Christina Xu on Chinese user experience and consumer behaviour

I’ve been a big fan of Christina’s work for a while and this presentation is a great example of his work. Bookmark it; watch it during your lunch break its well worthwhile.

Great examples of online to offline (O2O) interaction in processes and services that are continually expanding.  Interesting points about the lack of social norms or boundaries on the usage of online / mobile service in the real world. I’ve seen people live their online life in the cinema there are NO boundaries as Christina says.

Oprah time: Thinking Fast and Slow by Daniel Kahneman

I took the opportunity in June to re-read Daniel Kahneman’s work Thinking Fast and Slow. Kahneman uses storytelling from key points in his career to take the audience on a journey through biases and better decision-making. From a book that is obviously aimed at a consumer audience it has an outsized impact on marketers.

Presentations now talk about behavioural economics. What this meant in practice was revisiting the interface of psychological cues and marketing communications to encourage a desired behavioural change – like a purchase. It brought a renewed focus on A/B testing of call to action copy and images based around known consumer biases.

Thinking Fast & Slow

This isn’t necessarily a marketing handbook however, it is designed to make the average person more aware of their decision making process. It reminded me of Dan Ariel’s Predictably Irrational.

The key difference is that Kahneman’s work provides more of a learning structure in the book. Ariel is closer to the ‘ain’t it cool’ style of Malcolm Gladwell (though more rigorously researched).

I’d recommend that marketers start on Thinking Fast and Slow at the back. There is  summary of the book and then some supporting white papers. Once you have them read then go to the front and work your way through. The reason why I suggest this approach is that marketers use case is different to that of the man in the street (who buys his books from the non-fiction section of the New York Times bestseller list).

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Three takeaways from Cannes and VidCon

I had the chance to read around a lot of the stuff that happened at Cannes and listened to Ogilvy’s webinar on VidCon. Here were the key things that struck me.

There is blind faith amongst brand about the benefits of influencers and social.  I find this particularly interesting because it represents a number of challenges to the status quo:

  • This first struck me when I saw Heather Mitchell on a panel at the In2 Innovation Summit in May. Mitchell works in Unilever’s haircare division where she is director, head of global PR, digital engagement and entertainment marketing. I asked the panel about the impact of zero-based budgeting (ZBB) and the answer was ducked. ZBB requires a particular ROI on activity, something that (even paid for) influence marketing still struggles to do well
  • The default ethos for most brand marketers is Byron Sharp’s How Brands Grow: What Marketers Don’t Know. Most consumer brands are in mature categories, engagement is unimportant; being top of mind (reach and repetition) is what matters
  • Brands were looking to directly engage with influencers at VidCon with trade stands and giveaways at the expo. This was brands like Dove. Again, I’d wonder about the targeting and ROI

Substitute ‘buzz marketing’ for ‘influencer marketing’ and this could be 15 years ago. Don’t get me wrong I had great fun doing things like hijacking Harry Potter book launches when I worked at Yahoo!, but no idea how it really impacted brand or delivered in terms of RoI. Influencer marketing seems to be in a similar place.

Publicis and Marcel. Well it certainly got them noticed. There has been obligatory trolling (some of which was very funny). I tried to make a sombre look at it here: Thinking About Marcel (its about a nine minute read) – TL;DR version – its a huge challenge that Publicis has set itself. One interesting aspect to point out is the differing view point between WPP and Publicis. WPP has spent a lot of time, effort and money into building a complete advertising technology stack including advanced programmatic platforms and analytics.

WPP hoped that this would provide them with an unassailable competitive advantage. The challenge is that the bulk of growth in online spend is going to Facebook and Google – who also happen to have substantive advertising technology stacks.

I can’t help but wonder if this shaping is Publicis’ top line thinking? Scott Galloway posted a very sombre chart about this. If Google and Facebook hit their combined revenue targets this year, it will have a dramatic effect on the number of people employed in the major advertising groups.

1707 - ad industry

To put Galloway’s numbers into context, the projected number of jobs lost in the advertising industry  this year would be roughly the equivalent of every man and woman around the world currently employed at vehicle maker Nissan. And that’s just 2017.

If you paid attention to the Marcel concept film you would have noticed that the client service director is partly displaced when a client uses Marcel to directly reach out to Publicis experts.

If Marcel, just makes information easier to access internally; it could save the equivalent time  equating to almost 1,600 employees (out of Publicis’s current 80,000 around the world).

People equate to billings as these marketing conglomerates are basically body shops in the way they operate. So it will adversely affect the value of the major marketing groups.

If that isn’t grim enough, Galloway doesn’t even bother to take into account the Chinese ecosystems which is digitising at a faster rate than the West. China also has a longer history of platforms and clients being directly connected – cutting out the media agency.

