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Posts Tagged economic

MINTies media moments Robert Hickson Jan 15

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This week Radio NZ National has been running a BBC series on the MINT economies – Mexico, Indonesia, Nigeria and Turkey. Jim O’Neill, the economist who coined the term BRICs (Brazil, Russia, India & China), visits each country to look at the opportunities and challenges facing these countries as they attempt to become leading economic powers. The series is a good reminder to think beyond China (and India) as countries shaping the future.

Some of the issues facing the MINTs are also pertinent to NZ – the need to export more, support the growth of small countries, develop good infrastructure, and don’t forget about communities. I haven’t listened to all the programmes, so I’m not sure if sustainability gets much air time. The show’s host is certainly in favour of more growth, but he does note some of the social costs.

Its a good series which looks beyond the hype and illustrates some of the social and economic obstacles facing these countries. Jim is intrigued, but also perplexed by some of the challenges, and thinks decades not years will be required for these countries to become economic giants, if at all.

The BBC allows you to listen to some of the programmes as well. If you’re not into listening (or can’t access the audio files), the BBC has a good summary article about the series.

The programme on Mexico noted the President’s intent to open up the oil exploration sector to foreign investment to improve production levels. This has now been done, but not without considerable opposition.

Greening China? Robert Hickson Sep 24

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After posting yesterday’s energy forecasting blog two pertinent articles on China popped up in my e-mail.

The first noted that China’s Ministry of Environmental Protection appears to be taking a tougher line against some of the country’s biggest oil companies. Two have been banned from building new refineries and expanding existing ones because they have failed to meet environmental protection standards. It’s unclear how long the ban will be in effect for, but the companies appear to be moving to address some of the problems.

Whether pressure will also come to bear on the Ministry to back off is also uncertain. The political power of these and other large national companies has been strong. If the Ministry is not hindered it would be another signal that the Chinese government is revising its economic growth and environmental priorities to some extent.

The second is that Citi Bank is forecasting China’s demand for coal will peak by 2020 [Pdf]. Based on my previous post, we’ll have to take that with a large pinch of salt. But Citi Bank notes that several drivers lead them to this conclusion:

(1) reduction of air pollution;

(2) structural downward shifts in China’s GDP growth and energy intensity;

(3) robust growth of China’s renewables and nuclear capacity, along with increased availability of natural gas;

(4) efficiency improvements in coal power plants and energy demand.

With a rapidly growing middle class and greater confidence in challenging state and central government, it can be predicted that environmental and health concerns will rise up the Chinese political agenda.

These articles both reinforce the hypothesis that the global energy space is volatile, and hence very difficult to accurately forecast energy supply and  demand.

Predicting disruptive technologies Robert Hickson Jun 27

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There’s a lot of intellectual as well as commercial interest in predicting what the next big technological developments will be. Last month McKinsey Global Institute published its list of  12 potentially economically disruptive technologies. This follows on the heels of Technology Review’s annual top 10 breakthrough technologies.

For followers of the future there is likely to be little that is surprising in these lists – robotics, 3D printing, genomics, renewable energy, big data, etc. But I’ve got respect for McKinsey’s approach because they lay out their methodology and rationale, and have involved a range of (hopefully) knowledgeable commentators. Their focus was on technologies that they believe will have:

significant potential to drive economic impact and disruption by 2025

To them a disruptive technology is one that dramatically changes the economic status quo. Their criteria were:

  • The technology is rapidly advancing or experiencing breakthroughs;
  • The potential scope of impact is broad;
  • Significant economic value could be affected; and
  • Economic impact is potentially disruptive.

Many of their disruptive dozen are ICT-related. Some are specific (autonomous vehicles), others vague (advanced materials). How they derived their estimates for the economic potential for each “technology” is opaque, and in my view the second weakest part. Their audience is the business world, and the purpose is to get business and company leaders to think about emerging technological opportunities and challenges.

McKinsey’s Techie Twelve are:

  • Mobile internet
  • Automation of knowledge work
  • Internet of things
  • Cloud technology
  • Advanced robotics
  • Autonomous and near-autonomous vehicles
  • Next-generation genomics
  • Energy storage
  • 3D printing
  • Advanced material
  • Advanced oil & gas exploration and recovery
  • Renewable energy

They also note five technologies that missed their final cut because they are unlikely to be technological feasible and deployable by 2025:

  • Next generation nuclear fission
  • Fusion power
  • Carbon sequestration
  • Advanced water purification
  • Quantum computing

The point of this post is not to pick apart their technological selections. Their weakest link is that they seem to look at the technologies largely in isolation from political and social factors. While they acknowledge that they aren’t predicting what will come to pass, very little mention is given to regulatory factors (beyond the need to preserve privacy, etc) or social factors that can support, impede and shape technological developments.

