Could there be a state of Silicon Valley, a dream political unit in which innovation can be represented unhindered by the problems typical of the old industrial era? This is what Tim Draper is proposing in his plan to split California into six states. The proposal cites the reasons of oversized California compared with other states in terms of population, geography and economic power, the lack of proper political representation and poor administrative services. The movement behind this proposal already has a website for marketing and support gathering.
I assume a lot of effort went into the design of the territorial make up of the new states. The logic behind this blueprint must consider the history of California, the demographical distribution and its group interests. It is clear though that beneath this general dry presentation that the high-tech are the key influencers. What they really want is to have one state for themselves, the state of Silicon Valley.
This is fascinating. What an idea! On one hand one could think that this is madness, an exaggeration, one of those crazy ideas that are doomed to failure from the beginning. It could be interpreted as a sign of out-of-touch grandeur of companies that have achieved colossal success at a global scale: the Twitters, the Facebooks, the Apples and the Googles. It almost sounds like a prank. On the other hand maybe the people behind this proposal are onto something. Tech companies are moving much faster than Washington, they have caused a revolution that is changing the economic landscape not only in terms of novel technological products, but in terms of structure of workforce, education, social relationships.
Regulations are slow to adapt. Maybe this is a good thing and a bad thing in the same time. You don’t want to make mistakes that affect future generations because you made a quick bad decision or because you procrastinated for too long. This plan goes for speed. The California six-way split is wanting to accelerate the pace of regulatory change and create a power base for the tech class that can rival those held by the finance, energy, manufacturing and agricultural groups. The Twitters, the Facebooks, the Apples and the Googles are the new dynasties as the Morgans used to be (they still are to some degree). Or perhaps the likes of Kleiner Perkins Caulfield & Byers (Tom Draper is representing one of them) are the real dynasties pushing for this change. If somehow through a miracle this happens, other states will follow. The consequences are incalculable.
Update 3 Jan 2014: I found this map created by professor Andrew Shears who created a fantasy version of US based on past partition proposals.
In an interview given to Robert Scoble, John Gotts, the founder of Connect GOP, talks about how social media can politicians communicate with their constituencies they represent. This could be an unappealing story, one of those that you glance over while rushing to the next exciting news, if it wasn’t for the some very interesting remarks John made about how the technology can transform the political process.
First of all the magnitude of this project commands attention, because if it succeeds, it will transform the political process. Connect GOP is building a database of as many voters as possible and help their representatives use that data to get a pulse of what is going on and communicate their political messages. Here is the interesting bit: Connect GOP wants to store the experience of all campaigns and sift through the data to learn from past mistakes and successes informing the new campaigns to do better. But this is not your typical analytical tool. The system will be designed to provide the representatives with a real-time process that takes the simple political message and morphs it based on the past experience in a message communicated through multiple social media platforms and traditional forms of communication such as email. This has some massive repercussions. The big TV ad campaigns will become much less relevant. The true campaign will be almost invisible to the public eye, and become a stealth operation reaching with much better precision the same audience if not larger with targeted and personalised messages.
Secondly, John’s remark about how many intermediate jobs that exist in the current process will disappear thanks to automation and data analysis. Like office operators in the 70s and 80s, the media staff will be threatened by systems such as Connect GOP. Forget about the days where the communiques where custom crafted on each occasion in each district based on the experience of individuals and the local history. Now the big data will inform a few professionals about what are the best models to be used in various circumstances. John calls this “contextual politics”.
Another interesting thing about this is the issue of trust when it comes to supporting competitors. If you support the team A, you cannot pretend you will help team B in an absolutely neutral fashion. John talks about Votizen and National Builder and how they had an issue of trust because the suspicion that data from one party could be made available to the other side. Through extension, this raises the issue of trust large social network enterprises in the context where their leaders take political positions. As soon as this happens, their members have legitimate reasons to ask of whether their trust should be reconsidered. See my previous post When Social Networks are not Social which touches on the issue of trust in the context of Sheryl Sandberg’s Lean In campaign.
