Ideas were at the at the heart of why I started this blog. One of the first posts that I wrote there being a sweet spot in the complexity of products based on the ideas of Dan Greer. I wrote about the first online election fought by Howard Dean, which now looks like a precursor to the Obama and Trump presidential bids.
I articulated a belief I still have in the benefits of USB thumb drives as the Thumb Drive Gospel. The odd rant about IT, a reflection on the power of loose social networks, thoughts on internet freedom – an idea that that I have come back to touch on numerous times over the years as the online environment has changed.
Many of the ideas that I discussed came from books like Kim and Mauborgne’s Blue Ocean Strategy.
I was able to provide an insider perspective on Brad Garlinghouse’s infamous Peanut Butter-gate debacle. It says a lot about the lack of leadership that Garlinghouse didn’t get fired for what was a power play. Garlinghouse has gone on to become CEO of Ripple.
I built on initial thoughts by Stephen Davies on the intersection between online and public relations with a particular focus on definition to try and come up with unifying ideas.
Or why thought leadership is a less useful idea than demonstrating authority of a particular subject.
I touched on various retailing ideas including the massive expansion in private label products with grades of ‘premiumness’.
I’ve also spent a good deal of time thinking about the role of technology to separate us from the hoi polloi. But this was about active choice rather than an algorithmic filter bubble.
CNN Brings In the Social App Beme to Cultivate a Millennial Audience – The New York Times – major news site suffering from lack of consumer trust (election coverage, fake news environment etc) buys YouTube V-logger to get some baes – and people wonder why the news media appears broken. Beme was founded by Casey Neistat was one of the first generation of YouTube bloggers. Beme rolled out a mobile app to syndicate their content
Business
The taxi unicorn’s new clothes | FT Alphaville – is sadly symptomatic of the emperor’s new clothes groupthink dominating the sector. Though it does explain the sector’s obsession with popularising the idea that public transport can be done away with. (Less investment in public transport will lead to fewer competitively priced alternatives, empowering the Uber monopoly in the long run)
This Is What Happens When Millions Of People Suddenly Get The Internet – BuzzFeed News – Facebook’s influence in Myanmar is hard to quantify, but its domination is so complete that people in Myanmar use “internet” and “Facebook” interchangeably. According to Amara Digital, a Yangon-based marketing agency, Facebook has doubled its local base in the last year to 9.7 million monthly users. That number is likely to spike again, after Facebook launched its Free Basics program, a free, streamlined version of Facebook and a handful of other sites.
Apple expert panel on shift from a hit-driven to services business – Business Insider – “I’ll play both sides of it for you, Steve. On the one hand, they haven’t had innovation for a long time and it looks really bleak and it’s been six years [if you measure by the iPad, which was introduced in 2010]. On the other hand, if after eight years they do something as big as the iPhone or the iPad or the iPod, then we’ll forget about, we’ll forget about those doubts.”
The Macintosh Endgame | MondayNote – interesting analysis, the problem is that iOS doesn’t have a user experience conducive to knowledge work like typing all day long
What now for the working class? Following president Trump’s election and the British plebiscite on European Union membership there has been lots of hand wringing about workers who traditionally participated in legacy industries being outside society. Here is what we have to deal with:
The ‘traditional’ jobs aren’t coming back
Middle-class roles are already being disrupted
There is a declining return on investment in further education, yet lifelong learning is a compulsory requirement
Globalisation is working at an aggregate level, but isn’t working at a local level
Western society has fractured. It will become more fractious once the realisation takes hold that:
It can’t be resolved by simple measures, populists might listen – but can’t solve anything. Jobs are governed by a multiple factors that affect both cost and demand considerations
It can’t be solved in a relatively short time frame. You can’t build the necessary eco-system and supporting industries to bring the jobs back; even if the economics made sense
Governments don’t have their hands on the levers of control, the best governments can do is actively manage decline. Technological disruption puts the levers of control with a smaller group of people
There is a lack of willingness by those with the money and the power to solve it – primarily due to the pressures that drive their behaviour
Existing social welfare safety nets aren’t sustainable
The realisation that populism doesn’t deliver is likely to cause a further visible outburst of anger. Which should be good news for the private security industry. This could result in civil or international conflict. It has already happened. Factors that contributed to the Arab spring and the Syrian civil war included a large under-employed population living in stagnant economic conditions with no hope in sight. This probably sounds familiar.
I am ruling out some sort of positive ‘black swan’ event which changes the game completely and provides meaningful work with great wages across societal boundaries. If I could reliably predict these, I would be writing this from my private Airbus A380.
