China Details Homemade Supercomputer Plans
The machine will use an unfashionable chip design.
By Christopher Mims
Tuesday, January 19, 2010
It's official: China's next supercomputer, the petascale Dawning 6000, will be constructed exclusively with home-grown microprocessors. Weiwu Hu, chief architect of the Loongson (also known as "Godson") family of CPUs at the Institute of Computing Technology (ICT), a division of the Chinese Academy of Sciences, also confirms that the supercomputer will run Linux. This is a sharp departure from China's last supercomputer, the Dawning 5000a, which debuted at number 11 on the list of the world's fastest supercomputers in 2008, and was built with AMD chips and ran Windows HPC Server.
The arrival of Dawning 6000 will be an important landmark for the Loongson processor family, which to date has been used only in inexpensive, low-power netbooks and nettop PCs. When the Dawning 5000a was initially announced, it too was meant to be built with Loongson processors, but the Dawning Information Industry Company, which built the computer, eventually went with AMD chips, citing a lack of support for Windows, and the ICT's failure to deliver a sufficiently powerful chip in time.
The Dawning 6000 will be completed by mid-2010 at the latest, says Hu, and could be up and running as early as the end of 2010. It is the second time that a representative from the ICT has promised a supercomputer built entirely using Loongson processors.
The development of Loongson 3 began in 2001 as a product of China's 10th five-year program. All of the chips in the Loongson family are based on the MIPS instruction set--originally developed in the 1980s but now out of favor in desktop and server computers, although still used in many embedded devices. Currently, the Top 500 list is dominated by x86 chips, with non-x86 CPUs powering less than 15 percent of the high-performance systems on the list.
"This is a very high-performance MIPS architecture where, when it's run in a cluster configuration, it becomes very powerful," says Art Swift, vice president of marketing at Sunnyvale, CA-based MIPS Technologies, which developed the MIPS architecture.
A paper published in 2009 proposes using Loongson 3 chips in clusters of up to 16 cores to accomplish extremely high performance. Tom Halfhill, analyst at Microprocessor Report, calculates that in this configuration, meeting the petaflop performance mark (one quadrillion operations per second) could require as few as 782 16-core chips.
Halfhill says the Loongson 3 is little different from the latest-generation chip, Loongson 2F, which is already available in consumer PCs. The main differences are that it includes hardware translation of x86 instructions (used in most of the microprocessors made by Intel and AMD), and it incorporates multiple cores--from four up to a proposed 16--each capable of processing commands independently. Conspicuously absent from the Loongson 3 is multithreading, which allows a single core to execute multiple instructions simultaneously. (Both Intel and Sun have already incorporated multithreading into some of their chips.)
Generations 2 and 3 of the Loongson use the same general-purpose core, but the Loongson 3 tethers more cores together. A quad-core Loongson 3 chip is currently in prototype, and a final, 64-nanometer version of the chip was "taped out" in late December, meaning the final description of the chip will soon be sent to the manufacturer, STMicroelectronics.
While the quad-core Loongson 3 could find applications in everything from desktop PCs to set-top boxes (the chip incorporates additional instructions designed specifically to speed up multimedia playback), an eight-core version will likely be need for the proposed petascale supercomputer. That version will incorporate four regular cores, along with four "GStera" coprocessors designed especially for mathematically intensive calculations. These coprocessors are especially significant because they are better at handling intensive mathematical calculations, including the LINPACK test, which uses linear algebra to benchmark the world's fastest supercomputers, and to determine their ranking (and their owners' bragging rights) in the Top 500 list of supercomputers.
Jack Dongarra, the computer scientist who introduced the LINPACK benchmark, says that the proposed architecture of the Dawning 6000--multi-purpose cores coupled to coprocessors for certain types of mathematical calculations--follows the standard supercomputer design.
The quad-core Loongson 3 already incorporates two 64-bit floating-point units in each of its cores. So in theory it could be used as the commodity chip in a supercomputer. However, it would require vastly more of these cores to achieve the same processing power, says Dongarra.
Intel remains unfazed by the prospect of a new, state-sponsored contender in the field of high-performance computing. "Measuring competitive impact for a product that does not exist [yet] is always problematic, and we generally refrain from doing so," says Chuck Mulloy a spokesperson for Intel. "In our entire history there has never been a time when we didn't face a competitor. We don't expect that to change--in fact we welcome it."
Dongarra cautions that it's pointless to speculate about the performance of the forthcoming Dawning 6000 until benchmarks have been run, not least because the MIPS architecture is nonstandard in high-performance computing. "While I wish them well, I see a lot of challenges to making the whole system work, " says Dongarra. These challenges include having to adapt the software that Dawning runs.
Halfhill, who has traveled to the ICT in Beijing to report on the birth of the Loongson 3, believes that whatever the performance of the system, it's only a matter of time before China builds a home-grown chip competitive with those produced in the West. "Technically there's nothing to stop them from doing world-class processors," he says. "They've got architects and computer scientists just as smart as ours."
Comments
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Another Me-too Chinese Project
Interesting article but what a waste of good research talent! The hard reality is that any new processor that does not solve the parallel programming crisis is on a fast road to failure. No long march to victory in sight for the Loongson, sorry.
China should be trying to become a leader in this field, not just another me-too follower. There is an unprecedented opportunity to make a killing in the parallel processor industry in the years ahead. Intel may have cornered the market for now but they have an Achilles' heel: they are way too big and way too married to last century's flawed computing paradigms to change in time for the coming massively parallel computer revolution. Their x86 technology will be worthless when that happens. The trash bins of Silicon Valley will be filled with obsolete Intel chips.
Here's the problem. The computer industry is in a very serious crisis due to processor performance limitations and low programmer productivity. Going parallel is the right thing to do but the current multicore/multithreading approach to parallel computing is a disaster in the making. Using the erroneous Turing Machine-based paradigms of the last sixty years to solve this century's massive parallelism problem is pure folly. Intel knows this but they will never admit it because they've got too much invested in the old stuff. Too bad. They will lose the coming processor war. That's where China and Intel's competitors can excel if they play their cards right.
The truth is that the thread concept (on which the Loongson and Intel's processors are based) is the cause of the crisis, not the solution. There is an infinitely better way to build and program computers that does not involve threads at all. Sooner or later, an unknown startup will pop out of nowhere and blow everybody out of the water.
My advice to China, Intel, AMD and the other big dogs is this: first invest your resources into solving the parallel programming crisis. Only then will you know enough to properly tackle the embedded systems, supercomputing and cloud computing markets. Otherwise be prepared to lose a boatload of dough. When that happens, there shall be much weeping and gnashing of teeth but I'll be eating popcorn with a smirk on my face and saying "I told you so".
How to Solve the Parallel Programming Crisis:
http://rebelscience.blogspot.com/2008/07/how-to-solve-parallel-programming.html
o
Intel did tried to abandon the x84 architecture until it blow up in its face; Remember Itanium?
Developing a whole new computer architecture require huge amount of resources and talent. I highly doubt ICT have the budget or staff to accomplish it. Face it, scientific program always get the short end of the stick, it's the same everywhere in the world.
You say: "Using the erroneous Turing Machine-based paradigms of the last sixty years ..." I recall learning that, based on TM, parallelizing by a factor of N can improve performance by at most a factor of N. Are you saying that there are parallel architectures that break TM paradigm and so get around this limitation?
o
Turing Machine
No. What I'm saying is that, if the Turing computing model (TCM) were the appropriate model for parallel processing, the industry would not be in the mess that it is currently in and you would not be reading this comment. Regardless of what has been claimed by the experts about universality, a Turing Machine models one thing and one thing only, a sequential computer.
The biggest problem with the TCM is that operation timing (other than the implicit sequentiality of execution) is not part of the model. What is needed is a computing model in which any two operations in a program can be unambiguously determined as being either sequential or parallel (simultaneous). This determinism is impossible with concurrent threads and therein lies the problem.
In sum, the computer industry must abandon threads altogether or resign itself to endure a lot of pain in the years ahead. The Loongson solves nothing. It's just more pain for the Chinese.
Fact Check!
"This is a sharp departure from China's last supercomputer, the Dawning 5000a, which debuted at number 11 on the list of the world's fastest supercomputers in 2008, and was built with AMD chips and ran Windows HPC Server."
WRONG!
As of November 2009, a Chinese system occupies the number 5 position on the TOP500 list. Tianhe-1, assembled by China’s National University of Defense Technology, attains a theoretical peak rate of 1.2 PFLOPS. It includes 2560 compute nodes, each with two quad-core Xeon processors for scalar workloads and two AMD Radeon 4870x2 GPUs for vector workloads.
Wednesday 20 January 2010
Tuesday 19 January 2010
Chinese Rocket Launches New Navigation Satellite
Chinese Rocket Launches New Navigation Satellite
By Stephen Clark
posted: 18 January 2010
10:49 am ET
A Chinese Long March rocket hauled a new navigation satellite to a high-altitude perch over Earth on Saturday, marking the first space launch of the year for the world's space programs.
The Long March 3C rocket blasted off from the Xichang space center at 1612 GMT (11:12 a.m. EST) Saturday, or just after midnight Sunday morning local time, state media reported.
The 180-foot-tall booster flew east from Xichang, which is situated in Sichuan province in southwestern China. The Beidou, or Compass, navigation satellite was placed on a trajectory toward geosynchronous orbit, according to the Xinhua news agency.
The satellite is the third member of the second-generation Beidou constellation. Two spacecraft were launched to medium Earth orbit and geosynchronous orbit in 2007 and 2009, respectively.
First-generation satellites were launched between 2000 and 2007 to test the Beidou concept in space and provide limited services for China.
China eventually expects to launch 35 Beidou satellites, allowing the system to have a global reach similar to the U.S. Global Positioning System. Russia operates a fleet of Glonass navigation satellites, and Europe is developing the Galileo satellite navigation system.
Officials hope the Beidou system will provide navigation, timing and messaging services to the Asia-Pacific region by 2012, Xinhua reported.
China says Beidou services will be available at no charge to civilians with positioning accuracy of about 10 meters, or 33 feet. More precise navigation data will be given to Chinese government and military users, according to Xinhua.
By Stephen Clark
posted: 18 January 2010
10:49 am ET
A Chinese Long March rocket hauled a new navigation satellite to a high-altitude perch over Earth on Saturday, marking the first space launch of the year for the world's space programs.
The Long March 3C rocket blasted off from the Xichang space center at 1612 GMT (11:12 a.m. EST) Saturday, or just after midnight Sunday morning local time, state media reported.
The 180-foot-tall booster flew east from Xichang, which is situated in Sichuan province in southwestern China. The Beidou, or Compass, navigation satellite was placed on a trajectory toward geosynchronous orbit, according to the Xinhua news agency.
The satellite is the third member of the second-generation Beidou constellation. Two spacecraft were launched to medium Earth orbit and geosynchronous orbit in 2007 and 2009, respectively.
First-generation satellites were launched between 2000 and 2007 to test the Beidou concept in space and provide limited services for China.
China eventually expects to launch 35 Beidou satellites, allowing the system to have a global reach similar to the U.S. Global Positioning System. Russia operates a fleet of Glonass navigation satellites, and Europe is developing the Galileo satellite navigation system.
Officials hope the Beidou system will provide navigation, timing and messaging services to the Asia-Pacific region by 2012, Xinhua reported.
China says Beidou services will be available at no charge to civilians with positioning accuracy of about 10 meters, or 33 feet. More precise navigation data will be given to Chinese government and military users, according to Xinhua.
Monday 18 January 2010
Investing in irrational markets
Investing in irrational markets
Hock's Viewpoint - By Choong Khuat Hock
The financial crisis reflects the fallacy of the ‘efficient market hypothesis’
IT is amazing that economic theories still consider that markets are governed by the “efficient market hypothesis” (EMH), which assumes rational investors, an orderly market and that all available information are known.
The global financial crisis reflects the fallacy of EMH and textbooks should be revised to reflect this.
In reality, markets reflect the nature of its creators and participants – a collection of human beings who would like to think they are rational but are often enough irrational and emotional.
Quantitative models often fail to model the irrationality of human behaviour during extreme times.
Blind reliance on such models was also the reason why Long-Term Capital Management (LTCM, which had Nobel Prize-winning economists) failed as the restructuring of defaulting bonds in Russia in 1998 caused volatilities beyond what was predicted by quant models.
The extremely high leverage utilised by LTCM hastened its demise. Alan Greenspan had to engineer a rescue as the failure of LTCM threatened to damage the markets and market participants.
One way of valuing securities is to use the discounted cash flow model, which is to discount the expected future cash flows to obtain the present value.
http://biz.thestar.com.my/archives/2010/1/18/business/p6-brain.JPG
Behavioural finance has many theories to explain why humans are often irrational but the reality is that irrationality is hardwired into our brains.
However, in many cases, future cash flows are difficult to predict and the discount rate used would fluctuate depending on the prevailing interest rates and the perception of risk which may vary from person to person.
This method is more useful in valuing businesses or securities with predictable cash flows like utility stocks where cash flows are stable and funding costs have been determined. Another popular valuation method is to compare securities with its peers.
Such comparisons are ingrained in the nature of human beings as we can only determine the value or utility of something by comparing it to another. Shall I buy the latest Samsung or Sony LCD TV? How does a BlackBerry compare with an iPhone?
Similarly, if the price-earnings ratio (PER) of a stock is 10 times and the sector PER is 20 times, it may be considered cheap if specific company factors are attractive.
Using sector PER as valuation anchor is fraught with danger as the sector valuation may be unreasonable.
Such comparisons may not reflect the value of potential cash flows from an investment. At the height of the dot.com bubble, valuations were based on price to sales with no consideration placed on cash flow.
The prevailing belief then was that there was a sucker willing to pay a higher price to sales for the business.
The same happened during the debt fueled property bubble in the US when rental yields from property could not cover mortgage payments.
Banks were willing to provide 100% financing to those who could not afford houses based on the assumption that property prices could only go up and mortgage loans could be repackaged into much sought after high yielding subprime securities.
Behavioural finance has many theories to explain why humans are often irrational but the reality is that irrationality is hardwired into our brains.
The brain can be divided into two parts – the hypothalamus, or primal brain, (a few hundred million years old) which directs our instinctive behaviour and the neo-cortex, or new brain, (a few million years old) which facilitates logical deductions, learning from experience, language and complex social interactions.
In times of panic, the hypothalamus takes over and markets tend to overshoot on the downside due to panic selling.
Since these moves are often irrational, the movements tend to be many standard deviations more than what is predicted by a normal distribution curve, creating black swan events.
Faced with an avalanche of incomplete information, humans use heuristics, a simplification process to arrive at a decision based on their past experiences and prejudices.
In arriving at a rule of thumb valuation, anchoring is employed by imputing a fair value to the initial entry level even if the entry level is high.
Therefore, in a rising property market, anchoring may result in the belief that the price appreciation will continue.
A bubble can thus form as the herd is blinded by cognitive dissonance whereby investors pay credence only to views and opinions that reinforce their beliefs. However when the discrepancy between fantasy and reality becomes too large, the bubble bursts.
Investment is hence as much an art as it is science. In the final analysis, it is the cash flow that counts.
The science would be in accurately determining the cash flow but the art lies in determining how much investors are willing to pay for the cash flows.
Identifying periods of over pessimism and optimism would help in determining entry and exit points.
In the end, the advantage lies in accurately predicting beforehand where the herd is heading. Understanding the animal in you and others could indeed be a profitableproposition.
# Choong Khuat Hock is head of research at Kumpulan Sentiasa Cemerlang Sdn Bhd.
Hock's Viewpoint - By Choong Khuat Hock
The financial crisis reflects the fallacy of the ‘efficient market hypothesis’
IT is amazing that economic theories still consider that markets are governed by the “efficient market hypothesis” (EMH), which assumes rational investors, an orderly market and that all available information are known.
The global financial crisis reflects the fallacy of EMH and textbooks should be revised to reflect this.
In reality, markets reflect the nature of its creators and participants – a collection of human beings who would like to think they are rational but are often enough irrational and emotional.
Quantitative models often fail to model the irrationality of human behaviour during extreme times.
Blind reliance on such models was also the reason why Long-Term Capital Management (LTCM, which had Nobel Prize-winning economists) failed as the restructuring of defaulting bonds in Russia in 1998 caused volatilities beyond what was predicted by quant models.
The extremely high leverage utilised by LTCM hastened its demise. Alan Greenspan had to engineer a rescue as the failure of LTCM threatened to damage the markets and market participants.
One way of valuing securities is to use the discounted cash flow model, which is to discount the expected future cash flows to obtain the present value.
http://biz.thestar.com.my/archives/2010/1/18/business/p6-brain.JPG
Behavioural finance has many theories to explain why humans are often irrational but the reality is that irrationality is hardwired into our brains.
However, in many cases, future cash flows are difficult to predict and the discount rate used would fluctuate depending on the prevailing interest rates and the perception of risk which may vary from person to person.
This method is more useful in valuing businesses or securities with predictable cash flows like utility stocks where cash flows are stable and funding costs have been determined. Another popular valuation method is to compare securities with its peers.
Such comparisons are ingrained in the nature of human beings as we can only determine the value or utility of something by comparing it to another. Shall I buy the latest Samsung or Sony LCD TV? How does a BlackBerry compare with an iPhone?
Similarly, if the price-earnings ratio (PER) of a stock is 10 times and the sector PER is 20 times, it may be considered cheap if specific company factors are attractive.
Using sector PER as valuation anchor is fraught with danger as the sector valuation may be unreasonable.
Such comparisons may not reflect the value of potential cash flows from an investment. At the height of the dot.com bubble, valuations were based on price to sales with no consideration placed on cash flow.
The prevailing belief then was that there was a sucker willing to pay a higher price to sales for the business.
The same happened during the debt fueled property bubble in the US when rental yields from property could not cover mortgage payments.
Banks were willing to provide 100% financing to those who could not afford houses based on the assumption that property prices could only go up and mortgage loans could be repackaged into much sought after high yielding subprime securities.
Behavioural finance has many theories to explain why humans are often irrational but the reality is that irrationality is hardwired into our brains.
The brain can be divided into two parts – the hypothalamus, or primal brain, (a few hundred million years old) which directs our instinctive behaviour and the neo-cortex, or new brain, (a few million years old) which facilitates logical deductions, learning from experience, language and complex social interactions.
In times of panic, the hypothalamus takes over and markets tend to overshoot on the downside due to panic selling.
Since these moves are often irrational, the movements tend to be many standard deviations more than what is predicted by a normal distribution curve, creating black swan events.