Finally, the nature of the politics seems to be in for a big change. In the past political machine has been revolving around a broad ideological framework and big personalities. The memory of a party has been passed from generation to generation in form of stories, books, speeches and long history. Now, a political party is extending this memory with large networks and cloud data in which past events, voters information, economic data, and campaigns are stored for processing with complex algorithms. This machinery will play and increased role in the future in the way political platforms are defined and in the way the representatives communicate with their constituencies. Maybe the accountability will be improved through transparency. Rogue politicians will find it more difficult to hide, but in the same time, political heroes will find it harder to make bold moves by themselves. They need data and the help of professional experts.
I wrote this post a day or so ago before the Greek prime minister was appointed. Today, Greece has a new PM and Italy is passing an austerity plan through the Senate. This will not change the reality of the European problem. Watching the new on APEC meeting in US strengthened my belief that the Pacific region holds the key for the next stage of global growth and Europe will be out of it for a while.
The recent public speeches made by Sarkozy, Jose Manuel Barroso, Angela Merkel, David Cameron and others show how deep runs the disagreement between various parts of Europe and its political leaders.
The problem of Greece and Italy are merely tactical when you look from a long term perspective. I am sure they will be resolved. Italy will adopt an austerity plan and Greece will nominate a prime minister. But the European problem, the problem of unity will not be solved. It will keep bubbling for a while until the big crisis will explode forcing major changes. No one knows exactly how that will look like, but one has a sense that Nordic countries and Great Britain will not want to be involved in this too much, Eastern Europe will stay rejected and sceptical on the sidelines and the South will be in turmoil. Who knows?
But the way moving forward is to fix the financial problem caused by high level of debt of Italy and Greece. Once that is achieved the rest of the world will adjust to the new reality and continue grow their commerce between North America, Asia, South America, Russia and Africa. Perhaps Eastern Europe will find ways to use its well educated workforce to explore other opportunities. Meanwhile, Europe risks fading away marred by internal fighting.
One thing is sure: Europe show will go on and surprise many.
I wrote a few weeks ago about the not so good Japan’s outlook and about the well documented view of how the government debt will soon accrue to the point where drastic, painful and unpopular measures will need to be taken. The tragic events caused by the massive earthquake and the devastating tsunami will accelerate the arrival of that moment.
Initially, immediately after the earthquake, the financial press was mostly focused on the precarious situation of the nuclear plants in Japan, and the potential impact on the exchange rates. There are many who warn that this could be getting very serious and have consequences for the bond market in US. Other voices, on the other hand argue for a limited impact.
However, right now the media is much quieter and Japan related news are almost forgotten and pushed into the background. It is almost as if everything will go back to normal following a painful but optimistic process of recovery. Now the main talk is about the V shape recovery of Japan.
Is this all that simple? If this was an one-off occurrence in the global markets it wouldn’t be a huge shock, but the problem is this is not the only hot issue. Following the US housing meltdown, the European sovereign debt crisis has engulfed the whole EU. Almost all developed countries are touched by one crisis or another in the same time. On top of this, the Middle East continues to complicate an already unstable situation making anyone nervous at the mere mention of the word “oil”.
Many analysts predict that the funding requirement, which some estimate to be around $200bln, will force some of the Japanese bondholders to sell US bonds. Karen Maley from Business Spectator describes this scenario very well in an article published in the Australian online financial magazine The Business Spectator (“Will Japan’ Finance Fracture?”, 14 March 2011). Over the years Japan has accumulated large amounts of US bonds in excess of $850bln, the second largest US bond holder in the world. Guess who is the largest one? Yes, naturally, China with its over $1trillion US bonds amassed in a relatively short period of time.
Is it too far fetched to see a situation where both Japan and China will start selling heavily US bonds because Japan needs to pay for its reconstruction and reduce its debt and because China is worried the value of its reserves will diminishing rapidly. This will have a negative impact on the capacity of US government to raise capital and consequently its ability to fund its own public programs.
On 28 September 2005, in an address to Economic Society of Australia Dinner in Melbourne, Ian Macfarlane the then governor of Reserve Bank of Australia (RBA) expressed his optimistic view on the global imbalances which he considered to be of a benign nature protected by an ongoing global prosperity. The imbalances he was referring to were around the flow of money to China and accumulation of debt in US (and Western world in general). The world had since then experienced turmoil at one end of that imbalance, the USA and Europe. Now all signs are that we will see turmoil at the other end of the imbalance, China. In trying to protect its exports by pegging its currency on the US dollar, after QE1 and QE2, China is struggling to cope with an increasing inflation which threatens to destroy its accumulated wealth. Despite imposing on banks more stringent capital requirements, the consumer prices are still simmering causing an upward pressure.