These changes in the advertising eco-system has huge implications about the erosion in brand equity over time. Amazon’s move to surpass other retailers also is about the erosion of brand power. Combine this with the increasing ubiquity of Prime and all brands start to look the same as private labels.

Thankfully the disciples of Byron Sharp still realise that there is power (and lower CPMs) in using television as a mass-advertising medium which is why FMCG product still spend 90% of their budget offline.

The best thing IPG, WPP, Omnicom and Publicis could do right now is spend a lot of money ensuring that every marketing and MBA student have copies of Mr Sharp’s books. If they haven’t been translated into Chinese, that might be an idea as well.

SnapChat is in its difficult ‘second album’ phase. Back when music came on physical media and record labels invested in developing artists as a longer term proposition than a reality TV series there was the ‘second album’ phase. Artists often struggled to bottle the lightning that gave them a successful first album. They usually had the money and resources to throw at it, but it was hard to be a consistent performer.

For example Bruce Springsteen only really became successful in the U.S. with his third album Born To Run – that level of record label support wouldn’t happen now.

On one level SnapChat has matured. It had a big presence at Cannes and its Snap glasses displaced VR technology as the worn product. It has been under assault. Major content providers like the BBC are choosing Instagram’s stories over SnapChat’s offerings. Even Twitter is getting back in the picture. Ogilvy’s team at VidCon talked about how Twitter had been successfully engaging with influencers and offering them support and attractive content monetisation offers.

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Quote of the day

I think the future of television is more fragmentation, the bundle has no more elasticity in it.” – Barry Diller.

This explains everything from ManUnited TV to the new channels that Amazon has launched as Prime add-ons in the UK and Germany yesterday. Media has been driving an increasing share of household spend over the past 15 years.

In a time of stagnating economic growth and declining incomes (in real terms) that middle won’t hold. Much of it becomes discretionary spending.

Barry Diller

The crowdfunded product problem with PopSlate as an unfortunate case study

I’ve go in involved in a few crowdfunded products and some of them have worked out but the majority haven’t. The latest example was the high profile e-ink phone cover PopSlate. PopSlate got over $1 million dollars of funding and was widely covered by the media.

“popSLATE 2 is E-Ink for your iPhone done right.” – Slashgear

“It’s an evolution, not merely refinement.” – Wired

Generally I’ve found that they tend to fail for three (non-criminal) reasons:

  • They underestimated the cost or complexity for batch manufacture of items. They have problems with getting tooling moulds to work and have to go through iterations that burn up cash
  • They get gazzumped; their product is sufficiently easy to make that Chinese manufacturers who go through Indiegogo and Kickstarter for ideas get the product into market faster
  • The engineering is just too hard. This seems to have been the problem for PopSlate who couldn’t innovate and get their product into market as fast as new phones came out

On the face of it its a great idea, bringing the kind of dual screen technology to the iPhone that had been in the Yota phone for a number of years. Huawei had a similar snap-on e-ink back available for the the P9 handset in limited quantities.

popSLATE – The smart second screen on the back of your phone

PopSlate had already launched a mark I version of their product.  With the mark II version of their product PopSlate tried to do too much: they tried to make it a battery case but still ridiculously thin.  The following email was sent out on Saturday morning UK time:

Critical Company Update

This update provides serious and unwelcome news.

Based upon your support, we have spent the last year continuing to develop our vision for “always-on” mobile solutions. Our goal was to solve three fundamental issues with today’s smartphones: we wanted to simplify access to information, increase battery performance, and improve readability. Unfortunately, the significant development hurdles that we have encountered have completely depleted our finances, and we have been unable to raise additional funds in the current market. As a result, popSLATE does not have a viable business path forward.

This marks the end of a 5-year journey for our team, which started with a seed of an idea in 2012 and led to our quitting our jobs to start the company. Although we are very disappointed by the ultimate outcome and its implications for you as our backers, we are proud of our team, who worked tirelessly over the years to commercialize the first plastic ePaper display, globally ship thousands of popSLATE 1 devices as a first-in-category product, and re-imagine & further extend the platform with the second generation product. Despite a strong vision, high hopes, and very hard work, we find ourselves at the end of the journey.

We are out of money at this juncture for two key reasons. First, we have spent heavily into extensive development and preparation for manufacturing;  as you are aware, we hit some critical issues that multiplied the required spend, as described in previous updates.

Most recently, we learned that the fix for the Apple OTA issues would involve more significant redesign. While we initially suspected that the Lightning circuit was the culprit, it turned out that it was a much more fundamental issue.  Namely, our housing material is not compatible with Apple OTA requirements. You may think, “Wait, isn’t it just plastic?  Why would that be a problem?” While the housing is indeed largely plastic, we used a very special custom blend of materials that included glass fibers. The glass fibers were used to solve two issues, both of which were related to making the device super-thin: a) they enabled uniform, non-distortional cooling of the housing mold around our metal stiffener plate (the key component that makes popSLATE 2 thin but very strong) and b) they added tensile strength to the very compact form factor. Unfortunately, we have concluded that these added fibers are attenuating the RF signal and that we would have to spend additional cycles to tune a new blend with required modifications to the tooling. This is an expensive and timely process.