Faced with an avalanche of incomplete information, humans use heuristics, a simplification process to arrive at a decision based on their past experiences and prejudices.
In arriving at a rule of thumb valuation, anchoring is employed by imputing a fair value to the initial entry level even if the entry level is high.
Therefore, in a rising property market, anchoring may result in the belief that the price appreciation will continue.
A bubble can thus form as the herd is blinded by cognitive dissonance whereby investors pay credence only to views and opinions that reinforce their beliefs. However when the discrepancy between fantasy and reality becomes too large, the bubble bursts.
Investment is hence as much an art as it is science. In the final analysis, it is the cash flow that counts.
The science would be in accurately determining the cash flow but the art lies in determining how much investors are willing to pay for the cash flows.
Identifying periods of over pessimism and optimism would help in determining entry and exit points.
In the end, the advantage lies in accurately predicting beforehand where the herd is heading. Understanding the animal in you and others could indeed be a profitableproposition.
# Choong Khuat Hock is head of research at Kumpulan Sentiasa Cemerlang Sdn Bhd.
Sunday 17 January 2010
Alibaba says Yahoo 'reckless' on Google stance
Alibaba says Yahoo 'reckless' on Google stance
January 16, 2010 Alibaba says Yahoo 'reckless' on Google stance (AP)
(AP) -- China's e-commerce giant Alibaba turned on major shareholder Yahoo Inc. on Saturday, calling the American company's support of Google in its standoff with China "reckless."
Google has promised to stop censoring its search results in China, threatening to pull out of the country altogether if it can't operate an unfiltered search engine. Yahoo has said it was "aligned" with Google's position, though it's not clear what that means.
"Alibaba Group has communicated to Yahoo! that Yahoo's statement that it is 'aligned' with the position Google took last week was reckless given the lack of facts in evidence," Alibaba spokesman John Spelich said Saturday. "Alibaba doesn't share this view."
Yahoo closed its own offices in China several years ago when it sold much of its business there to the Alibaba Group. Yahoo retains a 39 percent stake in Alibaba that represents one of Yahoo's most valuable assets.
Yahoo spokeswoman Nina Blackwell has declined to say whether the company would consider selling its holdings.
Google hopes it can persuade the Chinese government to agree to changes that would enable its China-based Google.cn site to show uncensored search results.
A Google spokeswoman, Jessica Powell, said by e-mail Saturday that Google has not closed its offices in China and that "it's business as usual."
Google's threat to end its China operations has alarmed an Internet-connected public that is the world's largest at 384 million people.
Beijing requires Internet traffic to pass through government-controlled gateways that block access to material deemed subversive or pornographic. Google's China-based site excludes from its results any foreign Web sites to which access is blocked.
©2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
January 16, 2010 Alibaba says Yahoo 'reckless' on Google stance (AP)
(AP) -- China's e-commerce giant Alibaba turned on major shareholder Yahoo Inc. on Saturday, calling the American company's support of Google in its standoff with China "reckless."
Google has promised to stop censoring its search results in China, threatening to pull out of the country altogether if it can't operate an unfiltered search engine. Yahoo has said it was "aligned" with Google's position, though it's not clear what that means.
"Alibaba Group has communicated to Yahoo! that Yahoo's statement that it is 'aligned' with the position Google took last week was reckless given the lack of facts in evidence," Alibaba spokesman John Spelich said Saturday. "Alibaba doesn't share this view."
Yahoo closed its own offices in China several years ago when it sold much of its business there to the Alibaba Group. Yahoo retains a 39 percent stake in Alibaba that represents one of Yahoo's most valuable assets.
Yahoo spokeswoman Nina Blackwell has declined to say whether the company would consider selling its holdings.
Google hopes it can persuade the Chinese government to agree to changes that would enable its China-based Google.cn site to show uncensored search results.
A Google spokeswoman, Jessica Powell, said by e-mail Saturday that Google has not closed its offices in China and that "it's business as usual."
Google's threat to end its China operations has alarmed an Internet-connected public that is the world's largest at 384 million people.
Beijing requires Internet traffic to pass through government-controlled gateways that block access to material deemed subversive or pornographic. Google's China-based site excludes from its results any foreign Web sites to which access is blocked.
©2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Baidu Bulls Hit The Options Hard
Baidu Bulls Hit The Options Hard
Andrew Wilkinson, Interactive Brokers, 01.16.10, 11:05 AM EST
Buying call options on Baidu has created life-changing wealth in the past year for some investors. The fervor for shares is still strong.
Baidu ( BIDU - news - people ): Bullish investors continue to trade January contract calls and puts on the Chinese language Internet search provider today even with expiration close at hand. News reports today indicate some at Credit Suisse ( CS - news - people ) anticipate Google ( GOOG - news - people ) may exit the Chinese market as soon as February. Disbanding Google operations in China could allow Baidu to swoop in and procure one-third of the U.S. company's market share there. Shares of BIDU traded 0.75% higher to $467.86 around noon Friday.
Baidu bulls bought roughly 3,200 calls at the January $470 strike for an average premium of $2.08 apiece. These contracts will expire out-of-the-money and worthless unless shares rally above the $470 level. Investors long the calls break even if the stock rallies up to $472.08 before the contracts expire. Additional buying interest appeared as high as the January $480 strike, where 2,000 calls were picked up for an average premium of 48 cents per contract. Perhaps traders buying these out-of-the-money contracts hope to enjoy short-swing profits by selling the lots by the end of the day for more than the average premium paid.
Optimism is apparent on the put side as well. Investors sold 3,400 puts at the January $460 strike to take in premium of $2.35 each. Another 1,900 puts were shed at the in-the-money January $470 strike for an average premium of $5.85 per contract. In-the-money put sellers are happy to have shares of the underlying stock put to them at an effective price of $464.15 each if BIDU's share price trades below the $470 strike price through expiration.
Jim Oberweis told his subscribers to buy Baidu at $79 and told them to buy more at $110 in early 2009. Click here for Oberweis' current advice and access to the complete model portfolio in the Oberweis Report.
Alcoa ( AA - news - people ): Medium-term optimism on the largest producer of aluminum took root in the July contract today despite the 1.5% decline in the value of the underlying shares to $15.58. It looks like one investor purchased 20,000 calls on the stock at the July $20 strike for a premium of 51 cents per contract. The large bullish stance positions the trader to amass profits if Alcoa's shares surge more than 31.5% over the current price to surpass the break-even point at $20.51 by expiration in six months. Option implied volatility is down 7.17% on the day to stand at 38.05%.
Sprint Nextel ( S - news - people ): Shares of the wireless communications company were trading 1.9% higher Friday to $3.76. Options activity in the August contract indicates that one investor is positioning for a significant rally in shares of the underlying stock in the next seven months to expiration.
It looks like the trader purchased 15,000 calls at the August $7 strike for a premium of 12 cents per contract. Profits on the calls accrue if Sprint's share price jumps 87% from the current level to surpass the break-even point at $7.12 by August expiration. On trades like this it's less likely that the investor has an eye on the strike price as a target price, but uses a larger amount of relatively inexpensive call options to play out a directional play on the underlying stock. In this case the delta on the $7 call option indicates a 15% chance that Sprint's shares will land in-the-money at expiration, while gamma tells us that a $1 rally to $4.80 (an increase of 26%) would shorten those odds to 28%. We note that shares have not traded above $7 since Sept. 19, 2008.
Pfizer ( PFE - news - people ): It looks like one investor rolled a large chunk of now in-the-money call options in the January contract on the global pharmaceutical company forward to a higher strike price in the February contract Friday. Shares slipped slightly lower during the session, falling 0.25% to $19.31. The January $19 strike had approximately 62,000 calls sell for an average premium of 43 cents per contract, spread against the apparent purchase of about the same number of calls at the higher February $20 strike for a premium of 28 cents each. The calendar roll results in a net credit to the investor of about 15 cents per contract. It is unclear how much the trader initially paid for the January contract calls, but looking at the trade in isolation, this individual pockets 15 cents per contract on the transaction. Elsewhere, traders attempted to lock in recent share price gains on the stock by buying 7,700 in-the-money puts at the February $20 strike for a premium of $1.06 apiece. The put contracts provide protection to traders in case Pfizer's shares slip beneath the break-even point at $18.94 by expiration next month.
Pfizer has a fat 3.7% yield, but is Merck, with a 3.9% yield, your better buy in pharmaceutical stocks? Click here to check ratings on hundreds of dividend-paying stocks in Investment Quality Trends.
CurrencyShares Euro Trust ( FXE - news - people ): With the euro under pressure Friday as Greek bond yields rise--indicative of rising Eurozone tensions--it appears one investor sold February call options at the $1.50 strike to reduce the outlay for the same strike put options. By doing so the investor bearish on the euro reduced the cost of downside exposure for the euro by 2.2%. Elsewhere another investor appeared to buy a substantial amount of 5,000 put options expiring in June at the $1.10 strike. If such a decline in the euro was to play out, since it's currently trading at $1.438, would be indicative of a huge slide of confidence in the Eurozone.
Andrew Wilkinson is senior market analyst at Greenwich, Conn.-based Interactive Brokers. Reach him via e-mail: ibanalyst@interactivebrokers.com.
Andrew Wilkinson, Interactive Brokers, 01.16.10, 11:05 AM EST
Buying call options on Baidu has created life-changing wealth in the past year for some investors. The fervor for shares is still strong.
Baidu ( BIDU - news - people ): Bullish investors continue to trade January contract calls and puts on the Chinese language Internet search provider today even with expiration close at hand. News reports today indicate some at Credit Suisse ( CS - news - people ) anticipate Google ( GOOG - news - people ) may exit the Chinese market as soon as February. Disbanding Google operations in China could allow Baidu to swoop in and procure one-third of the U.S. company's market share there. Shares of BIDU traded 0.75% higher to $467.86 around noon Friday.
Baidu bulls bought roughly 3,200 calls at the January $470 strike for an average premium of $2.08 apiece. These contracts will expire out-of-the-money and worthless unless shares rally above the $470 level. Investors long the calls break even if the stock rallies up to $472.08 before the contracts expire. Additional buying interest appeared as high as the January $480 strike, where 2,000 calls were picked up for an average premium of 48 cents per contract. Perhaps traders buying these out-of-the-money contracts hope to enjoy short-swing profits by selling the lots by the end of the day for more than the average premium paid.
Optimism is apparent on the put side as well. Investors sold 3,400 puts at the January $460 strike to take in premium of $2.35 each. Another 1,900 puts were shed at the in-the-money January $470 strike for an average premium of $5.85 per contract. In-the-money put sellers are happy to have shares of the underlying stock put to them at an effective price of $464.15 each if BIDU's share price trades below the $470 strike price through expiration.
Jim Oberweis told his subscribers to buy Baidu at $79 and told them to buy more at $110 in early 2009. Click here for Oberweis' current advice and access to the complete model portfolio in the Oberweis Report.
Alcoa ( AA - news - people ): Medium-term optimism on the largest producer of aluminum took root in the July contract today despite the 1.5% decline in the value of the underlying shares to $15.58. It looks like one investor purchased 20,000 calls on the stock at the July $20 strike for a premium of 51 cents per contract. The large bullish stance positions the trader to amass profits if Alcoa's shares surge more than 31.5% over the current price to surpass the break-even point at $20.51 by expiration in six months. Option implied volatility is down 7.17% on the day to stand at 38.05%.
Sprint Nextel ( S - news - people ): Shares of the wireless communications company were trading 1.9% higher Friday to $3.76. Options activity in the August contract indicates that one investor is positioning for a significant rally in shares of the underlying stock in the next seven months to expiration.
It looks like the trader purchased 15,000 calls at the August $7 strike for a premium of 12 cents per contract. Profits on the calls accrue if Sprint's share price jumps 87% from the current level to surpass the break-even point at $7.12 by August expiration. On trades like this it's less likely that the investor has an eye on the strike price as a target price, but uses a larger amount of relatively inexpensive call options to play out a directional play on the underlying stock. In this case the delta on the $7 call option indicates a 15% chance that Sprint's shares will land in-the-money at expiration, while gamma tells us that a $1 rally to $4.80 (an increase of 26%) would shorten those odds to 28%. We note that shares have not traded above $7 since Sept. 19, 2008.
Pfizer ( PFE - news - people ): It looks like one investor rolled a large chunk of now in-the-money call options in the January contract on the global pharmaceutical company forward to a higher strike price in the February contract Friday. Shares slipped slightly lower during the session, falling 0.25% to $19.31. The January $19 strike had approximately 62,000 calls sell for an average premium of 43 cents per contract, spread against the apparent purchase of about the same number of calls at the higher February $20 strike for a premium of 28 cents each. The calendar roll results in a net credit to the investor of about 15 cents per contract. It is unclear how much the trader initially paid for the January contract calls, but looking at the trade in isolation, this individual pockets 15 cents per contract on the transaction. Elsewhere, traders attempted to lock in recent share price gains on the stock by buying 7,700 in-the-money puts at the February $20 strike for a premium of $1.06 apiece. The put contracts provide protection to traders in case Pfizer's shares slip beneath the break-even point at $18.94 by expiration next month.
Pfizer has a fat 3.7% yield, but is Merck, with a 3.9% yield, your better buy in pharmaceutical stocks? Click here to check ratings on hundreds of dividend-paying stocks in Investment Quality Trends.
CurrencyShares Euro Trust ( FXE - news - people ): With the euro under pressure Friday as Greek bond yields rise--indicative of rising Eurozone tensions--it appears one investor sold February call options at the $1.50 strike to reduce the outlay for the same strike put options. By doing so the investor bearish on the euro reduced the cost of downside exposure for the euro by 2.2%. Elsewhere another investor appeared to buy a substantial amount of 5,000 put options expiring in June at the $1.10 strike. If such a decline in the euro was to play out, since it's currently trading at $1.438, would be indicative of a huge slide of confidence in the Eurozone.
Andrew Wilkinson is senior market analyst at Greenwich, Conn.-based Interactive Brokers. Reach him via e-mail: ibanalyst@interactivebrokers.com.
Saturday 16 January 2010
Intercontinental Grid Computing: Europe and China Link Up for Research
Intercontinental Grid Computing: Europe and China Link Up for Research
ScienceDaily (Jan. 15, 2010) — Grid computing can jet-propel research and development. An EU-funded programme that lets European and Chinese grids work together has already produced results in aircraft design, drug development and weather prediction.
In 2007, the EU-funded project, BRIDGE (for Bilateral Research and Industrial development enhancing and integrating Grid Enabled technologies -- see: http://www.bridge-grid.eu/), set out to link European and Chinese computing grids and enable researchers to carry out joint research.
The project was inspired by the realisation that China is rapidly becoming a world leader in research and development, as well as a booming market for European products. Developing the infrastructure to link computing grids was seen as a key step towards future scientific and industrial cooperation.
"If Europe does not want to lose ground, the response can only be to synchronise with these developments," says Gilbert Kalb, BRIDGE project coordinator.
Building a shared infrastructure
The BRIDGE team's first challenge was to make the software systems that manage the European and Chinese grids compatible. The European Grid infrastructure, GRIA, and the Chinese system, CNGrid GOS, provide comparable services, but are organised differently.
The team were able to get GRIA and GOS to work together by building a new software superstructure to access them and tap their capabilities. The system included new gateways into the two grids, plus a shared platform to manage overall workflow, access needed applications, and translate higher-level commands into steps that each grid could carry out.
Not surprisingly, security was an important consideration on both sides. Kalb says that many or the scientific and industrial problems that BRIDGE was developed to address require intensive cooperation, yet involve highly sensitive information.
BRIDGE resolved this issue by letting selected processes remain private. That allows one group to contribute data or results to all collaborating parties without having to share proprietary software or analytic tools.
"You can interface in terms of the input and the output, while the algorithms remain hidden," says Kalb.
Putting BRIDGE to work
The BRIDGE team tested the intercontinental grid they built by attacking three problems, each of which made different demands on the system.
Discovering new drugs remains an extremely costly process. One way to speed research is to use computers to simulate the chemical fit between millions of small molecules and proteins that play vital roles in disease-causing organisms. A molecule that binds strongly to a key protein has the potential to be turned into a potent new drug. This kind of research demands enormous computing power.
Researchers in Europe and China contributed four different docking tools -- programs that calculate bonding between a small molecule and a particular protein. Each program used a different approach and produced somewhat different results.
The researchers then examined millions of molecules to see if they held promise against malaria or the H5N1 bird flu virus. By combining the results of the four different simulations, they were able to identify promising molecules more efficiently.
"Making the outcomes of these different docking tools comparable is very new," says Kalb.
The four-pronged approach produced promising results. The BRIDGE infrastructure has already been adopted in Egypt to target the malaria parasite.
BRIDGE was also used to solve a complex aeronautic problem -- designing and positioning wing flaps to maximise lift and minimise noise as an aircraft lands.
Like drug-discovery, these aerodynamic simulations required huge computational resources. In addition, because different parts of each simulation took place in different research centres, optimising the flow of work from centre to centre was also challenging.
The BRIDGE team was able to meet these challenges, carry out intensive distributed computations, and determine optimal wing flap parameters. "It proved to be an effective method for solving multi-objective and multi-disciplinary optimisation in aircraft design," Kalb says.
Weather data on the fly
Weather and climate represent a third area where international cooperation is vital. The BRIDGE researchers set out to link three large meteorological databases located in Europe, North America and Asia.
The key challenge they faced with this project was to handle enormous volumes of data efficiently.
"You could do a calculation in the United States and transfer the results to Europe, or you could fetch the data from the USA and do the calculations here," says Kalb. "The best way to do it depends on what calculation and what data and what's the best available way to transfer the data from place to place. Bridge does all this on the fly."
"Because there was a big organisation behind it, and our work fits very well, it was taken up right away," says Kalb. "I believe that meteorologists are already using it to access data and perform certain calculations."
To Kalb, the importance of what BRIDGE accomplished goes far beyond any single piece of research. He feels that the project has built the foundation for the kind of multinational collaboration that is needed to tackle global problems.
"Problems like energy and climate change can only be attacked or really solved with efforts from different players around the world, and we've built a platform to do that," he says. We proved that this is feasible and useful. Now it's time for other people to jump on this, develop it further, and use it."
The BRIDGE project received funding from the Sixth Framework Programme for research.
ScienceDaily (Jan. 15, 2010) — Grid computing can jet-propel research and development. An EU-funded programme that lets European and Chinese grids work together has already produced results in aircraft design, drug development and weather prediction.