Instead I can see four broad categories of outcomes, all of which are ugly:
Carry on – carrying on isn’t likely to be sustainable as societal pressures go to breaking point
Managed decline – from a rational point-of-view the most ‘possible’ solution. Unpalatable from a voter perspective. It begs the question at what point would the UK economy bottom out? Managed decline makes the most sense as an interim measure whilst a country works out what its new place in the world is and charts a path towards it based on careful strategic investments with limited capital
Massive investment – presents a number of challenges that make it nearly impossible for western countries. It would require a long term view – unlikely without consensus driven politics with a high level of comity, huge access to credit – again unlikely with highly indebted economy and a slowly declining credit rating like the UK. Would take too long to satisfy angry voters
Massive disruption – the dice is thrown in the air as society tears itself apart and the strong gain control – think China’s Cultural Revolution. Wages and worker rights may drop to make them more cost competitive for low skilled manufacturing allowing for an employed but disgruntled workforce. Power is unlikely to shift too much, the corresponding upheaval in population numbers may provide some supply side pressure on wages when its all over. In all likelihood, it would just reduce pressure for change, increased willingness to work together on a longer term solution, but not provide much medium term economic benefit
Disruption
Here is a chart of numerous successful business, some of them are over a century old. AT&T and Verizon can trace their history back to 1877 and the Bell Telephone Company set up by Alexander Graham Bell’s father-in-law. General Electric goes back to work by Thomas Edison in 1880. These companies took from 117 – 137 years to become $200 billion businesses. Facebook took ten years requiring only 3% of the people AT&T needed.
It would be reasonable to assume that the future is going to create less jobs with given investments rather than more.
Company
#Employees
Year its market capitalisation became US$200 billion
Facebook
9,199
2014
Microsoft
27,000
1998
Apple
46,600
2010
Alphabet (Google)
46,600
2012
Amazon
165,000
2015
Verizon
176,800
2014
General Electric
239,000
1997
AT&T
302,000
2007
So large private enterprises will:
Employ less people which means less ancillary demand for services in the locale. Less restaurants, shops, artisanal coffee shops, micro breweries, nail bars, car valets, hotels and hair salons
Employ even less unskilled people – what unskilled labour is required will be employed on a flexible basis. Their roles will be competing on ‘total price’ with a global workforce and robotics
This hypothesis is supported by data from the MIT Technology review which showed that modern US manufacturing managed to increase productivity by 250% whilst reducing staff numbers by over 40%.
Win-Win to Winner Takes All
Technological progress and globalisation has resulted in a decline in the middle class in western countries. Pew Research claims that the US middle class declined from 61 per cent of the population in 1970 to 50 per cent by 2015.
Corresponding average ‘real wages’ for US ‘good producing’ workers peaked by the mid-1970s and have been broadly stagnant since. A pattern mirrored in other developed economies. Hong Kong saw a similar peak from 1967 riots through to the early 1990s until factories moved across the border.
Manufacturing productivity had grown steadily over that time. You can argue over the data points but the overall trend seems to hold true.
Owners of capital have enjoyed increased returns versus the providers of labour. Knowledge work, a key part of middle class roles could be easier to export than production lines. A classic example is the bank back office roles that have been exported to India.
Supply chain
At the moment UK manufacturing jobs operate as part of a complex supply chain that primarily addresses the European Union as a market. The supply chain is built around a number of factors:
The value of the product
The weight of the product
The volume of the product
The cost of shipping versus the cost of production
How well the product travels
Distribution of product demand
Proximity to suppliers
Proximity to talent
This is why companies may package a product in one country and manufacturer in others. Washing powder is a classic example of this. Chocolate travels well, so Cadbury could move production lines of internationally popular products to Poland. There is a greater incentive to move low skilled work out of areas that aren’t geographically central to a given supply chain. European freedom of movement may have kept jobs in the UK by allowing low and semi-skilled workers to move rather than the factories. This would be of little consolation to UK workers, but would benefit UK tax coffers.
This complex formula is the reason why jobs move in and out of the UK.
Cutting the UK out of this supply chain with a hard Brexit ensures that suppliers have to make complex choices. BMW will probably be wondering what UK presence it needs to maintain in order to keep the Mini brand values. It may decide its easier to evolve the quirky Britishness out of the brand over time and just keep it quirky. The Audi TT hasn’t been harmed by actually being assembled in Hungary.
The majority of components in the supply chain for the Mini production line is based in Germany.
A post-Brexit UK could be in the position of importing more rather than less products once companies take into account the bigger picture of the supply chains and the EU single market. This will lead to a net loss of working class livelihoods.