Second, we have been unsuccessful at raising additional financing, despite having vigorously pursued all available avenues since the close of our March Indiegogo campaign (including angels, VCs, Shark Tank and equity crowdfunding, both in the US and abroad). Many in our network of fellow hardware innovators have encountered this difficult new reality. You may have also seen the very public financial struggles of big-name consumer hardware companies—GoPro, Fitbit, Pebble, Nest and others—as highlighted in this recent New York Times article [link]. The most dramatic example of this phenomenon is the recent and sudden shutting down of Pebble, paragon of past crowdfunding success.

There is no way to sugarcoat what this all means:

  • popSLATE has entered into the legal process for dissolution of the company
  • Your popSLATE 2 will not be fulfilled
  • There is no money available for refunds
  • This will be our final update

While this is a very tough moment professionally and emotionally for us, it is obviously extremely disappointing for all of you who had believed in the popSLATE vision. Many of you have been with us since the March campaign, and a smaller set helped found the popSLATE community back in 2012. To you—our family, friends, and other unwavering backers—we are incredibly grateful for your enthusiasm, ideas, and support throughout the years. Just as importantly,  we deeply regret letting you down and not being able to deliver on our promise to you. We truly wish there were a viable path forward for product fulfillment and the broader popSLATE vision, but sadly we have exhausted all available options.

Sincerely yours,
Yashar & Greg
Co-founders, popSLATE

The problem as a consumer you have for much of these gadget is this:

If a product can be easily made in Shenzhen, it will be so you should be able to get it cheaper on lightinthebox or similar sites

If it can’t be turned out in a reasonable time, it has a low likelihood of succeeding

There have been successes of more hobby based products; I have a replica of Roland’s TB-303 synthesiser. It’s the kind of product that can be assembled whilst not relying a China-based supply chain. It also is based on well understood technology and there weren’t issues of with designing for very tight places or Apple’s requirements (in the case of iPhone’s accessories).

What about the poster child of Pebble? Pebble managed to go for longer with a sophisticated product but couldn’t withstand the gravity of declining sales in the wearables sector.

Oprah Time: Asian Godfathers by Joe Studwell

I’d read Joe Studwell’s How Asia Works over lunar new year. Studwell dealt directly with there reasons for East Asia’s economic growth and Southeast Asia’s failing to follow them.

Asian Godfathers

Studwell attached this same subject through through a different lens. In Asian Godfathers, he tells the story through Asia’s business tycoons; from the taipans of Hong Kong to Stanley Ho – the Macau gambling tycoon.

Cosmopolitan privileged people who where in the right place at the right time. Some of them had colourful origin stories as black marketers selling fake medicines and blockade runners. But they are just a side show in a wider panorama of political greed and incompetence. Asian Godfathers is more like Hotel Babylon than an economics analysis like How Asia Works, yet it delivers its message forcefully.

Have we reached peak streetwear?

At the end of January I wrote a blog post about the landmark collection by Louis Vuitton and Supreme.

I delved into the history of streetwear and the deep connection it shared with luxury brands. This linkage came from counterfeit products, brand and design language appropriation.

This all came from a place of individuality and self expression of the wearer.

obey

I reposted it from my blog on to LinkedIn. I got a comment from a friend of mine which percolated some of the ideas I’d been thinking about. The comment crystalised some of my fears as a long-time streetwear aficionado.

This is from Andy Jephson who works as a director for consumer brand agency Exposure:

The roots of street and lux that you point to seem to be all about individuality and self expression and for me this is what many modern collabs are missing. To me they seem to be about ostentatious showmanship. I love a collaboration that sees partners sharing their expertise and craft to create something original. The current obsession with creating hype however is creating a badging culture that produces products that could have been made in one of the knock-off factories that you mention. Some collabs that just produce new colourways and hybrid styles can be amazing, reflecting the interests of their audience. But far too many seem gratuitous and are completely unobtainable for the brand fans on one side of the collaborative partnership.

The streetwear business is mad money

From Stüssy in 1980, streetwear has grown into a multi-billion dollar global industry. Streetwear sales are worth more than 75 billion dollars per year.

By comparison the UK government spent about 44.1 billion on defence in 2016. Streetwear sales are more than three times the estimated market value of Snap Inc. Snap Inc., is the owner of Snapchat.

Rise of Streetwear

It is still about one third the size of the luxury industry. Streetwear accounts for the majority of menswear stocked in luxury department stores. Harvey Nichols claimed that 63% of the their contemporary menswear was streetwear. Many luxury brands off-the-peg men’s items blur the boundary between luxe and streetwear.