In 2007, the EU-funded project, BRIDGE (for Bilateral Research and Industrial development enhancing and integrating Grid Enabled technologies -- see: http://www.bridge-grid.eu/), set out to link European and Chinese computing grids and enable researchers to carry out joint research.
The project was inspired by the realisation that China is rapidly becoming a world leader in research and development, as well as a booming market for European products. Developing the infrastructure to link computing grids was seen as a key step towards future scientific and industrial cooperation.
"If Europe does not want to lose ground, the response can only be to synchronise with these developments," says Gilbert Kalb, BRIDGE project coordinator.
Building a shared infrastructure
The BRIDGE team's first challenge was to make the software systems that manage the European and Chinese grids compatible. The European Grid infrastructure, GRIA, and the Chinese system, CNGrid GOS, provide comparable services, but are organised differently.
The team were able to get GRIA and GOS to work together by building a new software superstructure to access them and tap their capabilities. The system included new gateways into the two grids, plus a shared platform to manage overall workflow, access needed applications, and translate higher-level commands into steps that each grid could carry out.
Not surprisingly, security was an important consideration on both sides. Kalb says that many or the scientific and industrial problems that BRIDGE was developed to address require intensive cooperation, yet involve highly sensitive information.
BRIDGE resolved this issue by letting selected processes remain private. That allows one group to contribute data or results to all collaborating parties without having to share proprietary software or analytic tools.
"You can interface in terms of the input and the output, while the algorithms remain hidden," says Kalb.
Putting BRIDGE to work
The BRIDGE team tested the intercontinental grid they built by attacking three problems, each of which made different demands on the system.
Discovering new drugs remains an extremely costly process. One way to speed research is to use computers to simulate the chemical fit between millions of small molecules and proteins that play vital roles in disease-causing organisms. A molecule that binds strongly to a key protein has the potential to be turned into a potent new drug. This kind of research demands enormous computing power.
Researchers in Europe and China contributed four different docking tools -- programs that calculate bonding between a small molecule and a particular protein. Each program used a different approach and produced somewhat different results.
The researchers then examined millions of molecules to see if they held promise against malaria or the H5N1 bird flu virus. By combining the results of the four different simulations, they were able to identify promising molecules more efficiently.
"Making the outcomes of these different docking tools comparable is very new," says Kalb.
The four-pronged approach produced promising results. The BRIDGE infrastructure has already been adopted in Egypt to target the malaria parasite.
BRIDGE was also used to solve a complex aeronautic problem -- designing and positioning wing flaps to maximise lift and minimise noise as an aircraft lands.
Like drug-discovery, these aerodynamic simulations required huge computational resources. In addition, because different parts of each simulation took place in different research centres, optimising the flow of work from centre to centre was also challenging.
The BRIDGE team was able to meet these challenges, carry out intensive distributed computations, and determine optimal wing flap parameters. "It proved to be an effective method for solving multi-objective and multi-disciplinary optimisation in aircraft design," Kalb says.
Weather data on the fly
Weather and climate represent a third area where international cooperation is vital. The BRIDGE researchers set out to link three large meteorological databases located in Europe, North America and Asia.
The key challenge they faced with this project was to handle enormous volumes of data efficiently.
"You could do a calculation in the United States and transfer the results to Europe, or you could fetch the data from the USA and do the calculations here," says Kalb. "The best way to do it depends on what calculation and what data and what's the best available way to transfer the data from place to place. Bridge does all this on the fly."
"Because there was a big organisation behind it, and our work fits very well, it was taken up right away," says Kalb. "I believe that meteorologists are already using it to access data and perform certain calculations."
To Kalb, the importance of what BRIDGE accomplished goes far beyond any single piece of research. He feels that the project has built the foundation for the kind of multinational collaboration that is needed to tackle global problems.
"Problems like energy and climate change can only be attacked or really solved with efforts from different players around the world, and we've built a platform to do that," he says. We proved that this is feasible and useful. Now it's time for other people to jump on this, develop it further, and use it."
The BRIDGE project received funding from the Sixth Framework Programme for research.
Science and Engineering Indicators 2010
Science and Engineering Indicators 2010
ScienceDaily (Jan. 15, 2010) — The state of the science and engineering (S&E) enterprise in America is strong, yet its lead is slipping, according to data released at the White House January 15 by the National Science Board (NSB). Prepared biennially and delivered to the President and Congress on even numbered years by Jan. 15 as statutorily mandated, Science and Engineering Indicators (SEI) provides information on the scope, quality and vitality of America's science and engineering enterprise. SEI 2010 sheds light on America's position in the global economy.
"The data begin to tell a worrisome story," said Kei Koizumi, assistant director for federal research and development (R&D)in the President's Office of Science and Technology Policy (OSTP). Calling SEI 2010 a "State of the Union on science, technology, engineering and mathematics," he noted that quot;U.S. dominance has eroded significantly."
Koizumi and OSTP hosted the public rollout at which NSB Chairman Steven Beering, National Science Foundation (NSF) Director Arden L. Bement, Jr., and NSB members presented SEI 2010 data and described a mixed picture. NSB's SEI Committee Chairman Lou Lanzerotti noted the good news for those in the S&E community about public attitudes, "Scientists are about the same as firefighters in terms of prestige," he said. His presentation focused attention on NSB's Digest, also released January 15, highlighting important trends and data points from across SEI 2010.
Over the past decade, R&D intensity--how much of a country's economic activity or gross domestic product is expended on R&D--has grown considerably in Asia, while remaining steady in the U.S. Annual growth of R&D expenditures in the U.S. averaged 5 to 6 percent while in Asia, it has skyrocketed. In some Asian countries, R&D growth rate is two, three, even four, times that of the U.S.
In terms of R&D expenditures as a share of economic output, while Japan has surpassed the U.S. for quite some time, South Korea is now in the lead--ahead of the U.S. and Japan. And why does this matter? Investment in R&D is a major driver of innovation, which builds on new knowledge and technologies, contributes to national competitiveness and furthers social welfare. R&D expenditures indicate the priority given to advancing science and technology (S&T) relative to other national goals.
NSB SEI 2010 Committee Member Jose-Marie Griffiths discussed another key indicator: intellectual research outputs. "While the U.S. continues to lead the world in research publications, China has become the second most prolific contributor." China's rapidly developing science base now produces 8 percent of the world's research publications, up from its just 2 percent of the world's share in 1995, when it ranked 14th.
Patents are another measure of valuable contributions to knowledge and inventions to societies. Inventors from around the globe seek patent protection in the U.S. U.S. patents awarded to foreign inventors offer a broad indication of the distribution of inventive activity around the world. While inventors in the U.S., the European Union (EU) and Japan produce almost all of these patents, and U.S. patenting by Chinese and Indian inventors remains modest, the number of patents earned by Asian inventors is on the rise, driven by activity in Taiwan and South Korea.
The Digest contains these and other key indicators, such as the globalization of capability; funding, performance and portfolio of U.S. R&D trends; and the composition of the U.S. S&E workforce. What's more, the Digest is electronically linked with detailed data tables and discussions in the main volumes of SEI. It can also be downloaded to laptops, iPods or other devices. "This makes the data much more accessible and digestable to policymakers, as well as to members of the general public who may wish to read about and understand the data that describe the state of their economy," said Lanzerotti.
Calling SEI a "biennial production and a daily source of pride for NSF," Bement characterized it as a guide to the future. "It is not just where we stand; it's about where we're heading," he said, quoting 19th century British scientist Lord Kelvin, "'If you cannot measure it, you cannot improve it.'"
Representing OSTP Director John Holdren and his OSTP colleagues, in closing Koizumi said, "We promise to put your work to good use."
SEI is prepared by NSF's Division of Science Resources Statistics (SRS) on behalf of the National Science Board. The publication is subject to extensive review by outside experts, interested federal agencies, Board members and SRS internal reviewers for accuracy, coverage and balance.
In further carrying out its responsibility to advise the President and Congress on science and engineering issues, in February, the NSB will release a companion, policy piece, Globalization of Science and Engineering Research.
ScienceDaily (Jan. 15, 2010) — The state of the science and engineering (S&E) enterprise in America is strong, yet its lead is slipping, according to data released at the White House January 15 by the National Science Board (NSB). Prepared biennially and delivered to the President and Congress on even numbered years by Jan. 15 as statutorily mandated, Science and Engineering Indicators (SEI) provides information on the scope, quality and vitality of America's science and engineering enterprise. SEI 2010 sheds light on America's position in the global economy.
"The data begin to tell a worrisome story," said Kei Koizumi, assistant director for federal research and development (R&D)in the President's Office of Science and Technology Policy (OSTP). Calling SEI 2010 a "State of the Union on science, technology, engineering and mathematics," he noted that quot;U.S. dominance has eroded significantly."
Koizumi and OSTP hosted the public rollout at which NSB Chairman Steven Beering, National Science Foundation (NSF) Director Arden L. Bement, Jr., and NSB members presented SEI 2010 data and described a mixed picture. NSB's SEI Committee Chairman Lou Lanzerotti noted the good news for those in the S&E community about public attitudes, "Scientists are about the same as firefighters in terms of prestige," he said. His presentation focused attention on NSB's Digest, also released January 15, highlighting important trends and data points from across SEI 2010.
Over the past decade, R&D intensity--how much of a country's economic activity or gross domestic product is expended on R&D--has grown considerably in Asia, while remaining steady in the U.S. Annual growth of R&D expenditures in the U.S. averaged 5 to 6 percent while in Asia, it has skyrocketed. In some Asian countries, R&D growth rate is two, three, even four, times that of the U.S.
In terms of R&D expenditures as a share of economic output, while Japan has surpassed the U.S. for quite some time, South Korea is now in the lead--ahead of the U.S. and Japan. And why does this matter? Investment in R&D is a major driver of innovation, which builds on new knowledge and technologies, contributes to national competitiveness and furthers social welfare. R&D expenditures indicate the priority given to advancing science and technology (S&T) relative to other national goals.
NSB SEI 2010 Committee Member Jose-Marie Griffiths discussed another key indicator: intellectual research outputs. "While the U.S. continues to lead the world in research publications, China has become the second most prolific contributor." China's rapidly developing science base now produces 8 percent of the world's research publications, up from its just 2 percent of the world's share in 1995, when it ranked 14th.
Patents are another measure of valuable contributions to knowledge and inventions to societies. Inventors from around the globe seek patent protection in the U.S. U.S. patents awarded to foreign inventors offer a broad indication of the distribution of inventive activity around the world. While inventors in the U.S., the European Union (EU) and Japan produce almost all of these patents, and U.S. patenting by Chinese and Indian inventors remains modest, the number of patents earned by Asian inventors is on the rise, driven by activity in Taiwan and South Korea.
The Digest contains these and other key indicators, such as the globalization of capability; funding, performance and portfolio of U.S. R&D trends; and the composition of the U.S. S&E workforce. What's more, the Digest is electronically linked with detailed data tables and discussions in the main volumes of SEI. It can also be downloaded to laptops, iPods or other devices. "This makes the data much more accessible and digestable to policymakers, as well as to members of the general public who may wish to read about and understand the data that describe the state of their economy," said Lanzerotti.
Calling SEI a "biennial production and a daily source of pride for NSF," Bement characterized it as a guide to the future. "It is not just where we stand; it's about where we're heading," he said, quoting 19th century British scientist Lord Kelvin, "'If you cannot measure it, you cannot improve it.'"
Representing OSTP Director John Holdren and his OSTP colleagues, in closing Koizumi said, "We promise to put your work to good use."
SEI is prepared by NSF's Division of Science Resources Statistics (SRS) on behalf of the National Science Board. The publication is subject to extensive review by outside experts, interested federal agencies, Board members and SRS internal reviewers for accuracy, coverage and balance.
In further carrying out its responsibility to advise the President and Congress on science and engineering issues, in February, the NSB will release a companion, policy piece, Globalization of Science and Engineering Research.
Will China rule the world?
Will China rule the world?
By Dani Rodrik
First Published: January 13, 2010
CAMBRIDGE – Thirty years ago, China had a tiny footprint on the global economy and little influence outside its borders, save for a few countries with which it had close political and military relationships. Today, the country is a remarkable economic power: the world’s manufacturing workshop, its foremost financier, a leading investor across the globe from Africa to Latin America, and, increasingly, a major source of research and development.
The Chinese government sits atop an astonishing level of foreign reserves – greater than $2 trillion. There is not a single business anywhere in the world that has not felt China’s impact, either as a low-cost supplier, or more threateningly, as a formidable competitor.
China is still a poor country. Although average incomes have risen very rapidly in recent decades, they still stand at between one-seventh and one-eighth the levels in the United States – lower than in Turkey or Colombia and not much higher than in El Salvador or Egypt. While coastal China and its major metropolises evince tremendous wealth, large swaths of Western China remain mired in poverty. Nevertheless, China’s economy is projected to surpass that of the US in size sometime in the next two decades.
Meanwhile, the US, the world’s sole economic hyper-power until recently, remains a diminished giant. It stands humbled by its foreign-policy blunders and a massive financial crisis. Its credibility after the disastrous invasion of Iraq is at an all-time low, notwithstanding the global sympathy for President Barack Obama, and its economic model is in tatters. The once-almighty dollar totters at the mercy of China and the oil-rich states.
All of which raises the question of whether China will eventually replace the US as the world’s hegemon, the global economy’s rule setter and enforcer. In a fascinating new book, revealingly titled When China Rules the World , the British scholar and journalist Martin Jacques is unequivocal: if you think China will be integrated smoothly into a liberal, capitalist, and democratic world system, Jacques argues, you are in for a big surprise. Not only is China the next economic superpower, but the world order that it will construct will look very different from what we have had under American leadership.
Americans and Europeans blithely assume that China will become more like them as its economy develops and its population gets richer. This is a mirage, Jacques says. The Chinese and their government are wedded to a different conception of society and polity: community-based rather than individualist, state-centric rather than liberal, authoritarian rather than democratic. China has 2,000 years of history as a distinct civilization from which to draw strength. It will not simply fold under Western values and institutions.
A world order centered on China will reflect Chinese values rather than Western ones, Jacques argues. Beijing will overshadow New York, the renminbi will replace the dollar, Mandarin will take over from English, and schoolchildren around the world will learn about Zheng He’s voyages of discovery along the Eastern coast of Africa rather than about Vasco de Gama or Christopher Columbus.
Gone will be the evangelism of markets and democracy. China is much less likely to interfere in the internal affairs of sovereign states. But, in return, it will demand that smaller, less powerful states explicitly recognize China’s primacy (just as in the tributary systems of old).
Before any of this comes to pass, however, China will have to continue its rapid economic growth and maintain its social cohesion and political unity. None of this is guaranteed. Beneath China’s powerful economic dynamo lie deep tensions, inequalities, and cleavages that could well derail a smooth progression to global hegemony. Throughout its long history, centrifugal forces have often pushed the country into disarray and disintegration.
China’s stability hinges critically on its government’s ability to deliver steady economic gains to the vast majority of the population. China is the only country in the world where anything less than 8% growth year after year is believed to be dangerous because it would unleash social unrest. Most of the rest of the world only dreams about growth at that rate, which speaks volumes about the underlying fragility of the Chinese system.
The authoritarian nature of the political regime is at the core of this fragility. It allows only repression when the government faces protests and opposition outside the established channels.
The trouble is that it will become increasingly difficult for China to maintain the kind of growth that it has experienced in recent years. China’s growth currently relies on an undervalued currency and a huge trade surplus. This is unsustainable, and sooner or later it will precipitate a major confrontation with the US (and Europe). There are no easy ways out of this dilemma. China will likely have to settle for lower growth.
If China surmounts these hurdles and does eventually become the world’s predominant economic power, globalization will, indeed, take on Chinese characteristics. Democracy and human rights will then likely lose their luster as global norms. That is the bad news.
The good news is that a Chinese global order will display greater respect for national sovereignty and more tolerance for national diversity. There will be greater room for experimentation with different economic models.
Dani Rodrik, Professor of Political Economy at Harvard University’s John F. Kennedy School of Government, is the first recipient of the Social Science Research Council’s Albert O. Hirschman Prize. His latest book is One Economics, Many Recipes: Globalization, Institutions, and Economic Growth.
This commentary is publioshed by DAILY NEWS EGYPT in collaboration with Project Syndicate (www.project-syndicate.org).
By Dani Rodrik
First Published: January 13, 2010
CAMBRIDGE – Thirty years ago, China had a tiny footprint on the global economy and little influence outside its borders, save for a few countries with which it had close political and military relationships. Today, the country is a remarkable economic power: the world’s manufacturing workshop, its foremost financier, a leading investor across the globe from Africa to Latin America, and, increasingly, a major source of research and development.
The Chinese government sits atop an astonishing level of foreign reserves – greater than $2 trillion. There is not a single business anywhere in the world that has not felt China’s impact, either as a low-cost supplier, or more threateningly, as a formidable competitor.
China is still a poor country. Although average incomes have risen very rapidly in recent decades, they still stand at between one-seventh and one-eighth the levels in the United States – lower than in Turkey or Colombia and not much higher than in El Salvador or Egypt. While coastal China and its major metropolises evince tremendous wealth, large swaths of Western China remain mired in poverty. Nevertheless, China’s economy is projected to surpass that of the US in size sometime in the next two decades.
Meanwhile, the US, the world’s sole economic hyper-power until recently, remains a diminished giant. It stands humbled by its foreign-policy blunders and a massive financial crisis. Its credibility after the disastrous invasion of Iraq is at an all-time low, notwithstanding the global sympathy for President Barack Obama, and its economic model is in tatters. The once-almighty dollar totters at the mercy of China and the oil-rich states.
All of which raises the question of whether China will eventually replace the US as the world’s hegemon, the global economy’s rule setter and enforcer. In a fascinating new book, revealingly titled When China Rules the World , the British scholar and journalist Martin Jacques is unequivocal: if you think China will be integrated smoothly into a liberal, capitalist, and democratic world system, Jacques argues, you are in for a big surprise. Not only is China the next economic superpower, but the world order that it will construct will look very different from what we have had under American leadership.
Americans and Europeans blithely assume that China will become more like them as its economy develops and its population gets richer. This is a mirage, Jacques says. The Chinese and their government are wedded to a different conception of society and polity: community-based rather than individualist, state-centric rather than liberal, authoritarian rather than democratic. China has 2,000 years of history as a distinct civilization from which to draw strength. It will not simply fold under Western values and institutions.
A world order centered on China will reflect Chinese values rather than Western ones, Jacques argues. Beijing will overshadow New York, the renminbi will replace the dollar, Mandarin will take over from English, and schoolchildren around the world will learn about Zheng He’s voyages of discovery along the Eastern coast of Africa rather than about Vasco de Gama or Christopher Columbus.