Role of eco-systems
Richard Florida is a Canadian professor who has spent much of his time looking at urban studies from the perspective of prosperity. He is known for is work around the creative class and urban regeneration (or gentrification). His work is controversial. One key concept he has of relevance to working-class communities is one of ‘clusters’ where eco-systems exist. When you apply it to traditional working class industries one can see how the jobs aren’t just going to come back. The UK has a series of traditional clusters that are in overall decline, this is best illustrated by the state of chemical, oil refinery and coal sectors which underpin a wide range of manufacturing industries.
Where new clusters spring up (Silicon Roundabout and the FinTech businesses within the Square Mile) they create employment that much of the UK population is ill-equipped to fulfil.
Let’s look in greater depth at traditional manufacturing industries that have provided the working class with good playing jobs.
Factories build on suppliers, who build on raw materials processors, who build on utilities and extractive industries. Take for example industrial revolution era Stoke-on-Trent which was close to high quality clay pits and coal that could be cheaply shipped in from mines in Lancashire or South Yorkshire. All of which required semi-skilled and unskilled jobs that gave the working class their livelihoods.
Unfortunately for Stoke-on-Trent; clay is readily available around the world, opening up the possibility of production in areas with cheap labour. Automation raised the quality of production and fashion can quickly dictate whether an ‘area’ brand is in demand.
If we look at the industrial landscape of the United Kingdom, the manufacturing industry has been hollowed away during the 1980s and 1990s. The UK lost 18% of its manufacturing capacity in the space of 18 months during the conservative government of Margaret Thatcher.
There has been a corresponding (likely terminal) decline in the necessary facilities to support an industrial economy. Now let’s look in-depth at three essential types of facilities that underpin manufacturing:
Oil refineries
Coal mines
Chemical plants
This base of the UK industrial eco-system is running on ‘life support’ in critical areas.
I was fortunate to have a great science teacher at school, he once said to me that you could measure the size and health of an industrial economy by the amount of sulphuric and hydrochloric acid it manufactured and consumed. In order to manufacture hydrochloric acid you need a chlorine gas plant – neither chemical is something you want to transport over long distances. The side effects of a leak would be catastrophic.
The UK currently has one plant to make chlorine gas that is government subsidised because there isn’t a sufficiently large industrial base to support continued profitable production. What industrial capacity is in the UK is perilously close to being snuffed out.
What is left of the UK chemical industry has consolidated in the North East of England Process Industry Cluster (NEEPIC). Some of the products created are intermediary chemicals for use elsewhere in the European Union. Brexit is likely to have a disruptive effect on some of these manufacturers. The cluster is a key reason why Nissan decided to build a manufacturing plant in Sunderland. NEEPIC is dependent on oil refining capacity for key chemical building blocks (feedstock).
Oil refineries
Oil refineries are considered by the public as providers of petrol (gasoline), diesel and jet fuel. The reality is that they provide feedstock (chemical building blocks) for most things in everyday life:
Foods
Medicines (or we can go back to leeches and blood letting)
Paints (containers, large manufactured goods, civil engineering)
Dyes to colour fabrics, plastics and other materials
Plastics (the modern world as we know it) – structural plastics, coatings, fibres including clothing textiles
As I write this is, it is easier to look around my desk and count the products that don’t have an oil-derived input – one item, the desk itself which is unpainted. Though I would put good money on it that the trees it was made from were felled with petrol chain saw and transported on a diesel-powered lorry to the saw mill.
Yet the UK has lost a huge amount of oil refining capacity. From 1974 – 2012 refining capacity almost halved from 148 million tonnes to 77 million tonnes (Energy Institute). This decline happened despite start of UK North sea oil production in 1975.
Peak production on North Sea oil occurring in 1985 and 1999 (two peaks due to technological innovation). There were 22 active oil refineries in 1974, at the time of writing there are now seven.
Part of this was driven by changing energy consumption such as the decline of home heating oil and more fuel efficient cars. But a good deal would be due to reduced ability to compete against foreign petro-chemical feedstocks and reduced industrial capacity.
Oil refining capacity has moved to closer to where the industry is.
Belgium and the Netherlands have oil refining capacity beyond their internal needs because of their ease of access to continental European markets. Germany as Europe’s industrial powerhouse has the largest refining capacity in the European Union – which matches its industrial economy.
Much of the capacity to provide chemical feedstocks for industrial use has moved to the Far East; notably Singapore, Japan, Korea, Jamnagar in India and China. Overall industrial production has moved to East and Southeast Asia.