The industry has spawned some technology start-ups acting as niche secondary markets including:

  • Kixify
  • K’LEKT
  • THRONE
  • StockX
  • SneakerDon
  • GOAT

Large parts of the streetwear industry has become lazy and mercenary. You can see this in:

  • The attention to detail and quality of product isn’t what it used to be. I have vintage Stüssy pieces that are very well-made. I can’t say the same of many newer streetwear brands
  • Colour-ways just for the sake of it. I think Nike’s Jordan brand is a key offender. Because it has continually expands numbers of derivative designs and combinations. New Balance* have lost much of their mojo. Especially when you look at the product their Super Team 33 in Maine came up with over the years. The fish, fanzine or the element packs were both strong creative offerings. By comparison recent collections felt weak
  • The trivial nature of some of the collaborations. This week Supreme sold branded Metro Cards for the New York subway
  • Streetwear brands that sold out to fast moving consumer products. This diluted their own brand values. While working in Hong Kong, I did a Neighborhood Coke Zero collaboration. The idea which had some tie-in to local cycling culture and nightscape. Aape – the second-brand of BAPE did a deal wrapping Pepsi cans in the iconic camouflage

Hong Kong brand Chocoolate did three questionable collaborations over the past 18 months:

  • Vitaminwater
  • Nissin (instant noodles)
  • Dreyer’s (ice cream)

By comparison, Stüssy has a reputation in the industry for careful business management. The idea was to never become too big, too fast. The Sinatra family kept up quality and selective distribution seeing off Mossimo, FUBU and Triple Five Soul. Yes, they’ve done collaborations, but they were canny compared to newer brands:

“The business has grown in a crazy way the past couple of years,” says Sinatra. “We reluctantly did over $50 million last year.”

Reluctant because, according to Sinatra, the company is currently trying to cut back and stay small. “It was probably one of our biggest years ever — and it was an accident.”

Sinatra characterises Stüssy’s third act as having a “brand-first, revenue second” philosophy, in order to avoid becoming “this big monstrosity that doesn’t stand for anything.”

The Evolution of Streetwear. The newfound reality of Streetwear and its luxury-like management academic study uncovered careful brand custodianship.

It’s not clothing; it’s an asset class

Part of the bubble feel within the streetwear industry is due to customer behaviour. For many people, street wear is no longer a wardrobe staple. Instead it becomes an alternative investment instrument. Supreme items and tier zero Nike releases are resold for profit like a day trader on the stock market.

Many of the start-ups supported by the community play to this ‘day trader’ archetype. It is only a matter of time for the likes of Bonham’s and Sotherby’s get in on the act.

A key problem with the market is that trainers aren’t like a Swiss watch or a classic car. They become unusable in less than a decade as the soles degrade and adhesive breaks down.

There is the apocryphal story of a Wall Street stock broker getting out before the great stock market crash. The indicator to pull his money out was a taxi driver or a shoe shine boy giving stock tips.

Streetwear is at a similar stage with school-age teenagers dealing must-have items as a business. What would a reset look like in the streetwear industry? What would be the knock-on effect for the luxury sector?

More information
USA Streetwear Market Research Report 2015 | WeConnectFashion
Louis Vuitton, Supreme and the tangled relationship between streetwear and luxury brands | renaissance chambara
New Balance Super Team 33 – Elements Collection | High Snobriety
New Balance ST33 – The Fanzine Collection | High Snobriety
1400 Super Team 33 (ST33) trio | New Balance blog – the infamous fish pack
How Stüssy Became a $50 Million Global Streetwear Brand Without Selling Out | BoF (Business of Fashion)
The Evolution of Streetwear. The newfound reality of Streetwear and its luxury-like management by de Macedo & Machado, Universidade Católica Portuguesa (2015) – PDF

* in the interest of full disclosure, New Balance is a former client.

Oprah Time: reading over Chinese New Year

I have managed to catch up on a lot of reading over the Lunar New Year festival.

Joe Studwell’s How Asia Works is fascinating reading. It talks about how Korea, Japan and China have grown while their counterparts haven’t. Studwell highlights a number of factors that contribute to economic growth:

  • With an agrian economy, a market garden approach to agriculture rather than farming at scale delivers the best results. But only if rent seeking interests are removed through effective agricultural reform
  • Industry requires total mastery of technology – which is the reason why low grade heavy industry is the starting point
  • Exports planned into industrial development from the beginning and a continued relentless focus on exports is required
  • Governments are best at keeping businesses focused on total technology mastery, raising cheap finance and weeding out failures that might be a resource suck

Studwell critiques how different countries throughout Asia have managed to process in this manner including both the strengths and the weaknesses of their respective approaches.

It was fascinating to read how Taiwan managed to succeed in spite of nationalised industries and the challenges in China’s agricultural model.  How General Park ‘motivated’ Korean chaebols and the tragedy of development in Thailand, Malaysia and the Philippines.