Gone will be the evangelism of markets and democracy. China is much less likely to interfere in the internal affairs of sovereign states. But, in return, it will demand that smaller, less powerful states explicitly recognize China’s primacy (just as in the tributary systems of old).
Before any of this comes to pass, however, China will have to continue its rapid economic growth and maintain its social cohesion and political unity. None of this is guaranteed. Beneath China’s powerful economic dynamo lie deep tensions, inequalities, and cleavages that could well derail a smooth progression to global hegemony. Throughout its long history, centrifugal forces have often pushed the country into disarray and disintegration.
China’s stability hinges critically on its government’s ability to deliver steady economic gains to the vast majority of the population. China is the only country in the world where anything less than 8% growth year after year is believed to be dangerous because it would unleash social unrest. Most of the rest of the world only dreams about growth at that rate, which speaks volumes about the underlying fragility of the Chinese system.
The authoritarian nature of the political regime is at the core of this fragility. It allows only repression when the government faces protests and opposition outside the established channels.
The trouble is that it will become increasingly difficult for China to maintain the kind of growth that it has experienced in recent years. China’s growth currently relies on an undervalued currency and a huge trade surplus. This is unsustainable, and sooner or later it will precipitate a major confrontation with the US (and Europe). There are no easy ways out of this dilemma. China will likely have to settle for lower growth.
If China surmounts these hurdles and does eventually become the world’s predominant economic power, globalization will, indeed, take on Chinese characteristics. Democracy and human rights will then likely lose their luster as global norms. That is the bad news.
The good news is that a Chinese global order will display greater respect for national sovereignty and more tolerance for national diversity. There will be greater room for experimentation with different economic models.
Dani Rodrik, Professor of Political Economy at Harvard University’s John F. Kennedy School of Government, is the first recipient of the Social Science Research Council’s Albert O. Hirschman Prize. His latest book is One Economics, Many Recipes: Globalization, Institutions, and Economic Growth.
This commentary is publioshed by DAILY NEWS EGYPT in collaboration with Project Syndicate (www.project-syndicate.org).
Google banned 30,000 advertisers post Economic Resurrection, Ad police suddenly affordable
Google banned 30,000 advertisers post Economic Resurrection
Ad police suddenly affordable
By Cade Metz in San Francisco • Get more from this author
Posted in Music and Media, 15th January 2010 21:40 GMT
In the fall of 2008, when the worldwide economy began to melt, Google responded by shamelessly expanding ad coverage on its web-dominating search engine, letting more ads onto more pages. But now that the economy has recovered, the web giant has suddenly become more much vigilant in its efforts to weed out what it considers low-quality advertising.
According to new data from AdGooRoo - a search marketing consultant that tracks search ads from a network of servers across the globe - Google permanently banned 30,000 accounts from its AdWords ad system at the beginning of December. That's roughly 5.3 per cent of its active advertisers. Ad coverage dipped nearly 10 per cent in the wake of the mass axing, and yet AdGooRoo's data indicates that Google's revenues surged in the fourth quarter, thanks to increased competition for placement among the web's top ad spenders.
Click here to find out more!
In other words, when the economy was in the tank, Google needed all the extra revenue it could get. But now that the economy is healthy again, it can step up efforts up to remove what it sees as inappropriate ads. The big boys are spending more, so it doesn't need as many clicks to boost the bottom line. What's more, by shrinking ad coverage, Google can actually drive more traffic to the big spenders. If you cut 30,000 advertisers, those still on the search engine get more clicks - and the more clicks, the more those big spenders pay.
Google announces its fourth quarter financials next week, and AdGooRoo data is typically a reliable indicator of what's to come. "Our ad coverage metric confirms that something big went down at the Googleplex last month. Ad coverage, which has been steadily climbing for the past 12 months took a sudden and precipitous dive in December," reads the firms latest search-ad report, due out on Monday. "Ordinarily, this would foreshadow a weak quarter, but we believe that this small drop will be more than offset by strong ad revenues."
Two years ago, in January 2008, Google famously began an effort to shrink ad coverage on the world's most popular search engine. This continued through the middle of 2008, and when the subject came up during Google's quarterly earnings call that July, senior vice president Jonathan Rosenberg attributed the shrinkage to Google's "continued focus on quality" advertising.
"[Google co-founder] Larry [Page] says we'd be better off showing just one ad [per page] - the perfect ad," Rosenberg said, indicating that coverage would continue to shrink.
But then he was interrupted by Google's other co-founder, Sergey Brin, who piped up with what can only be described as a shocking moment of candor. "There is some evidence that we've been a little bit more aggressive in decreasing coverage than we ought to have been," Brin said. "We've been reexamining some of that."
The economy was softening, and sure enough, coverage soon began to expand. According to AdGooRoo's numbers, Google's search engine showed 57 per cent more ads per page in the fourth quarter of 2008 than it did in Q3, as the economy imploded following the infamous demise of Wall Street stalwarts Lehman Brothers and Merrill Lynch.
Google had made significant changes to AdWords that fall, and naturally it said this would also improve ad "quality." So, whether Google is shrinking ad coverage or expanding it, the only aim to provide the world with better ads.
But surely it's obvious that Google is dialing up and down as the economy rises and falls. And now that the economy is on the rise again, the company has renewed efforts to crack down on ads it doesn't like. Google started banning advertisers en masse in early October - just as it was about to announce that the economic meltdown was over - and this house-cleaning came to head on December 3.
The official line is what you'd expect from the Mountain View Chocolate Factory. "Google is constantly working to ensure that we’re showing ads to our users that are relevant, in accordance with our ad policies, and safe for users. To that end, we perform regular reviews, using both manual and automated processes, in order to detect and disable ads that violate our policies," it told Search Engine Land.
But surely, the timing is no coincidence. ®
Ad police suddenly affordable
By Cade Metz in San Francisco • Get more from this author
Posted in Music and Media, 15th January 2010 21:40 GMT
In the fall of 2008, when the worldwide economy began to melt, Google responded by shamelessly expanding ad coverage on its web-dominating search engine, letting more ads onto more pages. But now that the economy has recovered, the web giant has suddenly become more much vigilant in its efforts to weed out what it considers low-quality advertising.
According to new data from AdGooRoo - a search marketing consultant that tracks search ads from a network of servers across the globe - Google permanently banned 30,000 accounts from its AdWords ad system at the beginning of December. That's roughly 5.3 per cent of its active advertisers. Ad coverage dipped nearly 10 per cent in the wake of the mass axing, and yet AdGooRoo's data indicates that Google's revenues surged in the fourth quarter, thanks to increased competition for placement among the web's top ad spenders.
Click here to find out more!
In other words, when the economy was in the tank, Google needed all the extra revenue it could get. But now that the economy is healthy again, it can step up efforts up to remove what it sees as inappropriate ads. The big boys are spending more, so it doesn't need as many clicks to boost the bottom line. What's more, by shrinking ad coverage, Google can actually drive more traffic to the big spenders. If you cut 30,000 advertisers, those still on the search engine get more clicks - and the more clicks, the more those big spenders pay.
Google announces its fourth quarter financials next week, and AdGooRoo data is typically a reliable indicator of what's to come. "Our ad coverage metric confirms that something big went down at the Googleplex last month. Ad coverage, which has been steadily climbing for the past 12 months took a sudden and precipitous dive in December," reads the firms latest search-ad report, due out on Monday. "Ordinarily, this would foreshadow a weak quarter, but we believe that this small drop will be more than offset by strong ad revenues."
Two years ago, in January 2008, Google famously began an effort to shrink ad coverage on the world's most popular search engine. This continued through the middle of 2008, and when the subject came up during Google's quarterly earnings call that July, senior vice president Jonathan Rosenberg attributed the shrinkage to Google's "continued focus on quality" advertising.
"[Google co-founder] Larry [Page] says we'd be better off showing just one ad [per page] - the perfect ad," Rosenberg said, indicating that coverage would continue to shrink.
But then he was interrupted by Google's other co-founder, Sergey Brin, who piped up with what can only be described as a shocking moment of candor. "There is some evidence that we've been a little bit more aggressive in decreasing coverage than we ought to have been," Brin said. "We've been reexamining some of that."
The economy was softening, and sure enough, coverage soon began to expand. According to AdGooRoo's numbers, Google's search engine showed 57 per cent more ads per page in the fourth quarter of 2008 than it did in Q3, as the economy imploded following the infamous demise of Wall Street stalwarts Lehman Brothers and Merrill Lynch.
Google had made significant changes to AdWords that fall, and naturally it said this would also improve ad "quality." So, whether Google is shrinking ad coverage or expanding it, the only aim to provide the world with better ads.
But surely it's obvious that Google is dialing up and down as the economy rises and falls. And now that the economy is on the rise again, the company has renewed efforts to crack down on ads it doesn't like. Google started banning advertisers en masse in early October - just as it was about to announce that the economic meltdown was over - and this house-cleaning came to head on December 3.
The official line is what you'd expect from the Mountain View Chocolate Factory. "Google is constantly working to ensure that we’re showing ads to our users that are relevant, in accordance with our ad policies, and safe for users. To that end, we perform regular reviews, using both manual and automated processes, in order to detect and disable ads that violate our policies," it told Search Engine Land.
But surely, the timing is no coincidence. ®
Thursday 14 January 2010
Challenging China
Chinese surprise at Google pull-out threat
By Chris Hogg
BBC News, Shanghai
Google's warning that it might pull out of China over cyber attacks has surprised human rights activists here.
They seem unfazed that China is accused of trying to hack into their Gmail accounts. But a major foreign firm like Google being prepared to speak out and challenge the government so directly is unusual.
The Chinese authorities will be infuriated that Google has made its announcement before negotiations with officials have got under way.
China has so far said little publicly in response.
I would bet on a harsh reaction from the Chinese government
Dan Sefarty, Viadeo
An unnamed official quoted by the state news agency Xinhua said only that the authorities were trying to find out more about Google's suggestion it might leave the country.
The company's main Chinese rival Baidu is less reticent. In a blog post that has since been taken down, the firm's chief architect Sun Yunfeng claimed Google was just trying to play down its market failure.
"Would Google top executives still proclaim that they would 'do no evil'," he said, quoting the company's code of conduct, "and quit China if they had taken 80% of China's search market?"
Google's market share is estimated to be around 30% in China, about half the size of Baidu's, the search engine market leader.
The senior Baidu executive said the American company's move would "satisfy the imagination of those Westerners who have never been to China and understand nothing of China but still like to point fingers at China".
'Mismatch' in perception
Others in the technology sector here see this differently.
google.cn homepage ( archive image)
Gmail accounts of rights activists have reportedly been accessed
Dan Sefarty heads Viadeo, the firm that owns the Chinese social networking site Tianji.com.
"Google is rare," he says. "It's a US company succeeding in China. It has impressive market share and is atypical among other foreign companies who try to get into this very tough market."
He warns that Baidu has strong links with the government and may be lobbying hard to gain business advantage from this row.
"I would bet on a harsh reaction from the Chinese government," he says. "Look at what they have done with Facebook and Twitter, which have been blocked in China for six to nine months now."
Opinion is divided over whether or not Google really plans to withdraw from the country, the world's largest internet market.
Duncan Clark, an analyst at the Beijing hi-tech consultancy BDA, says he sees a "mismatch" in perception between the Chinese authorities and the foreign firms doing business here.
"People here think no-one can do without China, and I think now some companies are thinking no-one can deal with China," he told the French news agency AFP.
"There is a feeling that China is emboldened and that they don't need to have the same sort of dialogue [as before]," he said.
Google's senior US executives are well aware of the Chinese preference for gradual change, and also of the authorities' likely resistance on a matter of such ideological importance to them as control of the internet, an arena described by a senior public security official just a few weeks ago as a "battlefield".
Some analysts see Google's announcement as a gambit for what will be extremely tough negotiations with the Chinese, rather than an ultimatum.
But others suggest that the more Google bent towards the demands of the Chinese government, the more harm was done to its reputation overseas, and at some point it had to make a stand.
'Heroic' decision?
Whether you regard Google's market share as impressive or disappointing, compared to its dominance elsewhere, there is little doubt it is not a household name in China in the same way that it is abroad.
A Chinese flag flutters outside Google's China headquarters in Beijing
Google has about 700 staff in its China offices
But Hu Li, a student in Beijing, told the BBC he admired what he called the company's "heroic" decision to offer an unfiltered service, and hailed the announcement to pull out if it could not reach its objective.
Some people even laid flowers outside the company's Beijing headquarters, in the hi-tech Haidian district, as a mark of respect.
But this sentiment was certainly not shared by everyone.
Another man, an IT worker who would only give his surname, Zhong, said the American firm should respect China's situation regarding this kind of issue.
"China has been using censorship for a long time," he said. "Any change can only happen slowly - it won't happen overnight."
By Chris Hogg
BBC News, Shanghai
Google's warning that it might pull out of China over cyber attacks has surprised human rights activists here.
They seem unfazed that China is accused of trying to hack into their Gmail accounts. But a major foreign firm like Google being prepared to speak out and challenge the government so directly is unusual.
The Chinese authorities will be infuriated that Google has made its announcement before negotiations with officials have got under way.
China has so far said little publicly in response.
I would bet on a harsh reaction from the Chinese government
Dan Sefarty, Viadeo
An unnamed official quoted by the state news agency Xinhua said only that the authorities were trying to find out more about Google's suggestion it might leave the country.
The company's main Chinese rival Baidu is less reticent. In a blog post that has since been taken down, the firm's chief architect Sun Yunfeng claimed Google was just trying to play down its market failure.
"Would Google top executives still proclaim that they would 'do no evil'," he said, quoting the company's code of conduct, "and quit China if they had taken 80% of China's search market?"
Google's market share is estimated to be around 30% in China, about half the size of Baidu's, the search engine market leader.
The senior Baidu executive said the American company's move would "satisfy the imagination of those Westerners who have never been to China and understand nothing of China but still like to point fingers at China".
'Mismatch' in perception
Others in the technology sector here see this differently.
google.cn homepage ( archive image)
Gmail accounts of rights activists have reportedly been accessed
Dan Sefarty heads Viadeo, the firm that owns the Chinese social networking site Tianji.com.
"Google is rare," he says. "It's a US company succeeding in China. It has impressive market share and is atypical among other foreign companies who try to get into this very tough market."
He warns that Baidu has strong links with the government and may be lobbying hard to gain business advantage from this row.
"I would bet on a harsh reaction from the Chinese government," he says. "Look at what they have done with Facebook and Twitter, which have been blocked in China for six to nine months now."
Opinion is divided over whether or not Google really plans to withdraw from the country, the world's largest internet market.
Duncan Clark, an analyst at the Beijing hi-tech consultancy BDA, says he sees a "mismatch" in perception between the Chinese authorities and the foreign firms doing business here.
"People here think no-one can do without China, and I think now some companies are thinking no-one can deal with China," he told the French news agency AFP.
"There is a feeling that China is emboldened and that they don't need to have the same sort of dialogue [as before]," he said.
Google's senior US executives are well aware of the Chinese preference for gradual change, and also of the authorities' likely resistance on a matter of such ideological importance to them as control of the internet, an arena described by a senior public security official just a few weeks ago as a "battlefield".
Some analysts see Google's announcement as a gambit for what will be extremely tough negotiations with the Chinese, rather than an ultimatum.
But others suggest that the more Google bent towards the demands of the Chinese government, the more harm was done to its reputation overseas, and at some point it had to make a stand.
'Heroic' decision?
Whether you regard Google's market share as impressive or disappointing, compared to its dominance elsewhere, there is little doubt it is not a household name in China in the same way that it is abroad.
A Chinese flag flutters outside Google's China headquarters in Beijing
Google has about 700 staff in its China offices
But Hu Li, a student in Beijing, told the BBC he admired what he called the company's "heroic" decision to offer an unfiltered service, and hailed the announcement to pull out if it could not reach its objective.
Some people even laid flowers outside the company's Beijing headquarters, in the hi-tech Haidian district, as a mark of respect.
But this sentiment was certainly not shared by everyone.
Another man, an IT worker who would only give his surname, Zhong, said the American firm should respect China's situation regarding this kind of issue.
"China has been using censorship for a long time," he said. "Any change can only happen slowly - it won't happen overnight."
Yahoo sides with Google over China cyber attack
Yahoo sides with Google over China cyber attack
By Hibah Yousuf, staff reporterJanuary 13, 2010: 1:35 PM ET
NEW YORK (CNNMoney.com) -- Yahoo Inc. gave its support to rival Google Inc. Wednesday, denouncing an alleged cyber attack originating in China against Google's network infrastructure.
"We condemn any attempts to infiltrate company networks to obtain user information," a Yahoo representative said in an e-mail statement. "We stand aligned with Google that these kinds of attacks are deeply disturbing and strongly believe that the violation of user privacy is something that we as Internet pioneers must all oppose."
Google said late Tuesday that the attack's primary goal was to access Gmail accounts of Chinese human rights activists. The company said that the incident, as well as Chinese censorship rules, could force it to shut down its operations in China, which includes Google.cn.
The search giant's ongoing investigation suggests the attack targeted at least twenty other large companies from a variety of industries. Neither Yahoo (YHOO, Fortune 500) nor Google (GOOG, Fortune 500) revealed whether Yahoo was among the victims.
"Yahoo does not generally disclose that type of information, but we take security very seriously and we take appropriate action in the event of any kind of breach," Yahoo said.
Microsoft (MSFT, Fortune 500), which launched a Chinese version of its search engine Bing in June, said that the company has "no indication that any of our mail properties have been compromised."
0:00 /3:04Yahoo eyes Chinese expansion
In 2005, Yahoo sold its business in China to Alibaba.com, China's largest e-commerce company. Yahoo maintains a 39% financial stake in the company but Yahoo no longer has "operational control or day-to-day management over the Yahoo! China business," according to a Yahoo spokeswoman.
Google did not have any response to Yahoo's statement.
By Hibah Yousuf, staff reporterJanuary 13, 2010: 1:35 PM ET
NEW YORK (CNNMoney.com) -- Yahoo Inc. gave its support to rival Google Inc. Wednesday, denouncing an alleged cyber attack originating in China against Google's network infrastructure.
"We condemn any attempts to infiltrate company networks to obtain user information," a Yahoo representative said in an e-mail statement. "We stand aligned with Google that these kinds of attacks are deeply disturbing and strongly believe that the violation of user privacy is something that we as Internet pioneers must all oppose."