Overall it is a good report, and is likely to serve its main purpose well. They acknowledge some of the limitations in their analyses and assumptions. And recognise how some of the technologies could combine.

But, as a BBC programme on media futures illustrates (aired on Radio NZ National’s Nights programme on June 25th), “old technologies” are also still evolving and combining with new ones, particularly in less developed regions such as Africa.

As McKinsey previously highlighted nearly a decade ago, “innovation blowback” can be an under appreciated force.

Take home message: don’t just think about the new in a vacuum.

A looming global cyber security crisis? Robert Hickson Jun 19

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Is our cyber future going to be the playground of spies and hoods? Is it already a mash-up of Big Brother and the Sopranos? And how much does it matter?

The recent national and international revelations about electronic surveillance  (not to mention large scale accidental privacy breaches by some government agencies) are alarming to many. More so probably because of the scale rather than the ability to do so. However, for most such surveillance is likely to be of no direct private consequence. What you share (willingly or not) on social networking sites or through on-line shopping probably has greater personal impact.

A paper by de Montjoye et al   last year did though foreshadow how even “anonymous” metadata could in some circumstances be used to identify individuals. In light of the recent revelations these authors have argued that fiddling with policies on data privacy won’t be adequate, people need to be in charge of their own data.  Whether the greater public debate on the issue they recommend will have any effect is unclear. An “occupy cyber street” seems unlikely to suceed.

The Economist notes that politically, surveillance is a no-win situation.  Governments are damned if they surveil and damned if they don’t (following an act of terrorism).

A recent article in the New Yorker on cyber security  is more alarming. Some of the leading cyber security experts have little faith that our current approach to network security will be able to keep pace with the methods to break into supposedly secure systems. This will have real economic, and probably social, implications.

One of the interviewees in the New Yorker article noted that our current focus on preventing illegal entry (defending the citadel) no longer works well, because of the increasingly powerful and sophisticated means available to not just hackers wanting some fun, but to those bent on serious industrial espionage, theft and extortion.  And, in the near future, cyber terrorism. The security emphasis needs to shift toward greater containment once someone breaks in (creating a prison).

The messenger here is important. You could expect cyber security firms to be reassuring, promising that if you buy their system you’ll be well protected.

The final paragraph in the article is telling (and played to good journalistic effect), with a security expert panicking and wondering how he can turn off the Wi-Fi that comes enabled in his new car.

This concern is also echoed by others – such as economist Kenneth Rogoff  - who worry that governments are missing the signs of a cyber crisis of equal or greater impact than the financial crisis. (Particularly as more critical infrastructure relies on internet connectivity).

Pwc’s short piece on the realities of cyber securities makes a similar conclusion about businesses. In their annual survey of CEOs, cyber security is not an important issue at the moment. Pwc point out that cyber security needs to be a business management issue rather than an IT challenge. (A very similar point was made by the Ministerial Inquiry into the Novopay project in relation to the management of large IT projects).

The large social and economic benefits that come from our increasingly cyber world make it unlikely that we’ll turn it all off. But we may be in for a long cyber security insurgency, much like our on-going battles with potentially pandemic biological viruses.

We can’t rely just on technology to deter or repulse the invaders. As the Pwc report states, different “information assets” have different values, and more attention needs to be paid to identifying the “crown jewels” of these and giving them greater protection. That goes for personal as well as commercial data. Changes in how we interact on-line and share information, and our expectations of how the State and firms use it, also need to be more carefully considered.

12 Trends post-Christmas (Part 1) Robert Hickson Dec 21

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Here’s (part 1 of) my seasonal selection of some trends to keep an eye on, not just in the New Year but over the longer term. In 2012 I’ll spend more time on exploring implications of such trends rather than the easier job of just describing them.

A stagnating economy

Whether the Euro and/or the European Union shatter or shrink is only part of current economic uncertainty. China won’t be the same economic prop that it was in 2008. Its growth is slowing as the easy growth opportunities disappear. There are concerns of inflation and a housing bubble in China.

The OECD has warned that the unpredictable ‘animal spirits’ of the market threaten the stability of many governments (finally, the shamanistic nature of economics is acknowledged?). Brian Easton has noted that many of the economists of his acquaintance expect a long global stagnation and aren’t sure how long it will last.

Most of the global discussion at the moment is about austerity. The stimulus packages put in place in 2008 are largely gone, so how will economies grow? Some liberal economists (Stiglitz, Krugman, and Roubini) point to the need for additional stimuli, but politicians don’t appear enthusiastic.

Longer term, the growing middle classes of Asia are likely to re-stimulate economic growth. But why should we sit and wait for that to happen?