China’s Crony Capitalism by Minxin Pei explained the mechanism of how corrupt officials, state enterprise employees and businesspeople managed to bilk the Chinese government and people of vast amounts of money. Much of the challenge is structural. China has a federalised government with power lying at provincial, city and county level. Pei is hawkish on the country’s prospects.

For an outside observer Pei’s research into the mechanisms, one can appreciate the challenge that the central government faces in combatting corruption and bad behaviour. President Xi’s ‘tigers and flies’ campaign to root out the worst corruption in the party and business is part of the solution; but according to Pei there is also careful structural reform required. This will only be possible through a massive aggregation of power towards the centre.

Brexit Max

Teresa May’s speech this afternoon was neatly lampooned by the Financial Times on Instagram

Mobile payment mania

I use my Apple Pay as a stopgap measure for when I have left my wallet on my desk rather than as a main form of payment. I use PayPal mainly because eBay doesn’t allow other options.
London
So I find it puzzling that the likes of Tesco really thinks that this payment app (and others like it) would stand a chance of succeeding. The reason why Visa, MasterCard and Amex work is because of their near universal acceptance.

The Brexit post part two: a guide to what on earth is Brexit for people outside the UK?

I was prompted to write this post based on the many questions from friends living outside the UK – who are trying to make sense of what is going on.

Brexit is a portmanteau of ‘Britain’ and ‘exit’. The exit being from the European Union. In 2013, David Cameron announced that a conservative government would hold an in-out referendum. The referendum would take place before 2017.

Cameron is campaigning to stay in why did he call for a referendum?

David Cameron had two main reasons for calling the referendum.

The Conservative party has members in both camps. This has been a fault line in the party for a long while. The reasons for this split in the party boils down to two factors.

In order for the EU to be more powerful on the world stage, it has to speak with one voice. The process of consensus that it uses to get there means the UK is part of the consensus not a lone actor on many issues. This has an impact on how sovereignty is perceived. The full name of the Conservative party is actually the Conservative and Unionist party. It has members who view that sovereignty argument is an attack on the sanctity of the state. The second argument is having a completely deregulated market will benefit business. This would annul workers rights and make government much smaller. Taxes would be lower since the government would be responsible for much less activity.

The economic argument for remaining in the EU is that it provides access to an internal market. This has some ancillary benefits: as an English speaking country the UK is ideal for international investment. The EU provides a wider pool of workers to draw on. In knowledge economy work this is important. It is easier to do business across Europe with common laws and regulations.

The second reason is that before 2009 if you wanted a right-of-centre party you only had one choice. Under the leadership of Nicholas Farage the UK Independence Party (UKIP) rose. This was down to his personality and right-wing populist policies. On the surface of it the Conservative party had to adapt to the reality of competition.

Calling a referendum at a time of Mr Cameron’s choosing was a way of dealing with the bleed of support to UKIP and the split within his own party. I think it would be fair to speculate that Mr Cameron’s team underestimated the Leave campaign and the sentiment of the general public.

 What are the key issues for the electorate?
The issues break down into what I will term surface issues and shadow issues. The surface issues are those issues that connect to the referendum in a rational, logical way. The shadow issues are issues that aren’t connected to the referendum. It is a bit like having an argument with a loved one, often the subject is an excuse to raise everything else that has led to this moment. Essentially the surface issues are rational, the shadow issues are emotive in nature.

The Surface issues

For leaving:

  • The UK would get to save the money that it currently contributes to the EU. The numbers talked about this vary. Much of the money that is sent to the EU is spent in the UK. Many leave campaigners argue that this notional pot of money would be better spent on the NHS. There is no guarantee that this would take place and it assumes that the economy performs at least as well in the future.
  • The UK is the fifth biggest economy in the world, people would still want to trade with the country. The UK could do a better job negotiating trade unencumbered by the EU. At the present time, the UK is part of a trading bloc of 26 countries. The EU is the world’s largest trading bloc and that gives it a helpful position in negotiations. The other EU states remain the UK’s largest trading partner. For political and business reasons the UK may not get particularly good trading terms out of the EU, beyond what it already has. It is speculative and we just don’t know.
  • The UK can take back control of its borders to limit immigration. There is some evidence to suggest that uncontrolled migration from the European Union affected wages. This impact was biggest on wages in unskilled or semi-skilled work. Whilst this impact is considered to be small, it affects voters living hand to mouth. They will perceive this impact as big. The government data on net EU migration has contrasting sets of figures which can give rise to concerns of under-accounting or a cover-up depending on your paranoia level.
  • Britain can take back control of its laws, cut red tape and become more competitive. This is largely conjecture. Once the vote goes through Britain’s position won’t change until it negotiates its exit from the EU. It’s not like dropping your subscription to Netflix. Future legislation would depend on the kind of trade deals that Britain negotiates. Depending who you believe, a reduction in EU legislation would stop further erosion of workers rights or remove restrictive workers rights from businesses.