Europe has a similar problem with US but with a different treatment. The German formula requires constraint. The austerity will reduce demand, impacting on Chinese exports. Will Europe manage to go through all this unscathed?
How quick have we forgotten how close we were to a major collapse two years ago. Now we are all back to the optimistic talk about recovery: the recovery of US housing market, the fixing of the European financial troubles and the defusing of the Japanese debt time bomb. But if you take a closer look and you put all the serious issues together, the prospect of a huge, super black swan flying above our heads is a credible scenario, the worst case scenario. The changes required by this scenario will be very painful and it will cause a dramatic shift of power and a change in the world financial system. We may witness a Bretton-Woods kind of reform sooner than we think. And maybe that is not such a bad thing in the long run.
Brilliant article by David Brooks from The New York Times, March 7 2011.
David Brooks says that in essence there are two sides of our mind: rational and emotional. The first one is mainly driven by our conscious while the second is seeded deeply into our subconscious.
There is much more to us than mere logical reason. Efforts to improve our humanity fail because they are limited to treating the rational issues, failing to see the importance of emotions. This is why, David Brooks says, The British Enlightenment was more accurate than the French Enlightenment by focusing on the social aspects in our lives as a really defining trait, as opposed to the rational, logic aspect.
Interesting comment on the increasing importance of social aspect, making old skills becoming less relevant. The industrial era created suitable measurements of skills such as IQ, school degrees and professional skills. Today, there are other skills that are becoming vital and they are more subtle and refuse to me measured by rigid methods, but by outcomes that become evident in time. David lists the following skills as an example:
Attunement: the ability to enter other minds and learn what they have to offer.
Equipoise: the ability to serenely monitor the movements of one’s own mind and correct for biases and shortcomings.
Metis: the ability to see patterns in the world and derive a gist from complex situations.
Sympathy: the ability to fall into a rhythm with those around you and thrive in groups.
Limerence: This isn’t a talent as much as a motivation. The conscious mind hungers for money and success, but the unconscious mind hungers for those moments of transcendence when the skull line falls away and we are lost in love for another, the challenge of a task or the love of God. Some people seem to experience this drive more powerfully than others.
This is indeed a glimpse of a new humanity. This needs a different form of government, new policy makers, new principles for education and environmental design and decision making in general. The way elections are conducted today is an anachronism because the conversation is always limited to managing performance using the old measures and the notion of broad social needs are ignored. The focus of the discussion is superficial and the solutions are outdated. We need a new system focused on social values not narrow profits and where the participation is more direct and broader from a social perspective.
Maybe I should have called this posting “Niall Fergusson on Obama’s Lack of Strategy in the Middle East” because Niall takes a very critical stand on Obama’s position in the Middle East.
America always have detractors and supporters that are ready to say this is right or this is wrong. Niall is clear on his final assessment of America’s involvement in the Middle East’s recent events, but the reason originates in a historical context, in a large dimension that transcends short-term reactions.
Comparing Obama with Bismarck, Niall places the current events in a grander scheme, one that has ample ramifications. He is painfully giving away his disappointment for lack of strategy of Obama’s administration as he sees the fresh democratic wave crossing the Middle East and North Africa absent of any support from America. This is unacceptable in his view, a huge missed historic opportunity.
At times, we are playing the game of conspiracy in a number of ways, imperceptible, even if we don’t admit it, thinking that there is a plan, mischievous or benevolent, nevertheless a plan that helps the times move along. Or maybe we think there is a battle of plans between the left and right or between the good and the bad. A scenario where there is no plan doesn’t came easily into our minds; we need to blame someone.