Google said late Tuesday that the attack's primary goal was to access Gmail accounts of Chinese human rights activists. The company said that the incident, as well as Chinese censorship rules, could force it to shut down its operations in China, which includes Google.cn.
The search giant's ongoing investigation suggests the attack targeted at least twenty other large companies from a variety of industries. Neither Yahoo (YHOO, Fortune 500) nor Google (GOOG, Fortune 500) revealed whether Yahoo was among the victims.
"Yahoo does not generally disclose that type of information, but we take security very seriously and we take appropriate action in the event of any kind of breach," Yahoo said.
Microsoft (MSFT, Fortune 500), which launched a Chinese version of its search engine Bing in June, said that the company has "no indication that any of our mail properties have been compromised."
0:00 /3:04Yahoo eyes Chinese expansion
In 2005, Yahoo sold its business in China to Alibaba.com, China's largest e-commerce company. Yahoo maintains a 39% financial stake in the company but Yahoo no longer has "operational control or day-to-day management over the Yahoo! China business," according to a Yahoo spokeswoman.
Google did not have any response to Yahoo's statement.
Google Turns on Gmail Encryption to Protect Wi-Fi Users
Google Turns on Gmail Encryption to Protect Wi-Fi Users
google_logoGoogle is now encrypting all Gmail traffic from its servers to its users in a bid to foil sniffers who sit in cafes, eavesdropping in on traffic passing by, the company announced Wednesday.
The change comes just a day after the company announced it might pull its offices from China after discovering concerted attempts to break into Gmail accounts of human rights activists. The switch to always-on HTTPS adds more security, but does not help prevent the kind of attacks Google announced Tuesday.
All Gmail users will now default to using HTTPS, the secure, encrypted method for communicating with a remote server, for their entire e-mail sessions, not just for log-in. Session-long HTTPS has been an official option for Gmail users since 2008 (and unofficial for much longer), but Google says it hesitated turning it on for all since the encryption does slow down the service.
“Over the last few months, we’ve been researching the security/latency tradeoff and decided that turning https on for everyone was the right thing to do,” Gmail Engineering Director Sam Schillace wrote in the Gmail blog.
This option often wasn’t necessary when people used fixed and trusted connections, such as their home or office DSL or cable lines. But as Wi-Fi connections, especially public ones, became more popular, hackers began using simple sniffing software to snoop on people’s online activities with the goal of stealing passwords.
Still, the switch doesn’t encrypt e-mail — it simply encrypts the communications in transit between Google’s servers and a user’s computer — the same as when you use your bank’s website. E-mails sent to other people are transmitted in the clear as they have always been. True encrypted e-mail can only be read by the sender and receiver, regardless of how they move across the internet.
For those whose schools or workplaces routinely monitor employee or student internet usage, the change also shields their e-mails from the IT department.
A coalition of privacy and security experts called on Google publicly to make the change last June, saying that Google was putting millions of people at risk by not using encryption as the default for their cloud computing services.
Users who find the service slows them down or determine that it’s overkill for their needs can turn the HTTPS off in their account settings.
Rival free e-mail from Yahoo and Microsoft do not use HTTPS throughout their sessions, nor do social networking sites or other so-called cloud-computing services.
Instead, most of those services use the secure HTTPS protocol only for logging in, and fall back to unencrypted browsing thereafter. Failing to use HTTPS full-time increases one’s vulnerability to a host of nasty hack attacks when using an open or badly secured network, particularly a public Wi-Fi spot.
google_logoGoogle is now encrypting all Gmail traffic from its servers to its users in a bid to foil sniffers who sit in cafes, eavesdropping in on traffic passing by, the company announced Wednesday.
The change comes just a day after the company announced it might pull its offices from China after discovering concerted attempts to break into Gmail accounts of human rights activists. The switch to always-on HTTPS adds more security, but does not help prevent the kind of attacks Google announced Tuesday.
All Gmail users will now default to using HTTPS, the secure, encrypted method for communicating with a remote server, for their entire e-mail sessions, not just for log-in. Session-long HTTPS has been an official option for Gmail users since 2008 (and unofficial for much longer), but Google says it hesitated turning it on for all since the encryption does slow down the service.
“Over the last few months, we’ve been researching the security/latency tradeoff and decided that turning https on for everyone was the right thing to do,” Gmail Engineering Director Sam Schillace wrote in the Gmail blog.
This option often wasn’t necessary when people used fixed and trusted connections, such as their home or office DSL or cable lines. But as Wi-Fi connections, especially public ones, became more popular, hackers began using simple sniffing software to snoop on people’s online activities with the goal of stealing passwords.
Still, the switch doesn’t encrypt e-mail — it simply encrypts the communications in transit between Google’s servers and a user’s computer — the same as when you use your bank’s website. E-mails sent to other people are transmitted in the clear as they have always been. True encrypted e-mail can only be read by the sender and receiver, regardless of how they move across the internet.
For those whose schools or workplaces routinely monitor employee or student internet usage, the change also shields their e-mails from the IT department.
A coalition of privacy and security experts called on Google publicly to make the change last June, saying that Google was putting millions of people at risk by not using encryption as the default for their cloud computing services.
Users who find the service slows them down or determine that it’s overkill for their needs can turn the HTTPS off in their account settings.
Rival free e-mail from Yahoo and Microsoft do not use HTTPS throughout their sessions, nor do social networking sites or other so-called cloud-computing services.
Instead, most of those services use the secure HTTPS protocol only for logging in, and fall back to unencrypted browsing thereafter. Failing to use HTTPS full-time increases one’s vulnerability to a host of nasty hack attacks when using an open or badly secured network, particularly a public Wi-Fi spot.
Wednesday 13 January 2010
America's Financial Illiteracy
America's Financial Illiteracy
Thomas F. Cooley, 01.13.10, 12:01 AM EST
Protecting consumers in the confusing world of modern finance.
One of the common elements of the regulatory reform proposals being crafted by the House and Senate is that both propose to create a Consumer Financial Protection Agency (CFPA). Although there has been concerted opposition to the creation of a new bureaucracy, there is certainly some logic to the idea of consolidating existing consumer protection functions in one agency. Currently, responsibility for consumer protection is scattered across several existing regulatory bodies, and as a consequence the task has fallen between the cracks. Authority for enforcement is in the hands of at least 11 agencies. Each one has responsibility for only a subgroup of financial firms, and their mandates partly conflict. Among the agencies, the Federal Trade Commission (FTC) is unique in having consumer protection on the list of its primary mandates.
There can be no doubt that many consumers have been battered by bad decisions that they made about mortgages, credit card debt, auto loans and so on. And there is no doubt that some of these bad decisions were driven by unscrupulous business practices and that alarms should have been raised about certain lending practices that drove the increase in household leverage.
Our recent experience raises a legitimate and interesting question--what exactly is the role of the government in protecting people from their own bad decisions? It is important to bear in mind that for 30 years we have been in the midst of a major social transformation in which responsibility for risk management has shifted to individuals. In the past, the government and employers often made financial decisions for households, for example by providing health insurance, defined benefit retirement plans and social security; now households are on their own more than ever. We can't just shrug off the problem because if many individuals make bad financial decisions, it creates a negative externality.
Many of the most important decisions consumers make in their lifetimes involve financial products: a mortgage to purchase a home, a loan to purchase an automobile, credit to make a large durable purchase, investments for retirement and insurance to keep one's family secure. All of these financial products have become increasingly complex over time and there is a much wider range of product options offered by different providers, making decision-making more complicated. Consumers need to be financially literate in order to make well-informed choices about such complex products. A growing body of evidence suggests that many consumers lack the knowledge they need to evaluate and make decisions about financial instruments.
So, what should we do and how should the CFPA address this? We don't want a CFPA that limits innovation in financial products--it shouldn't be modeled after the FDA, which requires that products be safe and effective before being allowed into the marketplace. We certainly want the CFPA to monitor abusive practices and raise warnings when they occur. Although as I noted in an earlier column, lobbyists have been hard at work limiting the impact of the CFPA. One result is that House bill H.R. 3126 exempts all of the following entities from regulation by the CFPA: automobile dealers who provide financing; any person regulated by the Securities and Exchange Commission; any person regulated by a state insurance regulator; smaller banks and credit unions (those with $10 billion or less in assets); brokers and agents for mortgage, title and credit insurance; real estate brokers and agents; attorneys; and most retailers. The Senate proposal has fewer carve-outs but does exclude from CFPA regulation small banks and credit unions, merchants, retailers and other nonfinancial institutions that extend credit to consumers.
That suggests that the most important role for a CFPA may be to increase the public's financial literacy. The level of financial knowledge among U.S. households is shockingly low, and that fact is at odds with the trend of shifting risk management to households.
How bad is it? Two economists, Annamaria Lusardi and Olivia Mitchell, have been studying financial literacy and the effectiveness of efforts to promote it for many years. The results are not at all encouraging. To take just a few of their examples, they asked the following questions of a representative sample of Americans over the age of fifty:
1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years how much do you think you would have in the account if you left the money to grow: more than $102, exactly $102, less than $102?
2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year would you be able to buy more than, exactly the same as or less than today with the money in this account?
3. Do you think that the following statement is true or false? "Buying a single company stock usually provides a safer return than a stock mutual fund."
Only 50% of respondents were able to answer the first two questions correctly and less than a third were able to answer all three. In a related study less than 18% of people surveyed were able to answer a simple two-period compound interest problem. This is pretty discouraging. Not surprisingly the extent of financial illiteracy differs with education, gender, race and age. Most efforts to improve financial literacy are not effective.
So what is to be done? One view is that we can improve welfare through the judicious choice of "default" options. For example, in the choice of mortgages or consumer credit plans, the default option could require financial service providers to include a "plain vanilla" product in their menu. This offering should be easy to understand even for the inexperienced customer. It would also serve as a point of reference in comparison to other products. Default options have to be prudently chosen, since consumers, especially those who are inexperienced, are likely to refrain from active choices.
There are a lot of unanswered questions about default options. Sweden, Mexico and Chile have accumulated experience with the use of default investment portfolios in retirement plans. So far the evidence suggests that the choice of default option can have a tremendous effect on retirement savings, but not always to good effect.
Clearly the best way to protect consumers is to educate them. As a society we don't seem to have figured out how to do that. It's time we did.
Thomas F. Cooley, the Paganelli-Bull professor of economics and the former dean of the NYU Stern School of Business, writes a weekly column for Forbes.
Thomas F. Cooley, 01.13.10, 12:01 AM EST
Protecting consumers in the confusing world of modern finance.
One of the common elements of the regulatory reform proposals being crafted by the House and Senate is that both propose to create a Consumer Financial Protection Agency (CFPA). Although there has been concerted opposition to the creation of a new bureaucracy, there is certainly some logic to the idea of consolidating existing consumer protection functions in one agency. Currently, responsibility for consumer protection is scattered across several existing regulatory bodies, and as a consequence the task has fallen between the cracks. Authority for enforcement is in the hands of at least 11 agencies. Each one has responsibility for only a subgroup of financial firms, and their mandates partly conflict. Among the agencies, the Federal Trade Commission (FTC) is unique in having consumer protection on the list of its primary mandates.
There can be no doubt that many consumers have been battered by bad decisions that they made about mortgages, credit card debt, auto loans and so on. And there is no doubt that some of these bad decisions were driven by unscrupulous business practices and that alarms should have been raised about certain lending practices that drove the increase in household leverage.
Our recent experience raises a legitimate and interesting question--what exactly is the role of the government in protecting people from their own bad decisions? It is important to bear in mind that for 30 years we have been in the midst of a major social transformation in which responsibility for risk management has shifted to individuals. In the past, the government and employers often made financial decisions for households, for example by providing health insurance, defined benefit retirement plans and social security; now households are on their own more than ever. We can't just shrug off the problem because if many individuals make bad financial decisions, it creates a negative externality.
Many of the most important decisions consumers make in their lifetimes involve financial products: a mortgage to purchase a home, a loan to purchase an automobile, credit to make a large durable purchase, investments for retirement and insurance to keep one's family secure. All of these financial products have become increasingly complex over time and there is a much wider range of product options offered by different providers, making decision-making more complicated. Consumers need to be financially literate in order to make well-informed choices about such complex products. A growing body of evidence suggests that many consumers lack the knowledge they need to evaluate and make decisions about financial instruments.
So, what should we do and how should the CFPA address this? We don't want a CFPA that limits innovation in financial products--it shouldn't be modeled after the FDA, which requires that products be safe and effective before being allowed into the marketplace. We certainly want the CFPA to monitor abusive practices and raise warnings when they occur. Although as I noted in an earlier column, lobbyists have been hard at work limiting the impact of the CFPA. One result is that House bill H.R. 3126 exempts all of the following entities from regulation by the CFPA: automobile dealers who provide financing; any person regulated by the Securities and Exchange Commission; any person regulated by a state insurance regulator; smaller banks and credit unions (those with $10 billion or less in assets); brokers and agents for mortgage, title and credit insurance; real estate brokers and agents; attorneys; and most retailers. The Senate proposal has fewer carve-outs but does exclude from CFPA regulation small banks and credit unions, merchants, retailers and other nonfinancial institutions that extend credit to consumers.
That suggests that the most important role for a CFPA may be to increase the public's financial literacy. The level of financial knowledge among U.S. households is shockingly low, and that fact is at odds with the trend of shifting risk management to households.
How bad is it? Two economists, Annamaria Lusardi and Olivia Mitchell, have been studying financial literacy and the effectiveness of efforts to promote it for many years. The results are not at all encouraging. To take just a few of their examples, they asked the following questions of a representative sample of Americans over the age of fifty:
1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years how much do you think you would have in the account if you left the money to grow: more than $102, exactly $102, less than $102?
2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year would you be able to buy more than, exactly the same as or less than today with the money in this account?
3. Do you think that the following statement is true or false? "Buying a single company stock usually provides a safer return than a stock mutual fund."
Only 50% of respondents were able to answer the first two questions correctly and less than a third were able to answer all three. In a related study less than 18% of people surveyed were able to answer a simple two-period compound interest problem. This is pretty discouraging. Not surprisingly the extent of financial illiteracy differs with education, gender, race and age. Most efforts to improve financial literacy are not effective.
So what is to be done? One view is that we can improve welfare through the judicious choice of "default" options. For example, in the choice of mortgages or consumer credit plans, the default option could require financial service providers to include a "plain vanilla" product in their menu. This offering should be easy to understand even for the inexperienced customer. It would also serve as a point of reference in comparison to other products. Default options have to be prudently chosen, since consumers, especially those who are inexperienced, are likely to refrain from active choices.
There are a lot of unanswered questions about default options. Sweden, Mexico and Chile have accumulated experience with the use of default investment portfolios in retirement plans. So far the evidence suggests that the choice of default option can have a tremendous effect on retirement savings, but not always to good effect.
Clearly the best way to protect consumers is to educate them. As a society we don't seem to have figured out how to do that. It's time we did.
Thomas F. Cooley, the Paganelli-Bull professor of economics and the former dean of the NYU Stern School of Business, writes a weekly column for Forbes.
Google Docs Becomes Google ‘Any File’ as Cloud Wars Heat Up
Google Docs Becomes Google ‘Any File’ as Cloud Wars Heat Up
Google is now offering a small virtual hard drive in the cloud so you can access all sorts of files anywhere — the latest salvo in an arms race to become the dominant player in cloud services.
As with many Google initiatives, this one may be deceptively modest: When it is completely rolled out, Google Docs will accept uploads of any kind of file — not just text and spreadsheets. That move heightens their competition with Microsoft, and takes on Apple and a number of small startups in the business of creating backup and storage space on remote servers.
This business is suddenly becoming viable with the ubiquity of broadband connectivity (which makes things almost as accessible as they’d be on your hard drive) and the popularity of netbooks (which are usually light on internal storage). Cloud computing also makes it possible never to lose data when you drop your beloved laptop, or when you don’t have it with you.
It’s already a crowded field, with all of the usual suspects: Microsoft’s cloud-based platform, Azure, is already available in a fully a la carte pricing scheme geared toward their core enterprise customers, and it offers a 25-GB online Skydrive for home users through its Microsoft Live services. Apple’s Mobile Me (once known as iDisk) has a 20-GB floor for $100 a year and a family plan in keeping with their mainly consumer focus.
For now, Google is portraying the initiative less dramatically, as a USB key rather than as a hard-drive replacement.
Instead of e-mailing files to yourself, which is particularly difficult with large files, you can upload to Google Docs any file up to 250 MB…. This makes it easy to back up more of your key files online, from large graphics and raw photos to unedited home videos taken on your smartphone. You might even be able to replace the USB drive you reserved for those files that are too big to send over e-mail.
While text documents and spreadsheets don’t count toward the total, the offering is actually quite underwhelming in terms of capacity: 1 GB, with extra storage available for $0.25 per GB/year. By contrast, Gmail now offers more than 7 GB of storage for e-mails and attachments, while Google’s Picasa lets you store 10 GB of photos.
But perhaps this is just a beginning of the famed Google Drive, a full-on hard drive in the sky. It’s one more step to make the free Google Docs into a compelling alternative to Microsoft Word — another attempt to break the hold Microsoft has on the desktop to transition users to using the internet even more (because that’s where Google makes its money).
If this is the precursor to something larger — say a giant Google drive that combines Gmail and Picassa, etc., Google ought to get themselves and their checkbook over to Dropbox, the little startup that offers a fabulous service that turns a folder on your PC or Mac into a shared storage drive. And if I were at Yahoo or Microsoft, I’d hope to get to Dropbox ahead of Google.
Google is now offering a small virtual hard drive in the cloud so you can access all sorts of files anywhere — the latest salvo in an arms race to become the dominant player in cloud services.
As with many Google initiatives, this one may be deceptively modest: When it is completely rolled out, Google Docs will accept uploads of any kind of file — not just text and spreadsheets. That move heightens their competition with Microsoft, and takes on Apple and a number of small startups in the business of creating backup and storage space on remote servers.
This business is suddenly becoming viable with the ubiquity of broadband connectivity (which makes things almost as accessible as they’d be on your hard drive) and the popularity of netbooks (which are usually light on internal storage). Cloud computing also makes it possible never to lose data when you drop your beloved laptop, or when you don’t have it with you.
It’s already a crowded field, with all of the usual suspects: Microsoft’s cloud-based platform, Azure, is already available in a fully a la carte pricing scheme geared toward their core enterprise customers, and it offers a 25-GB online Skydrive for home users through its Microsoft Live services. Apple’s Mobile Me (once known as iDisk) has a 20-GB floor for $100 a year and a family plan in keeping with their mainly consumer focus.