For staying:

  • Better the devil you know. At the present time, the UK economy is ok. It is part of the EU trading bloc. Leaving the EU brings with it uncertainty. How will the country trade? Will the UK have free access to the markets of its largest trading partners? How will this affect UK ex-pats currently living in other EU countries like pensioners in Spain? There would be uncertainty whilst the UK negotiates trading agreements around the world. The government hasn’t outlined a clear plan B for life after Brexit.
  • UK residents also have rights to freedom of movement in the EU. If you have your passport, a British citizen can go to work freely in any EU country. For young people and professionals, that is an attractive proposition. Leave campaigners would argue that Norway has managed to negotiate similar freedoms for its citizens and isn’t an EU member.
  • The impact of the UK leaving the EU is likely to be felt beyond the UK. This is based on conjecture, but a Brexit vote may trigger similar votes elsewhere in the EU. The EU has been something that has bound European countries together. Prior to the EU, mainland Europe was responsible for two world wars. Since all economies have a high degree of interconnection, the effects will reverberate around Europe and the UK for a long time. A leave campaign response would be to think about Britain first and focus on higher growth non-EU markets.
  • The UK outside the EU is likely to have a negative economic impact on the country. Economic predictions aren’t certain to happen but make sobering reading. The following international organisations think that it will be bad for Britain including: OECD, the US government, IMF, The World Bank and the Chinese government. This is probably the area that the leave campaigner have been least effective in countering.
  • British consumers will lose out from participation in the EU. A wide range of benefits such as anti-terrorism security co-operation, having their holiday mobile phone bill reduced through EU regulation or being able to study abroad. However, these issues won’t matter to many of the poorest voters who are behind the leave campaign.
  • A vote for Brexit may increase pressures for a break-up of the United Kingdom. A Scottish referendum on independence was recently defeated, but Brexit would re-open the debate in a pro-Europe Scotland. Northern Ireland currently benefits from the EU, Brexit could ramp up simmering tensions and possible bring a return to The Troubles. The Good Friday agreement currently revolves around an open border and North-South economic codependency. Leaving the EU would break this and require a more heavily regulated border to keep out immigrants and smuggling.  A leave campaigner would argue that this is speculation and nothing more.

The Shadow Issues: a working class insurrection through the ballot box?

Modern Britain as an economic power house has left behind wide swathes of the country outside London and the Southeast of England. These left-behind people are the engine driving the vote to leave.

The UK was the industrial beating heart of the world in 19th century and it began a long slow decline due to a number of factors:

  • Much of the manufacturing was in relatively low value products
  • Much of the manufacturing base didn’t have a hard-to-replicate core competence. By contrast German industry is built around high value specialisation and niches
  • Favourable trading environments in former colonies dried up
  • Globalisation brought more competitors to the table. Though many of those competitors like Toyota and Nissan then went on to build factories in the UK
  • Structural issues: a national banking and business finance system based on short-termism rather than the regional banking system with a longer term focus that drove German competitiveness. An adversarial worker – management relationship rather than the German worker-management councils
  • A short term attitude to the dividend of North Sea oil (by comparison, the Norwegian government have invested part of this money for the future)
  • A decision by the government to ‘bet the farm’ on financial services in the 1980s
  • A succession of debt fuelled consumer boom and bust cycles
  • Poor decisions made on worker training. UK apprenticeship schemes have lagged the quality of similar schemes in Germany and other European countries
  • Unfettered worker migration from Eastern Europe, which the Labour party has admitted was a mistake

This has left Britain in a curious state:

  • For a country with a famous education system, you have unskilled workers who need to be supplemented by better skilled migrants
  • Their wages are stagnant or may have dropped in real terms due to increased job competition due to short-term or temporary migrant workers
  • A large amount of working poor who have an uncertain future
  • Large of consumer debt, often tied up in home ownership and distorted prices for rental and home purchase. When you can barely make the rent, an economic depression and housing crash looks quite attractive
  • Social mobility is in decline for many
  • University education is no longer a guaranteed entry ticket into the middle class – but it now comes with a vast amount of consumer debt

The elephant in the room for Brexit is the rise of the poorest people in society as an important voter bloc. The UK political system is comprised of major parties who have not reflected the views of poorer people for the past 30 years. You have generations of frustrated angry people and the Brexit referendum gives them an outlet. Many of them know that life will not improve; but it gives them the opportunity to screw the people who haven’t listened over the decades.

Their concern and anger is not new but has lacked focus. Prior to Brexit, it drew some of these people to the likes of the English Defence League and Britain First – alongside the usual collection of people with racially motivated agendas. The UK Independence Party tapped into that zeitgeist and the referendum has brought it to the fore.
Both the main parties have been ill-equipped to deal with it. Immigration is a loaded term as it has been a historic touchstone for racial hatred and intolerance. My Dad faced the classic attitude of landlords with signs saying ‘No blacks, no Irish, no dogs‘.

