites the dust.
How do you think I’m going to get along,
Without you, when you’re gone”
Queen

This is a call to action where individual citizens can make a huge difference.

The recent loss of a local cultural gem, namely King Street Theatre:

Curtain Closes on Another Local Local Theatre

and the near death experience of the 87 year old cultural gem the Grand Philharmonic Choir, from cash flow challenges, has shone a spotlight on how the financial meltdown is already impacting the Waterloo area arts and cultural scene. As one who supported King Street Theatre’s original capital campaign, I feel this loss personally. Further, I am optimistic that many in our community share this sense of loss.

Many of the key funders who directly invest in our cultural sector, such as local foundations and individual donors, have seen their financial investments tank along with the rest of us. Given that 2009 contributions will largely be determined by 2008 investment returns, we are probably just seeing the tip of the iceberg.

The media cites lack of citizen interest or poor attendance as the root cause. Many business people working with social enterprises observe that many organizations lack the right management to deliver better results. While all true, I would posit that the challenges of the cultural sector are much more complex. I’m as much a believer in economic Darwinism, which dictates that in order to have real success, you also need to have failures. In fact, my recent post Playing the Lottery after the Meltdown underscores this notion in regard to the recent government led auto sector bail outs. Mark McArdle’s post What I Didn’t Get for Christmas makes an even stronger case for economic Darwinism.

That being said, much of the social sector, including arts, culture, the environment and many other social causes, have long operated in a marginal and underfunded state. This, for most organizations, trumps the above concerns about attendance or management quality. It is fortunate indeed that many community leaders met last September at the Prosperity Council of Waterloo Region: Task Force on Creative Enterprise to begin to put together a comprehensive, strategic initiative to invest in and develop our overall capabilities in the Creative and Cultural sphere. While from an early 2009 perspective, this might not at first appear to be the ideal time to launch such a big idea, we need to remember that such initiatives are long term and may need a number of years to properly gestate. Ideally, need to be ready so that our collective efforts can bear fruit in time for the next economic boom in the Waterloo area.

Meanwhile, I would call all citizens who care about the cultural future of the Waterloo area to respond with their support. While each of us may favour different organizations and ways to provide that support, we all need to do our part. The great community we live in depends on each of us to personally help to nurture and invest in its future.

Governments Play $30 Billion Dollar Poker Game

26 Dec 2008

Playing the Lottery after the Meltdown

Fold or raise? Full house or three of a kind? Eager to jump start an economy that has seen almost unprecedented meltdown, governments around the world are racing to place gargantuan bets with taxpayer and treasury money. Only time will separate the profound from the boondoggle among these bets. Meanwhile, poised on the dawn of a new year, I’ll present my analysis and opinion, recognizing that the complexity of the current situation dictates that no one has the real answer.

Last year’s credit crunch and the ensuing illiquidity has generated a financial crisis whose effect that might have, only a few months ago, seemed totally inconceivable:

massive government ownership of banks (HBOS, Northern Rock) and insurance companies (AIG)
bankruptcies of some pillars of the financial system (Lehman Brothers)
a North American auto industry (GM, Ford, Chrysler) that stared down death, and even with bailouts, may not survive in any recognizable form
an estimated $30 trillion of value wiped out of global stock markets in a matter of months, according to Alan Greenspan
not to mention a US recession that has already lasted a surprising one year, with almost no country globally, including hitherto unstoppable China, seeming able to escape severe slowdown.

Closer to home, in 2009, the Canadian province of Ontario, will for the first time have a slower GDP growth than the country as a whole and, in essence, become a have not province. As a country, Canada has a historical reputation of being:

“hewers of wood and drawers of water”

One could easily add to that old dictum:

“hackers of rock, drillers of oil and bashers of metal”

While Canada thrived on a commodity based economy, Ontario’s strategic proximity to Detroit, made the automotive industry king and made Ontarians as rich as almost any region in the world as a result. Over the last 20 years, as the economy started to transition toward knowledge intensive industries and away from basic manufacturing, Ontario did make some strategic investments in Advanced Manufacturing, involving information technologies such as robotics, automation and MRP increased basic efficiencies.

However, with the unstoppable rush of manufacturing activity to the Pearl River delta in Asia, that strategy is no longer enough.

A few months ago, I wrote a series on Public Policy for the Digital Age, which I wrote in the vain hope of stimulating some real discussion during a particularly unexciting Canadian election campaign. At that time, Canadian politicians seemed to ignore what the general public already knew “It’s the economy stupid”. Now, almost no one believes that something should but done, but the question is what?

Many believe that the making real things are the only real“jobs, and that all other jobs are just glorified hamburger flipping. Nothing could be further from the truth. Consider the pervasiveness of information technology, in all aspects of our economy, as an example:

the average car is really a complicated computer network, or even cloud, or hundreds (and soon to be thousands) of networked computers with unprecedented software. And the trend to IT in automobiles continues to accelerate into areas such as traffic optimization and safety.
for even the most sophisticated manufacturers of smartphones, such as RIM, Nokia or Apple, software complexity now signficantly outguns RF Engineering and manufacturing of the devices. The smartphone is essentially a complicated software and services ecosystem which happens to have some hardware to run on.
green technologies, such as green energy, increasingly harness complicated IT-based systems, to innovations in nanotechnology and industrial design.
healthcare and life sciences for an aging economy, is just starting to be transformed by software, web and mobile based delivery mechanisms, driven both by concerns about escalating costs but also increasingly demanding consumers.

There is no question that, even if all the actual metal-bashing manufacturing were to migrate offshore, the real value adds during the coming decades will be in such knowledge intensive industries.

It is in this context, and with best practice economic theory suggesting that, in times of recession, strategic economic stimulus is critical to drive recovery, governments have no real choice but to act. And, the global price tag of such economic stimulus will entail trillions of dollars of spending.

Therefore, while government investments in:

infrastructure, like highways and bridges
an auto industry that has stubbornly refused to invest in future technologies

are inevitable, governments must save some “powder” to invest in our economic future. The old adage of investing in buggy whips at the dawn of the age of the automobile couldn’t be more true (not to mention ironic) today. The fact that governments don’t generally do a great job in picking winners and losers only magnifies the problem.

My message to our public policy makers here in Ontario, and probably most other OECD countries as well, is simple:

find a way to channel some of the economic stimulus into sectors that will be the future of the country,
resist the urge to make discrete investment decisions, instead finding ways to leverageor top up existing investment decisions made in the private sector, and lastly
measure the results so future generations can benefit from our economic experiments.

As taxpayers, it’s our money politicians are spending, topped up by money created by turning the printing presses at the Bank of Canada. Therefore, it is only reasonable that we need to be heard in determining how it should be spent.