This is exactly what Niall suspects it is happening right now: there is no strategy, there is no plan. In all “strategic planning” preparations before the Facebook revolution, no one considered that Egypt might revolt. This is perhaps a clue for all of us, something to think about. Because in fact it may support the opposite of what Niall is calling for: “Wanted: A Grand Strategy for America”. This is an argument for calling people to take matters in their own hands and create history through collective design as no leader is able to draw that grand strategy to take us all to the next step. It may be that in the new era of Internet it is not possible to have another Bismarck.
Today Moody downgraded Japan’s outlook from stable to negative. I am not sure how many in the market are shocked by this news. Not many, I suppose. An interview on Bloomberg with a journalist from Kuala Lumpur was not much concerned with the news “shock” factor. However, the journalist looked a bit worried and he particularly picked on the tone in the language Moody used to announce the downgrade. In his view the word “inexorable” stands out and that is a strong warning signal. Japan is moving towards a moment of reckoning with its huge debt.
The interesting part of the interview was about why Japan cannot fix this problem, at least in the current political climate. For one, Japan is ageing fast. Many politicians are old and they will never adopt measures to hurt themselves and the ones closed to them and force measures that are going to drastically change the system.
And this brings me to a point that I thought of yesterday whilst pondering about a recent report on Japanese students’ apathy towards international studies. Japan has one of the most inflexible immigration policies in the developed world. Combine this with the negative population growth and the huge debt and the unwillingness to reform the political system and you get a lethal recipe. Stagnation is the word that comes to mind.
Japan had a vibrant economy for many decades after the Second World War. Starting from a very low level Japan grew at rapid pace to become the second largest economy in the world and leaders in many top industries. The Japanese worked very hard and had a dedication to discipline. The school system was designed with ambition to become the best system in the world that produces students with superior results in all universally accepted indicators.
Preparing students for a successful life, which sometime ago was defined as lifetime employment at the best Japanese companies, was demanding big sacrifices from parents and children alike. Studying during extra curriculum activities became the norm. A TV documentary caused consternation a few years ago in Europe and US when it showed young children studying all day until 10pm struggling to cope in a very competitive and stressful environment.
The results were impressive from the business point of view. Students who survived the tough school environment and excelled in their field were selected to become the leaders of tomorrow. The Keiretsu system helped their members to make sure they prosper and their workers had secure jobs for life.
All went well until the real estate bubble burst. Coincidently, at that time the world has entered the era of the internet and started to learn how to use the newly invented world wide web. The crash hit hard Japan because it came at a moment of demographic stagnation and the emergence of a new type of economy facilitated by the use of Internet. In the following years the deflation kept eroding the national wealth. The Keiretsu culture and the stagnating population level ensured that the deflationary period was to be extended for many years.
After a period of fast growth and population going through a hard schooling system, with extended deflation, high debt and almost zero immigration, what would Japanese society do and feel like? It is a question leaning on the soft side, I know. However, I think is an important one. Deflation is difficult to fight. It is slow and it spreads through many aspects of society influencing its behaviour. The question is about the background of the overall mood of the society.
In the new internet based economy, the term is a bit passé, but nevertheless useful in this context, the creative turmoil of Silicon Valley has started a global transformation with broad impact. This is the antithesis of rigidity. Creative entrepreneurship does not bode well with rigid schooling system. Challenging the norm has become the new norm. This is difficult to imprint into the Japanese disciplined system. This adds an extra challenge to its political leaders.
Japan has an obsession with its long term security. As an island nation, security has been a priority for a long time. With a strong culture, Japan has never embraced immigration like other nations did. Knowing that the ageing will become a social issue in a few years time, Japan is investing a lot of resources into developing robots that can be used in the household for all sorts of chores. It is interesting how many of the demonstrations run the scenario of helping old people, including robots carrying in their arms pensioners who have a high degree of immobility. The robots seem to be a solution for an ageing population that will face loneliness and a large debt burden in the future.
I wonder if in the long term the conservative tendency will not lead to a new period of isolation similar to Sakoku, the foreign relations policy initiated by Tokugawa started in 1633. In a business sense this does not seem plausible because Japan has many global companies, among the best in the world. However, these companies invest increasingly more overseas, especially in the emerging economies where the workforce is dynamic, hungry and creative. This trend could accelerate the isolation and strengthen the preference for maintaining a stable but rigid environment characterised by risk aversion and consequently limiting opportunities for growth.