For now, Google is portraying the initiative less dramatically, as a USB key rather than as a hard-drive replacement.
Instead of e-mailing files to yourself, which is particularly difficult with large files, you can upload to Google Docs any file up to 250 MB…. This makes it easy to back up more of your key files online, from large graphics and raw photos to unedited home videos taken on your smartphone. You might even be able to replace the USB drive you reserved for those files that are too big to send over e-mail.
While text documents and spreadsheets don’t count toward the total, the offering is actually quite underwhelming in terms of capacity: 1 GB, with extra storage available for $0.25 per GB/year. By contrast, Gmail now offers more than 7 GB of storage for e-mails and attachments, while Google’s Picasa lets you store 10 GB of photos.
But perhaps this is just a beginning of the famed Google Drive, a full-on hard drive in the sky. It’s one more step to make the free Google Docs into a compelling alternative to Microsoft Word — another attempt to break the hold Microsoft has on the desktop to transition users to using the internet even more (because that’s where Google makes its money).
If this is the precursor to something larger — say a giant Google drive that combines Gmail and Picassa, etc., Google ought to get themselves and their checkbook over to Dropbox, the little startup that offers a fabulous service that turns a folder on your PC or Mac into a shared storage drive. And if I were at Yahoo or Microsoft, I’d hope to get to Dropbox ahead of Google.
New York seeks millions of USD in unpaid taxes from Nigeria
New York seeks millions of USD in unpaid taxes from Nigeria
www.chinaview.cn 2010-01-13 08:33:13
NEW YORK, Jan. 12 (Xinhua) -- New York City announced on Tuesday that it would sue Nigeria over millions of U.S. dollars in unpaid taxes.
"The Nigerian government has failed to pay real estate taxes, interest and other charges for commercial offices and other non-tax exempt spaces in the 22-story building," the mayor's office said.
The city is seeking between 4.1 million U.S. dollars and upwards of 16 million dollars in unpaid taxes for the Manhattan tower at 822 Second Avenue. The precise amount owned is unknown "because of the refusal of the Nigerian government to supply documentation."
A Xinhua request for comment from the Nigerian Mission to the United Nations went unanswered before deadline.
"Especially in these tough economic times, we will go after every dollar that is owed to city taxpayers," said Mayor Michael Bloomberg in a statement.
The building, known as "Nigeria House," is used partially for tax-exempt purposes, including as offices for the Nigerian consulate and the Nigerian Mission to the UN.
However, at least since 2002, and the city believes possibly as far back as 1993, portions of the building have also been used for commercial and other non-tax exempt purposes. A Nigeria Airways office, for example, formerly occupied space in the building's lobby.
"Nigeria was given many opportunities to settle this debt to the city, but it declined to do so," said Commissioner Tiven. "The city seeks to be a good neighbor to foreign governments that own property in the city, but we also expect these governments to do their part and pay their taxes."
www.chinaview.cn 2010-01-13 08:33:13
NEW YORK, Jan. 12 (Xinhua) -- New York City announced on Tuesday that it would sue Nigeria over millions of U.S. dollars in unpaid taxes.
"The Nigerian government has failed to pay real estate taxes, interest and other charges for commercial offices and other non-tax exempt spaces in the 22-story building," the mayor's office said.
The city is seeking between 4.1 million U.S. dollars and upwards of 16 million dollars in unpaid taxes for the Manhattan tower at 822 Second Avenue. The precise amount owned is unknown "because of the refusal of the Nigerian government to supply documentation."
A Xinhua request for comment from the Nigerian Mission to the United Nations went unanswered before deadline.
"Especially in these tough economic times, we will go after every dollar that is owed to city taxpayers," said Mayor Michael Bloomberg in a statement.
The building, known as "Nigeria House," is used partially for tax-exempt purposes, including as offices for the Nigerian consulate and the Nigerian Mission to the UN.
However, at least since 2002, and the city believes possibly as far back as 1993, portions of the building have also been used for commercial and other non-tax exempt purposes. A Nigeria Airways office, for example, formerly occupied space in the building's lobby.
"Nigeria was given many opportunities to settle this debt to the city, but it declined to do so," said Commissioner Tiven. "The city seeks to be a good neighbor to foreign governments that own property in the city, but we also expect these governments to do their part and pay their taxes."
Tuesday 12 January 2010
America's largest state is broken and looking for fixes in the wrong places.
America's largest state is broken and looking for fixes in the wrong places.
In my last column I tackled the not-so-secret implosion of state governments across the land. A question, however, still lingers: What ought to be done? On this score there are two, and only two, general approaches. The first is structural and concerns the division of political authority within the states. The second deals with the conception of individual rights and duties of state citizens. As Americans, we should stress the second and ditch the first. But true to form, California seems to be moving in the opposite direction.
Right now many groups are getting ready to put new measures in November's referendum process, which lets voters have the word on reform. These exercises in direct democracy consciously bypass the state legislature, in which public confidence has fallen to 14%--which is quite generous in light of its dismal performance.
Naturally, many of these proposals take aim at the legislature itself. Some try to slash legislative salaries in half, which won't do much good since most people who crave their seats spend far more than they earn to obtain them. What drives them to office is the prospect of power--influence that will ultimately pay them far more than the gobs of cash they need to get elected in the first place.
Other proposals address how legislative gerrymandering of local districts has been a source of public malaise and discontent. True enough, but given the current mind-set the only thing that redistricting will accomplish is a shift in power of the various interest groups that now vie for influence. It will do little or nothing to raise the overall level of legislative performance.
Still other programs aim to alter the balance between state and local governments in ways that shift more education and public safety responsibilities to the local levels. This is a form of mini-federalism; while it will likely do some good in education, when it comes to issues like land-use regulation and labor reform some local communities are as bad as the state.
Worse still are efforts to organize a new constitutional convention to start matters over from scratch. Put that august assembly together and every interest group in town will find ways to entrench their own pet projects. A constitutional mishmash is no better than a legislative one.
The theoretical mistake in these reforms needs emphasis. Structural remedies have one vital function: The diffusion of power in different branches of government is a key bulwark against tyranny, even at the cost of gridlock and paralysis. On balance that trade-off is worth making.
Yet tinkering with this balance will do little to cure today's entitlement malaise. Whatever the importance of some division of power among political actors, no theory tells which division of power is likely to work better than the others. Look around the world and ask whether presidential systems of government, like that in the United States, work better than parliamentary systems of government, like that in Great Britain. We can't be sure. Nations under stress often oscillate between the two, without any clear direction.
On the other hand, getting the basic set of substantive entitlements right does make a huge difference in the success or failure of government. It is only by taking on that unfashionable issue that real progress can be made in places like California. The first order of business should be to rationalize the tax structure. Low, flat taxes on income will draw in capital, not drive it away.
More to the point, none of these proposals take dead aim at entitlements. The impulse is to find out ways to add back dental benefits to Medicaid, often by asking the federal government (i.e., citizens in other states) to foot the bill. It's a mug's game that forces sensible states to subsidize the follies of profligate ones. We need to find a way to shrink the program nationwide.
Dugg on Forbes.com
Closer to home, I have not seen one proposal that works to relax the restrictions on land use now exercised at both the state and the local level. No proposal wants to take on the bloated pensions of public unions or the state protection of private unions. The truth is California is failing because its aspirations have grown so rapidly that they have choked off the productive base needed to fund them. The current set of reform proposals won't stop the state from putting an ever greater set of entitlements onto a shrinking tax base.
What we need is a sharp change in direction--a deep commitment to a smaller government along classic liberal lines. While some of these ballot initiatives will be approved, the underlying situation will get only worse. All the money and effort might be better spent rearranging deck chairs on the Titanic.
Richard A. Epstein is the James Parker Hall Distinguished Service Professor of Law, The University of Chicago; the Peter and Kirsten Bedford Senior Fellow, the Hoover Institution; and a visiting professor at New York University Law School. He writes a weekly column for Forbes.com.
In my last column I tackled the not-so-secret implosion of state governments across the land. A question, however, still lingers: What ought to be done? On this score there are two, and only two, general approaches. The first is structural and concerns the division of political authority within the states. The second deals with the conception of individual rights and duties of state citizens. As Americans, we should stress the second and ditch the first. But true to form, California seems to be moving in the opposite direction.
Right now many groups are getting ready to put new measures in November's referendum process, which lets voters have the word on reform. These exercises in direct democracy consciously bypass the state legislature, in which public confidence has fallen to 14%--which is quite generous in light of its dismal performance.
Naturally, many of these proposals take aim at the legislature itself. Some try to slash legislative salaries in half, which won't do much good since most people who crave their seats spend far more than they earn to obtain them. What drives them to office is the prospect of power--influence that will ultimately pay them far more than the gobs of cash they need to get elected in the first place.
Other proposals address how legislative gerrymandering of local districts has been a source of public malaise and discontent. True enough, but given the current mind-set the only thing that redistricting will accomplish is a shift in power of the various interest groups that now vie for influence. It will do little or nothing to raise the overall level of legislative performance.
Still other programs aim to alter the balance between state and local governments in ways that shift more education and public safety responsibilities to the local levels. This is a form of mini-federalism; while it will likely do some good in education, when it comes to issues like land-use regulation and labor reform some local communities are as bad as the state.
Worse still are efforts to organize a new constitutional convention to start matters over from scratch. Put that august assembly together and every interest group in town will find ways to entrench their own pet projects. A constitutional mishmash is no better than a legislative one.
The theoretical mistake in these reforms needs emphasis. Structural remedies have one vital function: The diffusion of power in different branches of government is a key bulwark against tyranny, even at the cost of gridlock and paralysis. On balance that trade-off is worth making.
Yet tinkering with this balance will do little to cure today's entitlement malaise. Whatever the importance of some division of power among political actors, no theory tells which division of power is likely to work better than the others. Look around the world and ask whether presidential systems of government, like that in the United States, work better than parliamentary systems of government, like that in Great Britain. We can't be sure. Nations under stress often oscillate between the two, without any clear direction.
On the other hand, getting the basic set of substantive entitlements right does make a huge difference in the success or failure of government. It is only by taking on that unfashionable issue that real progress can be made in places like California. The first order of business should be to rationalize the tax structure. Low, flat taxes on income will draw in capital, not drive it away.
More to the point, none of these proposals take dead aim at entitlements. The impulse is to find out ways to add back dental benefits to Medicaid, often by asking the federal government (i.e., citizens in other states) to foot the bill. It's a mug's game that forces sensible states to subsidize the follies of profligate ones. We need to find a way to shrink the program nationwide.
Dugg on Forbes.com
Closer to home, I have not seen one proposal that works to relax the restrictions on land use now exercised at both the state and the local level. No proposal wants to take on the bloated pensions of public unions or the state protection of private unions. The truth is California is failing because its aspirations have grown so rapidly that they have choked off the productive base needed to fund them. The current set of reform proposals won't stop the state from putting an ever greater set of entitlements onto a shrinking tax base.
What we need is a sharp change in direction--a deep commitment to a smaller government along classic liberal lines. While some of these ballot initiatives will be approved, the underlying situation will get only worse. All the money and effort might be better spent rearranging deck chairs on the Titanic.
Richard A. Epstein is the James Parker Hall Distinguished Service Professor of Law, The University of Chicago; the Peter and Kirsten Bedford Senior Fellow, the Hoover Institution; and a visiting professor at New York University Law School. He writes a weekly column for Forbes.com.
(1) Dubai’s First Foreclosure May Open Floodgates in Worst Market, (2) The Dubai crisis: A case of the inevitable
(1) Dubai’s First Foreclosure May Open Floodgates in Worst Market
Property market went from world's best in 2008 to the worst
By Zainab Fattah
Jan. 11 (Bloomberg) -- Dubai’s housing rout sent prices down 52 percent in the past year, prompting some homeowners to abandon their cars and mortgage payments and flee the country. Not one received a foreclosure notice.
Barclays Plc won the sheikdom’s first foreclosure cases in court, clearing the way for lenders holding about $16 billion of Dubai home loans to take action when borrowers don’t pay. Islamic lender Tamweel PJSC, the emirate’s biggest mortgage bank, has several of its own foreclosure claims pending and estimates about 3 percent of its mortgages are in default.
“Banks will be more aggressive in pursuing legal action if they see the process is efficient,” said Dubai-based Antoine Yacoub, a banking analyst at Moody’s Investors Service Inc. “They were trying to avoid the courts and restructure most of their loans, but once they see a precedent has been set, they will be encouraged to push more cases through.”
The successful foreclosures by London-based Barclays may open the floodgates in Dubai’s property market, which went from the world’s best in 2008 to the worst after credit dried up and speculators who had fueled price increases left the market, according to Deutsche Bank AG. Moody’s estimated in September that 12 percent of the 27,000 residential mortgages in the sheikdom would default within 12 to 18 months.
Banks and developers until now have avoided the process of reclaiming homes through the courts, barred by tradition and an arcane legal process that few understood. The Barclays and Tamweel cases may change that, because they show that a 2008 mortgage law -- setting out rules for default, foreclosure and repossession -- is working.
Mortgage Law
The law requires lenders to give homeowners 30-day notice of their intent to pursue a foreclosure, said Jody Waugh, a partner at law firm Al Tamimi & Co. in Dubai. Courts then review the case and can issue a debt judgment that turns the property over to Dubai’s Land Department for auction. Waugh estimates the process may take two to four months.
Barclays, Britain’s second-largest bank, said in an e- mailed reply to questions that it won the foreclosure orders, without providing details of the cases. The ruling shows that Dubai’s market is “evolving and is poised to come at par with other mature markets of the world,” the bank said.
Both lenders and developers in the United Arab Emirates have tried to stem rising defaults through out-of-court settlements with distressed customers after falling prices left buyers with mortgages worth more than their properties. That has helped minimize the amount of bad debt on their balance sheets and kept repossessed houses off a market that’s already suffering from too much supply. Provisions for bad loans in the U.A.E. surged 68 percent to 32 billion dirhams ($8.7 billion) as of November, compared with a year earlier.
Abandoned Homes
Before the mortgage law was passed, lenders and builders could resort to the courts to enforce contracts, though they didn’t have the right to foreclose.
Tamweel’s pending cases, filed almost two months ago, involve homes abandoned by owners who left Dubai at the onset of the global financial crisis, Chief Executive Officer Wasim Saifi said. Tamweel’s default rate has been “hovering between 2.5 percent and 4 percent for the past six months,” he said.
As alternatives to foreclosures, lenders in Dubai have extended payment periods and developers allowed customers with several properties to return some of them. The absence of mortgage securitization makes it easier for U.A.E. lenders to restructure loans than for their counterparts in the U.S., where mortgage debt was often sold on to investors.
Foreign Banks
U.K.-based Standard Chartered Plc and HSBC Holdings Plc top the list of foreign banks providing mortgages in the U.A.E., according to Deepak Tolani, senior research associate at Al Mal Capital PSC.
“While it is not Standard Chartered’s preferred approach, foreclosure is a legitimate course of action should a borrower not meet their obligations,” the bank said in a statement. HSBC declined to comment on the issue when contacted by Bloomberg, while Islamic mortgage lender Amlak Finance PJSC didn’t respond to e-mailed questions.
Banks are unlikely to head to the courts to foreclose on properties en masse because of concerns that large numbers of repossessed properties on the market will drive prices lower, said Saud Masud, a Dubai-based real estate analyst at UBS.
While auctioning a few properties “will be easy,” hundreds or even thousands of foreclosure sales may draw buyers away from new and secondhand properties, Masud said.
‘Slippery Slope’
“It’s a slippery slope,” Masud said. “Mass auctions may reprice the property market in a meaningful way as investors prefer to pick real bargains in auctions.”
A cultural stigma attached to forcing people out of their homes has also deterred foreclosures. That may not protect speculative investors who helped drive prices up by buying several properties with the aim of selling at a profit soon after.
“The mortgage law has given clarity and certainty to the exact process that must be followed by anyone wishing to enforce a mortgage,” said Waugh, whose firm is currently handling fewer than 10 repossession cases.
Foreigner Population
Dubai’s population, which is about 90 percent expatriate, may drop by 8 percent in 2009 and another 2 percent in 2010, UBS AG estimated in March. Dubai’s immigration department doesn’t provide regular statistics on visas.
Citizens make up only about 20 percent of the overall U.A.E. population, which largely consists of workers from countries including Pakistan, the U.K. and Lebanon. Workers have one month to leave the country after their work visas are canceled.
Dubai first allowed foreigners to own property in 2002. That led real estate prices to quadruple in the following six years, helped by a growing expatriate workforce and speculation fueled by borrowing.
The U.A.E. last year scrapped a rule that automatically qualified homeowners in Dubai for a permanent residency visa. Owners of properties valued at 1 million dirhams or more are now required to renew residency visas every six months.
About 65,000 residential units will be completed in Dubai by 2011 and the emirate needs to create a minimum of 100,000 white-collar jobs to satisfy oncoming supply, Nomura said on Oct 15. Deutshe Bank estimates that 30,000 units may be delivered by the end of 2010.
Faster Process
“When people talk about litigation in the Middle East, they’re concerned over the possible time it would take to obtain a judgment,” Waugh said. “The speed at which it appears judgments may be obtained under the mortgage law is a real, positive sign for banks.” The Barclays cases were filed in November, he said.
The U.A.E.’s central bank in October proposed reducing the time it takes for a loan to be classified as non-performing by half to 90 days. Banks “most probably” will be asked to comply during the first quarter of this year, said Sofia El Boury, a banking analyst at Shuaa Capital PSC.
So far, no properties have been auctioned, according to Mohammed Sultan Thani, assistant director general at the Dubai Land Department. Requests may start pouring in this year as banks give up on other alternatives, he said.
“Amicable solutions are hard to reach when a buyer lost his job,” or when a property is worth less than the amount owed on it, Thani said.
Lending Swelled
Mortgage loans totaled 137.6 billion dirhams in July 2009, central bank data shows. About 25,000 to 30,000 mortgages have been taken in the U.A.E. with more than 95 percent of them in Dubai, analysts say.
The central bank estimates that real estate accounts for about 13 percent of total loans in the U.A.E. Shuaa’s El Boury said the real figure is “much higher” and official numbers aren’t realistic “given the financing contributions to real estate construction and development in the U.A.E.”
The new mortgage law applies to only some kinds of Islamic lending, Waugh said. Shuaa estimates about 25,000 mortgages were extended by Tamweel and its competitor Amlak alone. The two lenders, which control more than half of the U.A.E’s mortgage market, are set to merge this year. Shares of both companies have been suspended since November, 2008.