The impact isn’t only economic, older residents are seeing their neighbourhoods change beyond their comprehension.

Voter concern about immigration is not bounded by race, creed or colour in the UK – which moves it away from being ‘politically incorrect’ to a subject of legitimate debate.

In some respects, it is easy to understand why immigration was such a difficult issue for politicians. Enoch Powell was famous for a speech given in Birmingham in 1968 regarding immigration from Commonwealth countries. Powell’s speech touched on immigration issues that many would recognise now: strain on resources, the degree of change in neighbourhoods and society, issues with societal integration. His speech was also tied to anti-discrimation laws. In a country that had only recently recovered from the second world war, Powell objected to a law advocated by writers from newspapers which had been soft on the rise of Hitler, yet now wanted to impinge on the freedoms of the native British. He quoted from the latin epic poem Aeneid as a graphic way of illustrating his concern about possible conflict.

Like the Roman, I seem to see “the River Tiber foaming with much blood”.

This was allusion to his own foreboding about the future of Britain, partly driven by the riots that had racked US cities including in the 1960s including Watts (Los Angeles), Hough (Cleveland), Detroit, Chicago, Washington DC and Baltimore.

From then on Powell was forever linked to his ‘river of blood’ speech. He lost his seat in Edward Heath’s shadow cabinet and his speech was roundly criticised as racist. Powell did seem to have his finger on the pulse of voter sentiment at the time. Just two weeks after the speech The Gallup Organisation released poll results showing 74% of respondents agreed with Powell’s speech versus 15% who disagreed. Powell was the unacceptable face of right wing populism.

It was only with the rise of UKIP in 2009 that immigration was put on the ‘serious’ political agenda of the mainland UK again.

The main political party members campaigning of remain don’t have easy answers for the intractable problems facing these people. Trying to control immigration is only a small part of any realistic solution. Back in 1981, members of Margaret Thatcher’s government talked about the difficulty in dealing with the economic issues:

“I fear that Merseyside is going to be much the hardest nut to crack,” he cautioned. “We do not want to find ourselves concentrating all the limited cash that may have to be made available into Liverpool and having nothing left for possibly more promising areas such as the West Midlands or, even, the North East.

“It would be even more regrettable if some of the brighter ideas for renewing economic activity were to be sown only on relatively stony ground on the banks of the Mersey.

“I cannot help feeling that the option of managed decline is one which we should not forget altogether. We must not expend all our limited resources in trying to make water flow uphill.”

The referendum has highlighted the distance between working class people and the Labour Party. This is especially striking; working class people are Labour’s traditional natural constituency.

Will Britain Leave The EU?

I don’t know, but at the time of writing the FT’s poll of polls gives the leave camp a 4% lead over remain, with just 10% of respondents undecided. If the polling data reflects voter turnout accurately then Brexit is likely.  We don’t know what the voter turnout will be, it could be affected by a number of factors:

  • Wet weather adversely affects voter turnout
  • Young people, who are generally more favourable towards remaining in the EU; but tend to do a worse job at getting along to the polling station. This referendum may change that dynamic
  • People in lower socio-economic groups tend to have lower voter turnout
  • Older people tend to be more diligent. For senior citizens, if either side of the debate has a better grassroots machine for giving their supporters to the polling booth that could make a difference

Despite much of the fuss about getting eligible ex-pats to vote, they are likely to consist of only 1% of the electorate.

The Euro 2016 football tournament has no matches on June 23 – a major game would have adversely affected voter turnout.

More information
UK government documents on Brexit
UK Independence Party – Wikipedia
Conservative Party – Wikipedia
The knowledge economy is a myth. We don’t need more universities to feed it | The Guardian
Britain is in the midst of a working-class revolt | The Guardian
Working-class Britons feel Brexity and betrayed – Labour must win them over | The Guardian
EU position in world trade | European Commission
The Great British trade-off The impact of leaving the EU on the UK’s trade and investment | The Campaign for European Reform – PDF
The impact of immigration on occupational wages: evidence from Britain | Bank of England – PDF
EU migration — the effects on UK jobs and wages | FT – Paywall
The Economic Consequences of Brexit: A Taxing Decision – OECD
Europe and Central Asia: Growth Struggles in the West, Volatility Increases in the East – The World Bank
Remarks by the President Obama and Prime Minister Cameron in Joint Press Conference | White House
Uncertainty Clouds the United Kingdom’s Economic Prospects | IMF
China: Brexit Threatens to Tip Scale in Favor of U.S. | Money Morning
The Brexit Index: a who’s who of Remain and Leave supporters | Populous
1981 files: Lord Howe rejects ‘inconsiderate’ comments on decline of Liverpool | Daily Telegraph
Analysis: the impact of turnout on the EU Referendum | YouGov
FT – Poll of Polls on Brexit

Books
Heffer, Simon (1999). Like the Roman: The Life of Enoch Powell. London

Oprah Time: The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb

It’s been nine years since Taleb wrote The Black Swan. Like Francis Fukuyama’s The End of History and the Last Man before it, The Black Swan is widely cited and paid lip service to.