Coal production
The working class found coal production as a source of working class jobs. Even coal production in the UK is roughly 10 percent of what it was in 1980. There are no deep coal mines active in the UK, only a handful of open cast mines. Coal is not only useful as a fuel but also a alternative supplier of feedstock for a diverse range of products including fertilisers, plastics and medicines. Even if coal comes back to prominence as oil reserves run out it would take a lot of effort to get UK production going again – perhaps too much effort.
Managed decline of traditional working class areas
The purpose of managed decline would be to concentrate efforts where they can make the most impact. London would draw in more people from the hinterlands. Cities like Liverpool would continue to decline in population. Low quality housing (think trailer parks or shanty towns) would cater for the internally displaced workers and there would be a likely increase in casual or gig economy roles in place of many working class roles.
So what would managed decline of working class areas look like? We have a clue from government discussions after the 1981 Toxteth riots. Lord Geoffrey Howe wrote a letter which was considered too controversial at the time
“I fear that Merseyside is going to be much the hardest nut to crack,”
“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.”
Howe realised that even discussing the concept at the time would be explosive.
Retrenchment to focus economically
In practical terms, it would mean:
Re-centralising government departments
Not spending on infrastructure beyond critical maintenance
Rationalising government support infrastructure: police, hospitals, social services
Re-zoning areas from a planning perspective to encourage development only in future clusters
Allowing local government to go into bankruptcy protection and under go US-style emergency management
Once population decline hits a critical mass, turning off the last services, rather like the city of Detroit has done
Focus infrastructure investment on ‘clusters’
Connecting benefits to re-location
This process would then give time for western countries; in particular the UK, to re-invent themselves and think about their economic purpose in the world beyond consumption.
The Chinese government have already started on this process whilst their economy is still in a high state of growth – looking to move up the manufacturing value chain, moving into the professional and financial services sectors that the west currently occupy. On the flip side they have not flinched from closing down excess capacity in the steel industry and low value industries. This is causing economic hardship amongst unskilled workers in Guongzhou and the steel towns of Hubei province.
Former clothing factories are being bulldozed to make way for corporate campuses. Small electronics factories in Shenzhen are making way for a financial services centre including a stock exchange.
If one thinks about the Chinese experience and their migration to higher value work, where would the UK go next and what does mean for the future of the British working class?
LeEco’s CEO Jia Yueting Says Company Overstretched, Now Running Out of Cash – Slashdot – possible acquisition target for Huawei? Jia Yueting is the epitome of a Chinese success story. LeEco was a sprawling technology conglomerate, he owns billions in assets and has an actress trophy wife. LeEco started off as an online video platform, Netflix would be a good western analogue. The LeEco service is on Chinese smart TVs. From there Jia Yueting expanded LeEco into smartphones including a share in Coolpad and mobile apps. Jia Yueting spearheaded a move into Chinese real estate, sports and even electric cars through Faraday Future. All of this expansion has been funded by listings and a mountain of debt that financed the Jia Yueting expansion efforts.
It was a curious experience for me to be reading Democracy in Decline. When I was in college Philip Kotler was a constant part of my life. His Principles of Marketing was a core text for my degree. It is a bit weird reading another book by Professor Kotler; especially one on such a dramatically different topic.
In Democracy in Decline Kotler addresses what are commonly cited as weaknesses in the political system of the United States. He provides an easy to understand guide to the US political system. Kotler then gets into what he identifies as the key points of failure in the American political system.
Low voter literacy, turnout and engagement
Shortage of highly qualified and visionary candidates
Blind belief in American exceptionalism
Growing public antipathy towards government
Two-party gridlock preventing needed legislation
Growing role of money in politics
Gerrymandering empowering incumbents to get re-elected forever
Caucuses and primaries leading candidates to adopt more extreme positions
Continuous conflict between the President and Congress
Continuous conflict between the federal and state governments
The supreme court’s readiness to revise legislative actions
The difficulty of passing new amendments
The difficulty of developing a sound foreign policy
Making government agencies more accountable
Kotler’s viewpoint is unashamedly liberal and supportive of collegiate rivalry underpinned by compromise in politics. The White House he envisions is more like the Barlett administration in The West Wing or Star Trek’s United Federation of Planets rather than Hilary Clinton. The flaws he has identified are so big in scale that they would likely require a major re-engineering of American society. From the electoral system, the relationship between federal and state government, public policy and public service.
That kind of re-engineering would require widespread societal approval. That wouldn’t happen in the riven, polarised society of America today. The books measures would be completely against the interests of the conservative movement.
For the European reader, Kotler offers an interesting engaged analysis of the American condition, however there is little to no reflection on the commonalities of national populism in European politics. This book will only provide an understanding of the United States; and that’s ok.
Kotler has a sub-header in the tile of the book ‘Rebuilding the future‘. In reality Kotler provides an effective diagnosis, but an not anything that points to an effective solution beyond hoping for the best.