Negative Equity
The biggest risks to banks come from loans underwritten after 2007, which are “most probably in deep negative equity by now,” Moody’s Yacoub said. Also at risk are Islamic Istisna’ mortgages where a buyer doesn’t make any payments until the property is delivered, he said.
Barclays said the court’s decisions will renew lenders’ faith in Dubai’s legal system, “which could result in bigger lending mandates specifically for mortgage business.”
Judging by the first cases, the process seems to be working, Al Tamimi’s Waugh said. “Like anything, there are a few teething problems that are being resolved, but the fact that we have obtained judgments so quickly is positive.”
To contact the reporter on this story: Zainab Fattah in Dubai on zfattah@bloomberg.net
Last Updated: January 10, 2010 15:00 EST
-------------------------------------------------------------------------------
(2)The Dubai crisis: A case of the inevitable
BIZ NEWS@UM
Following recent headlines on Dubai’s billion-dollar debt problem, there has been a spate of analyses.
Some were very detailed and contained a list of lessons to be learnt by other countries.
One recent and notable analysis emphasises the need for predictable, sustainable, clear and certain policies and argued that it is because of the lack of all those factors that Dubai is currently facing problems.
In other words, the writer is saying that not only is it possible for countries to avoid financial crises, it is also very simple since what is needed is to make sure that the countries’ policies are not unpredictable, not unsustainable, not unclear and not uncertain.
The question that springs to mind will then be: How come all those brilliant Ivy League-educated policy makers in countries that have experienced debt-related financial crises in the past such as Iceland, Britain, south Korea, Indonesia, Thailand, Argentina, Brazil and of course the United States itself (which boasts of having top universities in the world and the most number of Nobel laureates in the field of economics and finance) have not figured out these simple rules in the past?
And come to think of it, if the avoidance of financial crisis is so simple, why do people bother so much in carrying out detailed research in order to prevent their recurrence?
Maybe we should also not be too agonized with the fact that Malaysia has not produced any Nobel Prize winner in the field of economics or finance.
The experience of the US has shown that having the best economics brains in the world is not going to help a country avoid the occurrence of financial crises.
Coming back to Dubai, it is worth pondering why financial crises continue to occur even though there had been so many crises in recent years which ought to have yielded important lessons.
These include the 1987 Black Monday Crash, the 1994 Mexican Financial Crisis, the 1997 Asian Financial Crisis, the 1999 Brazilian Financial Crisis, the 2001 Argentina Financial Crisis and the 2007 US Sub-prime Financial Crisis.
Surely policy makers have had enough data, facts and information at their disposal to help them prevent the occurrence of a financial crisis, especially if it as simple as coming up with policies which are predictable, sustainable, clear and certain.
To be sure, financial crises are not a new phenomenon.
They have been taking place for hundreds of years.
One of the most famous was the Tulip Crisis in Holland which took place in the 1630s.
What happened was that many highly indebted people could not repay their debts, enough to cause a crisis in the Dutch economy.
While the Tulip Crisis was caused by over-speculation in tulip bulbs, in the case of Dubai, the cause is over-speculation in the property sector.
But the essence of the two stories is the same: people got excited with the booming price in a particular sector.
They then borrowed heavily to engage in speculative transactions causing further increase in the size of the speculative ‘bubbles’.
Eventually the bubbles burst and many people became financially unstuck causing a downward spiral of price and more trouble to the economy which eventually led to financial and economic crises.
Strangely enough, however, it seems that this simple lesson on the importance of having predictable, sustainable, clear and certain policies was not easily learnt because well after that episode, financial crises continued to erupt in Europe and the United States.
The most famous ones include the 1720 South Sea financial crisis in London, the US panic of 1873, and the Great Depression of the 1930s.
They all have one thing in common.
Many people borrowed money in order to engage in speculative transactions in a variety of assets such as properties and stocks.
These activities led to asset bubbles which eventually burst, resulting in widespread financial insolvencies and, thereby, economic crises.
One notable fact is that these financial crises during the 17th, 18th and 19th centuries took place mostly in Europe or America and not in places such as the Middle East or Southeast Asia.
So a question worth asking is whether in these regions, predictable, sustainable, clear and certain policies were in place to regulate their financial sectors?
Well, obviously that is not true for the simple fact that in these regions, in those eras, had no financial sector to regulate.
In other words, the main reason they did not experience any financial crisis was simply that they did not have any significant financial sector to start with.
Of course eventually they began to develop their own financial sectors and soon they too experienced financial crises.
The most serious one for Southeast Asian countries was the 1997 financial meltdown and just as in the case of other financial crises, it was also a story of debts, speculations and the bursting of asset bubbles.
Truth be told, once a country developed a lending-for-profit sector of its own, there is no avoidance of a financial crisis even if predictable, sustainable, clear and certain policies are in place.
Britain and America are the best examples of this.
As is well known to many, these are two countries which are models to others in terms of financial regulations and supervision.
Nevertheless the fact remains that the same two also happen to be among the ones which are experiencing the worst financial crises in the world.
One very important, maybe the most important, lesson we should learn is that the occurrence of financial and debt crisis is an inevitable outcome of the existence of a lending-for-profit sector.
And the more developed, sophisticated and advanced the sector is, the bigger and more serious will the crisis inevitably be.
●Dr Mohd Nazari Ismail is a professor at the Faculty of Business and Accounting, University of Malaya
Property market went from world's best in 2008 to the worst
By Zainab Fattah
Jan. 11 (Bloomberg) -- Dubai’s housing rout sent prices down 52 percent in the past year, prompting some homeowners to abandon their cars and mortgage payments and flee the country. Not one received a foreclosure notice.
Barclays Plc won the sheikdom’s first foreclosure cases in court, clearing the way for lenders holding about $16 billion of Dubai home loans to take action when borrowers don’t pay. Islamic lender Tamweel PJSC, the emirate’s biggest mortgage bank, has several of its own foreclosure claims pending and estimates about 3 percent of its mortgages are in default.
“Banks will be more aggressive in pursuing legal action if they see the process is efficient,” said Dubai-based Antoine Yacoub, a banking analyst at Moody’s Investors Service Inc. “They were trying to avoid the courts and restructure most of their loans, but once they see a precedent has been set, they will be encouraged to push more cases through.”
The successful foreclosures by London-based Barclays may open the floodgates in Dubai’s property market, which went from the world’s best in 2008 to the worst after credit dried up and speculators who had fueled price increases left the market, according to Deutsche Bank AG. Moody’s estimated in September that 12 percent of the 27,000 residential mortgages in the sheikdom would default within 12 to 18 months.
Banks and developers until now have avoided the process of reclaiming homes through the courts, barred by tradition and an arcane legal process that few understood. The Barclays and Tamweel cases may change that, because they show that a 2008 mortgage law -- setting out rules for default, foreclosure and repossession -- is working.
Mortgage Law
The law requires lenders to give homeowners 30-day notice of their intent to pursue a foreclosure, said Jody Waugh, a partner at law firm Al Tamimi & Co. in Dubai. Courts then review the case and can issue a debt judgment that turns the property over to Dubai’s Land Department for auction. Waugh estimates the process may take two to four months.
Barclays, Britain’s second-largest bank, said in an e- mailed reply to questions that it won the foreclosure orders, without providing details of the cases. The ruling shows that Dubai’s market is “evolving and is poised to come at par with other mature markets of the world,” the bank said.
Both lenders and developers in the United Arab Emirates have tried to stem rising defaults through out-of-court settlements with distressed customers after falling prices left buyers with mortgages worth more than their properties. That has helped minimize the amount of bad debt on their balance sheets and kept repossessed houses off a market that’s already suffering from too much supply. Provisions for bad loans in the U.A.E. surged 68 percent to 32 billion dirhams ($8.7 billion) as of November, compared with a year earlier.
Abandoned Homes
Before the mortgage law was passed, lenders and builders could resort to the courts to enforce contracts, though they didn’t have the right to foreclose.
Tamweel’s pending cases, filed almost two months ago, involve homes abandoned by owners who left Dubai at the onset of the global financial crisis, Chief Executive Officer Wasim Saifi said. Tamweel’s default rate has been “hovering between 2.5 percent and 4 percent for the past six months,” he said.
As alternatives to foreclosures, lenders in Dubai have extended payment periods and developers allowed customers with several properties to return some of them. The absence of mortgage securitization makes it easier for U.A.E. lenders to restructure loans than for their counterparts in the U.S., where mortgage debt was often sold on to investors.
Foreign Banks
U.K.-based Standard Chartered Plc and HSBC Holdings Plc top the list of foreign banks providing mortgages in the U.A.E., according to Deepak Tolani, senior research associate at Al Mal Capital PSC.
“While it is not Standard Chartered’s preferred approach, foreclosure is a legitimate course of action should a borrower not meet their obligations,” the bank said in a statement. HSBC declined to comment on the issue when contacted by Bloomberg, while Islamic mortgage lender Amlak Finance PJSC didn’t respond to e-mailed questions.
Banks are unlikely to head to the courts to foreclose on properties en masse because of concerns that large numbers of repossessed properties on the market will drive prices lower, said Saud Masud, a Dubai-based real estate analyst at UBS.
While auctioning a few properties “will be easy,” hundreds or even thousands of foreclosure sales may draw buyers away from new and secondhand properties, Masud said.
‘Slippery Slope’
“It’s a slippery slope,” Masud said. “Mass auctions may reprice the property market in a meaningful way as investors prefer to pick real bargains in auctions.”
A cultural stigma attached to forcing people out of their homes has also deterred foreclosures. That may not protect speculative investors who helped drive prices up by buying several properties with the aim of selling at a profit soon after.
“The mortgage law has given clarity and certainty to the exact process that must be followed by anyone wishing to enforce a mortgage,” said Waugh, whose firm is currently handling fewer than 10 repossession cases.
Foreigner Population
Dubai’s population, which is about 90 percent expatriate, may drop by 8 percent in 2009 and another 2 percent in 2010, UBS AG estimated in March. Dubai’s immigration department doesn’t provide regular statistics on visas.
Citizens make up only about 20 percent of the overall U.A.E. population, which largely consists of workers from countries including Pakistan, the U.K. and Lebanon. Workers have one month to leave the country after their work visas are canceled.
Dubai first allowed foreigners to own property in 2002. That led real estate prices to quadruple in the following six years, helped by a growing expatriate workforce and speculation fueled by borrowing.
The U.A.E. last year scrapped a rule that automatically qualified homeowners in Dubai for a permanent residency visa. Owners of properties valued at 1 million dirhams or more are now required to renew residency visas every six months.
About 65,000 residential units will be completed in Dubai by 2011 and the emirate needs to create a minimum of 100,000 white-collar jobs to satisfy oncoming supply, Nomura said on Oct 15. Deutshe Bank estimates that 30,000 units may be delivered by the end of 2010.
Faster Process
“When people talk about litigation in the Middle East, they’re concerned over the possible time it would take to obtain a judgment,” Waugh said. “The speed at which it appears judgments may be obtained under the mortgage law is a real, positive sign for banks.” The Barclays cases were filed in November, he said.
The U.A.E.’s central bank in October proposed reducing the time it takes for a loan to be classified as non-performing by half to 90 days. Banks “most probably” will be asked to comply during the first quarter of this year, said Sofia El Boury, a banking analyst at Shuaa Capital PSC.
So far, no properties have been auctioned, according to Mohammed Sultan Thani, assistant director general at the Dubai Land Department. Requests may start pouring in this year as banks give up on other alternatives, he said.
“Amicable solutions are hard to reach when a buyer lost his job,” or when a property is worth less than the amount owed on it, Thani said.
Lending Swelled
Mortgage loans totaled 137.6 billion dirhams in July 2009, central bank data shows. About 25,000 to 30,000 mortgages have been taken in the U.A.E. with more than 95 percent of them in Dubai, analysts say.
The central bank estimates that real estate accounts for about 13 percent of total loans in the U.A.E. Shuaa’s El Boury said the real figure is “much higher” and official numbers aren’t realistic “given the financing contributions to real estate construction and development in the U.A.E.”
The new mortgage law applies to only some kinds of Islamic lending, Waugh said. Shuaa estimates about 25,000 mortgages were extended by Tamweel and its competitor Amlak alone. The two lenders, which control more than half of the U.A.E’s mortgage market, are set to merge this year. Shares of both companies have been suspended since November, 2008.
Negative Equity
The biggest risks to banks come from loans underwritten after 2007, which are “most probably in deep negative equity by now,” Moody’s Yacoub said. Also at risk are Islamic Istisna’ mortgages where a buyer doesn’t make any payments until the property is delivered, he said.
Barclays said the court’s decisions will renew lenders’ faith in Dubai’s legal system, “which could result in bigger lending mandates specifically for mortgage business.”
Judging by the first cases, the process seems to be working, Al Tamimi’s Waugh said. “Like anything, there are a few teething problems that are being resolved, but the fact that we have obtained judgments so quickly is positive.”
To contact the reporter on this story: Zainab Fattah in Dubai on zfattah@bloomberg.net
Last Updated: January 10, 2010 15:00 EST
-------------------------------------------------------------------------------
(2)The Dubai crisis: A case of the inevitable
BIZ NEWS@UM
Following recent headlines on Dubai’s billion-dollar debt problem, there has been a spate of analyses.
Some were very detailed and contained a list of lessons to be learnt by other countries.
One recent and notable analysis emphasises the need for predictable, sustainable, clear and certain policies and argued that it is because of the lack of all those factors that Dubai is currently facing problems.
In other words, the writer is saying that not only is it possible for countries to avoid financial crises, it is also very simple since what is needed is to make sure that the countries’ policies are not unpredictable, not unsustainable, not unclear and not uncertain.
The question that springs to mind will then be: How come all those brilliant Ivy League-educated policy makers in countries that have experienced debt-related financial crises in the past such as Iceland, Britain, south Korea, Indonesia, Thailand, Argentina, Brazil and of course the United States itself (which boasts of having top universities in the world and the most number of Nobel laureates in the field of economics and finance) have not figured out these simple rules in the past?
And come to think of it, if the avoidance of financial crisis is so simple, why do people bother so much in carrying out detailed research in order to prevent their recurrence?
Maybe we should also not be too agonized with the fact that Malaysia has not produced any Nobel Prize winner in the field of economics or finance.
The experience of the US has shown that having the best economics brains in the world is not going to help a country avoid the occurrence of financial crises.
Coming back to Dubai, it is worth pondering why financial crises continue to occur even though there had been so many crises in recent years which ought to have yielded important lessons.
These include the 1987 Black Monday Crash, the 1994 Mexican Financial Crisis, the 1997 Asian Financial Crisis, the 1999 Brazilian Financial Crisis, the 2001 Argentina Financial Crisis and the 2007 US Sub-prime Financial Crisis.
Surely policy makers have had enough data, facts and information at their disposal to help them prevent the occurrence of a financial crisis, especially if it as simple as coming up with policies which are predictable, sustainable, clear and certain.
To be sure, financial crises are not a new phenomenon.
They have been taking place for hundreds of years.
One of the most famous was the Tulip Crisis in Holland which took place in the 1630s.
What happened was that many highly indebted people could not repay their debts, enough to cause a crisis in the Dutch economy.
While the Tulip Crisis was caused by over-speculation in tulip bulbs, in the case of Dubai, the cause is over-speculation in the property sector.
But the essence of the two stories is the same: people got excited with the booming price in a particular sector.
They then borrowed heavily to engage in speculative transactions causing further increase in the size of the speculative ‘bubbles’.
Eventually the bubbles burst and many people became financially unstuck causing a downward spiral of price and more trouble to the economy which eventually led to financial and economic crises.
Strangely enough, however, it seems that this simple lesson on the importance of having predictable, sustainable, clear and certain policies was not easily learnt because well after that episode, financial crises continued to erupt in Europe and the United States.
The most famous ones include the 1720 South Sea financial crisis in London, the US panic of 1873, and the Great Depression of the 1930s.
They all have one thing in common.
Many people borrowed money in order to engage in speculative transactions in a variety of assets such as properties and stocks.
These activities led to asset bubbles which eventually burst, resulting in widespread financial insolvencies and, thereby, economic crises.
One notable fact is that these financial crises during the 17th, 18th and 19th centuries took place mostly in Europe or America and not in places such as the Middle East or Southeast Asia.
So a question worth asking is whether in these regions, predictable, sustainable, clear and certain policies were in place to regulate their financial sectors?
Well, obviously that is not true for the simple fact that in these regions, in those eras, had no financial sector to regulate.
In other words, the main reason they did not experience any financial crisis was simply that they did not have any significant financial sector to start with.
Of course eventually they began to develop their own financial sectors and soon they too experienced financial crises.
The most serious one for Southeast Asian countries was the 1997 financial meltdown and just as in the case of other financial crises, it was also a story of debts, speculations and the bursting of asset bubbles.
Truth be told, once a country developed a lending-for-profit sector of its own, there is no avoidance of a financial crisis even if predictable, sustainable, clear and certain policies are in place.
Britain and America are the best examples of this.
As is well known to many, these are two countries which are models to others in terms of financial regulations and supervision.
Nevertheless the fact remains that the same two also happen to be among the ones which are experiencing the worst financial crises in the world.
One very important, maybe the most important, lesson we should learn is that the occurrence of financial and debt crisis is an inevitable outcome of the existence of a lending-for-profit sector.
And the more developed, sophisticated and advanced the sector is, the bigger and more serious will the crisis inevitably be.
●Dr Mohd Nazari Ismail is a professor at the Faculty of Business and Accounting, University of Malaya
China's High-Speed-Rail Revolution
China's High-Speed-Rail Revolution
Dedicated lines are the key to record-breaking speeds.
By Peter Fairley
Monday, January 11, 2010
China has begun operating what is, by several measures, the world's fastest rail line: a dedicated 968-kilometer line linking Wuhan, in the heart of central China, to Guangzhou, on the southeastern coast. In trials, the "WuGuang" line trains (locally built variants of Japan's Shinkansen and Germany's InterCity Express high-speed trains) clocked peak speeds of up to 394 kilometers per hour (or 245 miles per hour). They have also recorded an average speed of 312 kph in nonstop runs four times daily since the WuGuang's December 26 launch, slashing travel time from Wuhan to Guangzhou from 10.5 hours to less than three.
China's Shinkansen: China’s WuGuang rail line employs locally-manufactured variants of Japan’s Shinkansen (pictured) and Siemens’ Velaro high speed trains. However, it is the line’s physical and digital infrastructure that enables the trains to beat world speed records.