The timing of publication for Taleb was particularly pertinent as the book became popular as the financial system broke down in 2008. Some eight years later, the economy has limped along as financial issues were punted into the future, rather like a child kicking a can down an alley. Like the can, the financial issues are still here to be ran into. I thought it was time to re-read Taleb’s book.

Taleb’s work is philosophical rather than scientific in its method. Although he avoids the talk show friendly cliches of Malcolm Gladwell or Seth Godin. Much of our world is based around the normal distribution, it is used by insurance companies and pension funds to access risk and longevity. Taleb points out that the really big changes that rock the boat often don’t fit neatly within these models.

Taleb’s solution boils down to two things

  1. A defensive skepticism that would encourage the average person to question common wisdom and ask ‘what if’
  2. For those that can afford it, an offensive posture that asks ‘what if’ and has a mix of savings or investments most of which is put in very safe vehicles and 15 per cent or so on high risk speculative investments to take advantage of change

Taleb’s work doesn’t seem to have had the impact that one would have expected just five years ago when it was quoted as a touchstone to modern life.

Much of the excess and risk that had happened previously is happening again, despite a plethora of disruptive forces laid out in the media.

Audiences are paying too much attention to listicles that go something along the line of ‘5 habits you need have to be like Bill Gates’. Where is the critical filter?

More information
McMansions Are Back And Are Bigger Than Ever – There was a small ray of hope just after the Lehman collapse that one of the most lamentable characteristics of US society – the relentless urge to build massive McMansions (funding questions aside) would have subsided
The market’s most crowded trades could be causing dangerous bubbles – Business Insider
Many Middle-Class Americans Are Living Paycheck to Paycheck – The Atlantic
Economic Conditions Snapshot, March 2016: McKinsey Global Survey results | McKinsey & Company
Andy Grove’s Warning to Silicon Valley – The New York Times – Mr. Grove contrasted the start-up phase of a business, when uses for new technologies are identified, with the scale-up phase, when technology goes from prototype to mass production. Both are important. But only scale-up is an engine for job growth — and scale-up, in general, no longer occurs in the United States. “Without scaling,” he wrote, “we don’t just lose jobs — we lose our hold on new technologies” and “ultimately damage our capacity to innovate.
Crap IT means stats crew don’t really know how UK economy’s doing • The Register – and people make accusations about Chinese economic data…
Return of ‘100% mortgages’ ease burden on Bank of Mum and Dad | FT

June 2016 online marketing and technology research slides

Here is a copy of the slides that I pull together (when I have the time) each month of publicly available data that would be of use.

This month I have some new data around search which came from disclosures at Google I/O in terms of search volumes. We talk about social as if search has gone out of style but its growth is still staggering, driven by mobile device penetration.
Google global search volume
Looking at global search revenue over time, Google’s monopoly position becomes immediately apparent.
Global Search Revenues
More details about me here.
Slide20
Full presentation available for download as a PDF on Slideshare

Oprah time: Heaven’s Bankers – inside the hidden world of Islamic finance by Harris Irfan

I was given Heaven’s Bankers to read as a friend. I can’t say I had thought that much about Islamic finance before. I knew that it had a couple of patches of ‘heat’ behind it in the banking sector. One was in the late 1990s. It then took a back seat post-911 and took off again as Dubai boomed.

It helps that Harris was not only an insider, but passionate about banking in its widest sense. He’s also sickening polymath who is a top flight racing driver.

History never repeats itself, but the Kaleidoscopic combinations of the pictured present often seem to be constructed out of the broken fragments of antique legends. – Mark Twain and Charles Dudley Warner

Irfan delves into the intricacies of how modern Islamic finance grew and contracted. The industry he provides us an inside view of is now worth a trilliion dollars.  The start of history like most things were pretty straight forward. As the industry grew more arcane and complex financial instruments became the norm. This reminded me of a lot of Mark Lewis’ Liar’s Poker. Lewis dealt with bonds and modern derivatives became so complex customers didn’t understand them. The Savings and Loans debacle of 1985-1996 foreshadowed subprime mortgages.

Where Irfan really excels for the non-banker as reader is in his ability to break down the basics. He takes the concepts many of us learned in business or economics classes back into pre-medieval history. He provides a historical perspective on modern capitalism as we know it. So the book becomes invaluable regardless of how you feel about the current economic system. The background gives you a more informed perspective.