IoT should be considered the Internet of Hacking (IoH).
Mirai – is a bot network that is powered by a range of devices including infected home routers and remote camera systems. It took over these systems by using their default passwords. The network of compromised machines is then targeted to overload a target network or service. Last week the Dyn DNS service was targeted which restricted access to lots of other services for users on the east coast of the US.
DNS is like a telephone directory of internet destinations, if no one knows where to go it becomes a lot harder to get in touch.
DDoSing
Mirai didn’t spring miraculously out of thin air. It finds its history in passionate gamers who used distributed denial of service (DDoS) attacks to slow down or even kick opponents off online gaming platforms. Eventually the gaming companies got hip to it and went after the cheaters, not to be outdone the cheaters went after the gaming companies.
Taking a service offline using DDoS became a source of extortion against online banking and e-commerce services. Attacks can be used as a form of ‘digital hit’ to take out opponents or critics like online security commentator Brian Krebs.
Computing
Moore’s Law meant that computing power has become so small and plentiful that it is surprising what we often have in the palms of our hands. The first Cisco router was built on the circuit board of a Sun Microsystems workstation. Home routers now are basically small computers running Linux. A CCTV camera box or a DVR are both basic PCs complete with hard drives.
Back in 2007, BlackBerry co-founder Mike Lazaridis described the iPhone as
“They’ve put a Mac in this thing…”
The implication being that the power of a sophisticated PC was essentially in the palm of one’s hand. The downside of this is that your thermostat is dependent on a good broadband connection and Google based cloud services and your television can get malware in a similar manner to your PC.
Security
For a range of Chinese products that have been acknowledged as part of the botnet; the manufacturer acknowledged that they were secured with a default admin password. They fixed the problem in a later version of the firmware on the device. Resetting the default password is now part of the original device set-up the first time you use it.
The current best advice for internet of things security is protecting the network with a firewall at the edge. The reality is that most home networks have a firewall on the connected PCs if you were lucky. The average consumer doesn’t have a dedicated security appliance on the edge of the home network.
Modern enterprises no longer rely on only security at the edge, they have a ‘depth in defence’ approach that takes a layered approach to security.
That would be a range of technology including:
At least one firewall at the edge
Intrusion detection software as part of a network management suite
A firewall on each device
Profile based permissions across the system (if you work in HR, you have access to the HR systems, but not customer records
Decoy honey post systems
All file systems encrypted by default so if data is stolen it still can’t be read
Processes:
Updating software as soon as it becomes available
Hard passwords
Two-factor authentication
Depth in defence is complex in nature, which makes it hard to pull off for the average family. IoT products are usually made to a price point. These are products as appliances, so it is hard for manufacturers to have a security eco-system. The likelihood of anti-virus and firewall software for light bulbs or thermostats is probably small to non-existent.
The Shenzhen eco-system
Shenzhen, just across the border from Hong Kong has been the centre of assembly for consumer electronics over the past 20 years. Although this is changing, for instance Apple devices are now assembled across China. Shenzhen has expanded into design, development and engineering. A key part of this process has been a unique open source development process. Specifications and designs are shared informally under legally ambiguous conditions – this shares development costs across manufacturers and allows for iterative improvements. This doesn’t seem to improve product security, quite the opposite, hence the internet of hacking.
There is a thriving maker community that allows for blurring between hobbyists and engineers. A hobbyists passion can quickly become a prototype and then into production . Shenzhen manufacturers can go to market so fast that they harvest ideas from Kickstarter and can have them in market before the idea has been funded on the crowdsourcing platform.
All of these factors would seem to favour the ability to get good security technologies engineered directly into the products by sharing the load.
China
The European Union were reported to be looking at regulating security into the IoT eco-system, to try and prevent the internet of hacking, but in the past regulation hasn’t improved the security of related products such as DSL routers. Regulation is only likely to be effective if it is driven out of China. China does have a strong incentive to do this. But it is unlikely to do anything to help prevent the internet of hacking.
The government has a strong design to increase the value of Chinese manufacturing beyond low value assembly and have local products seen as being high quality. President Xi has expressed frustration that the way Chinese manufacturing appears to be sophisticated, yet cannot make a good ballpoint pen.
Insecurity in IoT products is rather like that pain point of poor quality pens. It is a win-win for both customers, the Chinese manufacturing sector and by extension the Party. More security related content can be found here.
Kotler addresses what are commonly cited as weaknesses in the political system of the United States. He provides an easy to understand guide to the US political system. Kotler then gets into what he identifies as the key points of failure in the American political system.