2 degrees of warming

International opinion widely concurs that insufficient action has been taken so far to contain greenhouse gas emissions to levels that would prevent an assumed ‘safe’ global temperature rise of 2o Celsius. The International Energy Agency’s 2011 Outlook notes that ‘the door is closing’ on the chance of keeping C02 emission levels below 450 ppm to meet this target.

The New Zealand Climate Change Centre has a helpful briefing on the challenge of limiting warming to 2 degrees. The impacts of such a temperature rise (or even a lesser one) are uncertain, but analyses are getting better at attributing extreme weather events to changing climate. However, more evidence won’t necessarily change the minds of those who don’t accept humans can change the climate.

3-D printing

The ability to print three dimensional objects is developing rapidly. It is no longer the realm of garage-based hobbyists, but is being applied to aircraft parts (as well as the whole plane), electronics, and medicine (bone and soft tissues).

It is too early to claim that it is the next industrial revolution, but it is opening up new design and manufacturing opportunities, both for established and new companies. And the larger issue it highlights is a growing interest in Do It Yourself technology development (be it biology or engineering) that may lead to new well springs of innovation, similar to what has occurred in the software sector, and what kick-started the first industrial revolution.

Four-ty four times more data

Avind Krishna from IBM predicts that in 2020 there will be 35 zettabytes of data (let’s just say that’s an awful lot), compared with 800,000 petabytes in 2009. (Of course all computer companies would say there will be more data, but we can see this in our daily lives too).

To help make that more imaginable – a smart phone user now may download about 15MB of data a day. In 2020 that may be 1 GB. The interesting issue is what we will be able to do with that information.

However, our ability to absorb and understand the information may limit this trajectory.

Update: — I’ve found that Avind Krishna’s prediction actually comes from IDC’s Digital Universe report

5 million folk

… in New Zealand by about 2025. Of these, around 1 million will be over 65. How many will (still) be working, and able to live well and healthily?

By 2031 around 2 million people may live in the Auckland region. That will still be small by international standards, but it’s a big chunk of our population in one place. What will that mean economically, socially, and culturally for New Zealand?

6 emerged economies

The World Bank projects that by 2025 half of global economic growth may come from Brazil, China, India, Indonesia, South Korea, and Russia. A multi-polar world.

As the McKinsey Global Institute point out, much of the future economic growth will reside in ‘middle-weight’ cities (ie those smaller than megacities), many of which are or will be in Asia. New Zealand would do well to cultivate closer relationships with ASEAN countries.

Another six in my next posting.

The Atlas of Economic Complexity Robert Hickson Nov 02

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An analysis of economic complexity by Hausmann et al. from MIT presents a different perspective on economic potential than that provided by the World Economic Forum. The main contention from Hausmann is that wealth comes from the use of productive knowledge, and that the better a country is at connecting this knowledge in different ways the more prosperous it can be.

This is similar to other current discussions about networks — for example, Steven Johnson [TED video] and Shaun Hendy’s blog. Shaun has previously discussed earlier reports by Hausmann and Hidalgo on this theme. W. Brian Arthur has also argued the point in his book The Nature of Technology that technologies develop along similar lines of increasing complexity.

Hausmann and his colleagues delve deep into economic factors but convert their findings into captivating visual analytics. They claim that future economic performance can be predicted from their ‘economic complexity index.’ This index involves characterising the diversity and ubiquity of products that a country exports. Their analysis only considers exported products, ignoring products that aren’t exported and services. The latter exclusion is problematical given that around two thirds of both the US economy and the New Zealand economy (and many other countries) are based on services. The authors recognise this and are working to incorporate services into their models.

Time will tell if their predictions of performance potential hold up, but their analysis does provide hope that New Zealand has scope to improve. Our exports have diversified over the past 50 years, and perhaps surprisingly we have greater diversity than Australia. [Warning: the visualisations on the Atlas web site weren’t running earlier today, so you may need to try again later]

New Zealand's exports in 2009. Source: Hausmann et al. (2011). Atlas of Economic Complexity
New Zealand’s exports in 2009. Source: Hausmann et al. (2011). Atlas of Economic Complexity

Countries that do well are those that export complex products. Hausmann and colleagues point out that countries diversify by building on what they already have. This isn’t an argument for the status quo or conservative thinking. New Zealand is unlikely to prosper by just shifting from exporting bulk milk powder to exporting more fancy milk products (since most of the value will be captured by the big multinational food companies — for another dose of mathematics applied to global corporate control see this paper by Vitali et al [PDF, 2 MB]).

A better example of leveraging off existing capabilities is how Gallagher’s transformed from producing largely electric fences for farmers into a global company producing agricultural electronics and security fence systems. NDA Group also evolved from a cooperative farm servicing company (gumboots to milk vats) to a global supplier of specialised engineered products for a range of markets. Lanzatech has picked up on microbial fermentation and used it in the biofuels field.

The latest TIN100 report identifies companies (particularly IT and healthcare companies) with the potential to do a lot for the economy, although the report does note that we have to expect some failures. (See this Herald article for more on the findings of the TIN100 report).

My view is that rather than rush away from primary production to ‘High Tech’ sectors, we still need to consider what other capabilities we have in primary production that we can better build on. We are seeing this in the wool garment industry, and in developing bioenergy potential from plantation forests. What other skills can we capitalise on?

While appealing, Hausmann & Hidalgo’s analyses need to be considered alongside other factors so that the potential they identify can be reached. Underplayed in their report is the role that ‘Intelligent Design’ (irony — I’m talking about government) as well as ‘Darwinian Evolution’ can play in enhancing complexity. For a country like Singapore, 60 years ago half of their economy was based on natural rubber products but look at it now. Government policies and support were needed to make that switch. They didn’t just leverage off capabilities developed in tapping rubber. It is also instructive to see how the exports of Denmark (to which NZ politicians and policy makers frequently look now) have evolved from 1962 to 2009. In 1962 New Zealand’s exports looked like this.

The Atlas makes light of the role that education plays in developing complexity. They compare the effort put into education by Ghana with Thailand and their current exports, commenting that Ghana’s investment hasn’t paid off. This is unfair and glib — a more comprehensive analysis needs to be made.

Still, many commentators enthuse over the wealth of data that the Atlas brings together and the scope for exploring it in more detail. And it provides good food for thought for us to consider how to improve our economic future.

Turbulent Transitions Robert Hickson Oct 17

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If you are keeping up with your futures’ reading then you’ll know about the plethora of trends and drivers that are shaping, or could shape, our future — continuing globalization, population growth or stagnation (depending where you live), multilateralism, paying down debt, urbanisation, aging western populations, obesity, rising economic inequalities, energy crises, climate change, technological convergences, economic growth across Asia, open innovation, and the rising costs of health care, to name a few.

Thomas Friedman provides a précis of two books that highlight potential threats and opportunities from the combination of some of these trends. To hear more about one of these books, listen to Paul Gilding talk about the ‘Great disruption’ on Radio New Zealand National.

Four particularly significant transitions occurring at the moment revolve broadly around energy, economics, employment, and geopolitics (they are inter-related to varying degrees).

 

 Energy Transition

In a previous post I touched on the transition from fossil fuels to a lower carbon economy.  See also this critique of the techno-optimism of some in the oil industry. Some countries and large corporations are already planning how to reduce their reliance on fossil fuels for economic rather than environmental reasons.  

 

Economic Transition

Following the global financial crisis (the 2008 one) there was much speculation about whether that model of capitalism was at an end. Despite on-going protests it hasn’t expired yet.  But significant economic upheaval is looking more likely and may lead to a new economic paradigm. Various prescriptions of what a new capitalist system could or should look like have been prepared by Leadbeater, Haque,  and others.

  

Employment & Education Transition

As the Economist noted recently in a special report on the Future of jobs, globalisation and technology are changing the shape of the labour market and the types of work. There is an emerging divide between well paid interesting jobs and commoditised low skilled jobs. Lynda Gratton has written about the need for serial mastery — where most workers having to acquire new skills every few years.

This will require a new approach to education and training. Ken Robinson and Charles Leadbeater  have pointed out that the current educational system in the west was designed in the industrial era to largely create workers for factories.

 ”The tragedy is that meeting the many social, economic, spiritual and environmental challenges we now face depends absolutely on the very capacities of insight, creativity and innovation that these systems are systematically suppressing in yet another generation of young people.”  Ken Robinson

India is experimenting with industries having a more active and driving role in educating its future work force. This may be picked up elsewhere, but are firms currently any better at identifying what skills and knowledge they will need in the future than traditional education and training organizations?

 

Geopolitical Transition

If China, India and other Asian nations continue to develop (not necessarily smoothly) then greater geopolitical tensions seem likely, particularly in the South China Sea and more widely in the Pacific.  These changes will have trade and security consequences. The implications of the rise of the emerging economies doesn’t just rest with what they do. How existing economic powers respond will also be crucial . Colin James has also pointed out that for New Zealand we need to think carefully how we manage the management of us by China.  

The main message from these transitions is that there are high levels of uncertainties within and between them and it isn’t possible to predict what will happen. There aren’t clear scenarios around which to plan. So what choices does New Zealand have? Are we able to identify where we are able to shape strategic responses, what we need to do to adapt to the chances, and what we can do that will be important for our prosperity and well being regardless of what happens?

I’ll look at these questions in the next post.

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