Credit: China South Locomotive & Rolling Stock.
WuGuang's speed blows away the reigning champion: France's TGV, which runs from Lorraine to Champagne and averages 272 kph. It also bests China's first high-speed train, the Beijing-to-Tianjin trains that average 230 kph, as well as Shanghai's magnetically levitated airport shuttle trains that can hit 430 kph but average less than 251 kph.
Rail experts say the builders of the new WuGuang line deserve more bragging rights than the trains' European and Japanese designers.
"The high-speed rail technology implemented in China is not that much different from the TGV, Germany's ICE, and the Shinkansen," says Rongfang Liu, a rail expert at the New Jersey Institute of Technology in Newark. What is notable, she and others say, is that unlike many high-speed lines that repurpose older tracks, this one was designed from the ground up for very high-speed operation over hundreds of kilometers. Bridges and tunnels, as well as the concrete bed beneath the track, have been designed to safely rocket passengers around, through, or over the natural and man-made obstacles that would otherwise force the trains to slow down.
Plenty more speedy lines are coming in China under an ambitious build-out initiated in 2006 by China's Ministry of Railways, and accelerated with government stimulus funds. A two-trillion-yuan ($293 billion) plan envisions 16,000 kilometers of dedicated high-speed rail lines connecting all of China's major cities by 2020. The first East-West segment--a link from Xi'an to Zhengzhou--could begin operating as early as this month, and work is underway to extend the Beijing-Tianjin line southward to Shanghai by 2012. WuGuang, meanwhile, is expected to expand northward to Beijing and South to Hong Kong by 2013. "Over the next five years there'll be more high-speed rail added in China than the rest of the world combined," says Keith Dierkx, director of IBM's Beijing-based Global Rail Innovation Center.
High-speed rail is seen as a clean way to boost the expansion of China's transportation system, according to Dierkx. Dedicated lines will help meet rail demand, which is expected to more than triple to five billion passengers per year by 2020. And building these lines is seen as preferable to further expanding reliance on imported oil for automobiles and airplanes. Dierkx says dedicated high-speed rail should also improve freight transportation by easing congestion on conventional rail lines.
Building fast lines requires civil engineering works on a massive scale. WuGuang has 625 bridges with a combined length of 362 kilometers, and 221 tunnels with a combined length of 177 kilometers, contributing to a total construction cost of 116 billion yuan ($17 billion). The 1,300-kilometer Beijing-to-Shanghai line will cost an estimated 221 billion yuan--more than the Three Gorges Dam hydroelectric project.
However, experts say part of the high cost will be paid back through lower operating costs. Rather than laying rail on wood or concrete sleepers set into crushed rock, the Chinese rails are almost exclusively set into beds of concrete slabs designed by German rail engineering firms RAIL.ONE and Max Bögl. This eliminates damage to the track and rolling stock caused by flying stones lifted by turbulence from the high-speed trains. It also reduces wear on the wheels from shifting tracks.
Monitoring and control systems are another up-front investment that is both a precondition to high-speed operation and a cost-saver, providing the confidence in safety needed to drive trains fast. "If a train is going 300 to 350 kph, the consequences of safety failures become very critical," says Dierkx.
Dierkx says that systems under development by his Beijing-based center include train-mounted laser scanners to observe track conditions; real-time systems to predict failures; sensors on bridges and tunnels; and dynamic scheduling systems to ensure that trains are available when needed and have a free path to operate at top speeds.
Dierkx, Liu, and others say the U.S. could ultimately benefit from China's investment in high-speed rail, because it should bring down the cost of creating the type of dedicated high-speed rail lines that the U.S. still lacks. "The U.S. is going to be able to capture the advantage of a lot of the innovation taking place globally," says Dierkx.
It increasingly looks as though the U.S. will do just that. The California High Speed Rail Authority is using $10 billion in funding from a bond issue approved by voters last winter to begin detailed design work on a 790-mile system linking Los Angeles, San Francisco, and Sacramento. Rod Diridon, executive director of San Diego State University's Mineta Transportation Institute and former chair of California's authority, says the system will reduce California's greenhouse gas emissions by nine million tons by 2050, since high-speed rail is three times more efficient than flying, and five times more efficient than driving per passenger mile.
Diridon says California's bond vote broke the political "dam" holding back high-speed rail. Within months, President Obama proposed a high-speed rail plan and Congress approved $8 billion in stimulus funds that the Federal Railroad Administration is expected to award this month. "All of a sudden the funding is there," says Diridon.
Diridon says even Amtrak could get the dedicated lines it needs to unleash its Acela Express service from Boston to New York City--an idea that was all but unthinkable just a few years ago. Amtrak's Canadian-designed trains are capable of traveling at over 200 kph, but their average speed is less than half that because they share the rails with freight. "We're looking very hard at how to get the Acela off the freight lines," says Diridon.
Dedicated lines are the key to record-breaking speeds.
By Peter Fairley
Monday, January 11, 2010
China has begun operating what is, by several measures, the world's fastest rail line: a dedicated 968-kilometer line linking Wuhan, in the heart of central China, to Guangzhou, on the southeastern coast. In trials, the "WuGuang" line trains (locally built variants of Japan's Shinkansen and Germany's InterCity Express high-speed trains) clocked peak speeds of up to 394 kilometers per hour (or 245 miles per hour). They have also recorded an average speed of 312 kph in nonstop runs four times daily since the WuGuang's December 26 launch, slashing travel time from Wuhan to Guangzhou from 10.5 hours to less than three.
China's Shinkansen: China’s WuGuang rail line employs locally-manufactured variants of Japan’s Shinkansen (pictured) and Siemens’ Velaro high speed trains. However, it is the line’s physical and digital infrastructure that enables the trains to beat world speed records.
Credit: China South Locomotive & Rolling Stock.
WuGuang's speed blows away the reigning champion: France's TGV, which runs from Lorraine to Champagne and averages 272 kph. It also bests China's first high-speed train, the Beijing-to-Tianjin trains that average 230 kph, as well as Shanghai's magnetically levitated airport shuttle trains that can hit 430 kph but average less than 251 kph.
Rail experts say the builders of the new WuGuang line deserve more bragging rights than the trains' European and Japanese designers.
"The high-speed rail technology implemented in China is not that much different from the TGV, Germany's ICE, and the Shinkansen," says Rongfang Liu, a rail expert at the New Jersey Institute of Technology in Newark. What is notable, she and others say, is that unlike many high-speed lines that repurpose older tracks, this one was designed from the ground up for very high-speed operation over hundreds of kilometers. Bridges and tunnels, as well as the concrete bed beneath the track, have been designed to safely rocket passengers around, through, or over the natural and man-made obstacles that would otherwise force the trains to slow down.
Plenty more speedy lines are coming in China under an ambitious build-out initiated in 2006 by China's Ministry of Railways, and accelerated with government stimulus funds. A two-trillion-yuan ($293 billion) plan envisions 16,000 kilometers of dedicated high-speed rail lines connecting all of China's major cities by 2020. The first East-West segment--a link from Xi'an to Zhengzhou--could begin operating as early as this month, and work is underway to extend the Beijing-Tianjin line southward to Shanghai by 2012. WuGuang, meanwhile, is expected to expand northward to Beijing and South to Hong Kong by 2013. "Over the next five years there'll be more high-speed rail added in China than the rest of the world combined," says Keith Dierkx, director of IBM's Beijing-based Global Rail Innovation Center.
High-speed rail is seen as a clean way to boost the expansion of China's transportation system, according to Dierkx. Dedicated lines will help meet rail demand, which is expected to more than triple to five billion passengers per year by 2020. And building these lines is seen as preferable to further expanding reliance on imported oil for automobiles and airplanes. Dierkx says dedicated high-speed rail should also improve freight transportation by easing congestion on conventional rail lines.
Building fast lines requires civil engineering works on a massive scale. WuGuang has 625 bridges with a combined length of 362 kilometers, and 221 tunnels with a combined length of 177 kilometers, contributing to a total construction cost of 116 billion yuan ($17 billion). The 1,300-kilometer Beijing-to-Shanghai line will cost an estimated 221 billion yuan--more than the Three Gorges Dam hydroelectric project.
However, experts say part of the high cost will be paid back through lower operating costs. Rather than laying rail on wood or concrete sleepers set into crushed rock, the Chinese rails are almost exclusively set into beds of concrete slabs designed by German rail engineering firms RAIL.ONE and Max Bögl. This eliminates damage to the track and rolling stock caused by flying stones lifted by turbulence from the high-speed trains. It also reduces wear on the wheels from shifting tracks.
Monitoring and control systems are another up-front investment that is both a precondition to high-speed operation and a cost-saver, providing the confidence in safety needed to drive trains fast. "If a train is going 300 to 350 kph, the consequences of safety failures become very critical," says Dierkx.
Dierkx says that systems under development by his Beijing-based center include train-mounted laser scanners to observe track conditions; real-time systems to predict failures; sensors on bridges and tunnels; and dynamic scheduling systems to ensure that trains are available when needed and have a free path to operate at top speeds.
Dierkx, Liu, and others say the U.S. could ultimately benefit from China's investment in high-speed rail, because it should bring down the cost of creating the type of dedicated high-speed rail lines that the U.S. still lacks. "The U.S. is going to be able to capture the advantage of a lot of the innovation taking place globally," says Dierkx.
It increasingly looks as though the U.S. will do just that. The California High Speed Rail Authority is using $10 billion in funding from a bond issue approved by voters last winter to begin detailed design work on a 790-mile system linking Los Angeles, San Francisco, and Sacramento. Rod Diridon, executive director of San Diego State University's Mineta Transportation Institute and former chair of California's authority, says the system will reduce California's greenhouse gas emissions by nine million tons by 2050, since high-speed rail is three times more efficient than flying, and five times more efficient than driving per passenger mile.
Diridon says California's bond vote broke the political "dam" holding back high-speed rail. Within months, President Obama proposed a high-speed rail plan and Congress approved $8 billion in stimulus funds that the Federal Railroad Administration is expected to award this month. "All of a sudden the funding is there," says Diridon.
Diridon says even Amtrak could get the dedicated lines it needs to unleash its Acela Express service from Boston to New York City--an idea that was all but unthinkable just a few years ago. Amtrak's Canadian-designed trains are capable of traveling at over 200 kph, but their average speed is less than half that because they share the rails with freight. "We're looking very hard at how to get the Acela off the freight lines," says Diridon.
Monday 11 January 2010
China banks eclipse US rivals
China banks eclipse US rivals
By Patrick Jenkins in London
Published: January 10 2010 22:32 | Last updated: January 10 2010 22:32
Chinese banks have cemented their position as the most highly valued financial institutions, taking four of the top five slots in a ranking of banks’ share prices as a multiple of their book values.
China Merchants Bank, China Citic, ICBC and China Construction Bank lead the table, followed by Itaú Unibanco of Brazil, all with a price-to-book multiple of more than three.
Over the past six years, the average price-to-book value of the biggest 50 banks has halved from two to one.
This means that investors believe the average bank is worth no more than the value of its balance sheet. Most western banks are trading at well below their book value.
But investors are attaching a growing premium to emerging markets banks, led by China Merchants, the most highly rated of the biggest 50 banks by market capitalisation, on a multiple of 4.3, according to Bloomberg data.
At the start of the last decade, the US dominated the rankings. The top five were Bank of New York Mellon , Lloyds of the UK, Morgan Stanley, Citigroup and Wells Fargo.
Only last year US Bancorp topped the table and Wells Fargo was in the top 10.
The changes, which have seen the top-rated Chinese banks double in valuation over the past year as western rivals have been derated, reflect growing confidence in emerging markets, particularly China and Brazil.
They indicate concerns about the profitability of western institutions stemming from toxic assets and the drive to force banks to increase capital and liquid funds.
Even western investment banks that have thrived over the past year have been left behind in the price-to-book league table. Goldman Sachs is ranked 22nd and JPMorgan 31st.
“Western markets generally are experiencing their worst prospects for 20 years, and that’s in the valuations,” Robert Law, banks analyst at Nomura, said.
“China in particular is a region that is perceived as less vulnerable to global downturn.”
Although Chinese bank valuations were hit by investor nervousness in 2008, the limited fallout they suffered – combined with positively received government stimulus measures – have allowed them to bounce back.
Some fringe developed economies with a reputation for tough regulatory controls and limited direct or indirect exposure to the subprime problem at the root of the crisis have benefited.
Canadian and Australian banks in particular climbed the price-to-book rankings.
Copyright The Financial Times Limited 2010. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
By Patrick Jenkins in London
Published: January 10 2010 22:32 | Last updated: January 10 2010 22:32
Chinese banks have cemented their position as the most highly valued financial institutions, taking four of the top five slots in a ranking of banks’ share prices as a multiple of their book values.
China Merchants Bank, China Citic, ICBC and China Construction Bank lead the table, followed by Itaú Unibanco of Brazil, all with a price-to-book multiple of more than three.
Over the past six years, the average price-to-book value of the biggest 50 banks has halved from two to one.
This means that investors believe the average bank is worth no more than the value of its balance sheet. Most western banks are trading at well below their book value.
But investors are attaching a growing premium to emerging markets banks, led by China Merchants, the most highly rated of the biggest 50 banks by market capitalisation, on a multiple of 4.3, according to Bloomberg data.
At the start of the last decade, the US dominated the rankings. The top five were Bank of New York Mellon , Lloyds of the UK, Morgan Stanley, Citigroup and Wells Fargo.
Only last year US Bancorp topped the table and Wells Fargo was in the top 10.
The changes, which have seen the top-rated Chinese banks double in valuation over the past year as western rivals have been derated, reflect growing confidence in emerging markets, particularly China and Brazil.
They indicate concerns about the profitability of western institutions stemming from toxic assets and the drive to force banks to increase capital and liquid funds.
Even western investment banks that have thrived over the past year have been left behind in the price-to-book league table. Goldman Sachs is ranked 22nd and JPMorgan 31st.
“Western markets generally are experiencing their worst prospects for 20 years, and that’s in the valuations,” Robert Law, banks analyst at Nomura, said.
“China in particular is a region that is perceived as less vulnerable to global downturn.”
Although Chinese bank valuations were hit by investor nervousness in 2008, the limited fallout they suffered – combined with positively received government stimulus measures – have allowed them to bounce back.
Some fringe developed economies with a reputation for tough regulatory controls and limited direct or indirect exposure to the subprime problem at the root of the crisis have benefited.
Canadian and Australian banks in particular climbed the price-to-book rankings.
Copyright The Financial Times Limited 2010. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
Saturday 9 January 2010
The process of innovation
The process of innovation
THINK ASIAN
By ANDREW SHENG
Thomas Edison used to say that invention is 99% perspiration and 1% inspiration. What he really meant was that the 99% perspiration was spent on the process of innovation and perhaps only at the last minute could he have a mental breakthrough to create something new.
We are truly living in the age of innovation, where technology has created new ways of living and communicating that we could not have envisaged. Thirty years ago, when the TV series Star Trek began, we saw Captain Kirk flip his communicator and speak to the Starship Enterprise. Travelling in the Moluccas in the Spice Islands this Christmas, I was amazed how in the most remote islands of Indonesia, young people were communicating with their friends using the latest Blackberrys.
Yet, at Saumlaki airport, two bikers had to go out to the runway first to chase away the cows before our plane could take off. How do we create something new? The management guru Peter Drucker said that he had to learn a new craft every three years to obtain new insights into old problems. For example, he studied Japanese literature to gain understanding of how Japanese thought about problems. According to him, every innovation comes from the cross-fertilization of ideas from different fields.
INSEAD professors Kim and Mauborgne put it very elegantly by saying that you need to move out of traditional, heavily competitive areas like the Red Sea to explore Blue Oceans where there are few competitors. This is easier said than done, because breaking out of old mindsets is very painful. We would all like to play tennis like Roger Federer, but I don’t have the patience or the willpower to diet, exercise rigorously, practice and compete day in, day out.
Innovation is a process, a cycle of steps that must be rigorously followed to achieve what you set out to achieve. First you must have a Strategy or goal what you want to achieve. This is the search and browse function. It is like shopping in a supermarket. Some people begin with very clear ideas of what they want. Others browse by looking to see what attracts them.
Genghis Khan mausoleum in Inner Mongolia, China. The ancient ruler must be one of the greatest of institutional innovators, because he created innovative teams of warriors out of individualistic nomad rabble.
The second step is to Prioritise, because we must narrow down our choices. Many people have difficulty making up their minds, because they want everything and end up doing nothing. Success comes from having focus.
The third is to Incentivise. If you set a goal, you must create the incentives to achieve that, either to reward yourself or your colleagues. Incentives mean both the rewards and the punishments. People tend to forget that we fail mostly because the incentives are wrong. If you reward failure, you will get failure.
The fourth is to set the Standards. Success or failure must have benchmarks. Are you aiming for the Olympics or just the Asian Games, the local market or the global market? A small country like the Danes can create badminton champions because they start their children young and train them through competitive leagues, using world champion trainers.
The fifth is the Structure. People think that innovation comes from individual genius, forgetting that genius can only create if the ecology is right. Michelangelo grew up in an age of great artistic creativity. He learnt from great masters and had inspired pupils, as well as rich patrons. If he was Robinson Crusoe on a lonely island, no one would appreciate or discover his genius.
It also takes passion and leadership to create the right ecology for genius and originality to thrive. Most bureaucracies stifle creativity because they want everyone to think alike. The greatest universities encourage their professors and students to think out of the box.
Sixth, you have to have Process. The word ‘process’ is so boring, whereas Innovation is so sexy. This is because most people associate Innovation with Product innovation, whereas the greatest achievements have been in Process Innovation and Institutional Innovation. Henry Ford did not create the motorcar, but he revolutionised manufacturing by inventing the assembly line process of production. The Japanese improved on this by creating the Just-in-Time assembly process, without famous engineers but through workers on the shop floor.
In my view, Genghis Khan must be one of the greatest of institutional innovators, because he created innovative teams of warriors out of individualistic nomad rabble. His teams invented new methods of mobile warfare and siege techniques. He destroyed the old order and conquered all the way to Europe, forcing the Europeans to respond through their cultural and scientific Renaissance.
Seventh, you have to execute or implement what you want to achieve. Most of us make New Year wishes, but by the middle of the year, we would have forgotten to execute that wish, because it was too difficult, inconvenient or we got distracted by something more exciting. Execution is tough, because it creates what Schumpeter called “creative destruction”.
There is no gain without pain. No wonder most of us do not achieve what we desire. The “last mile” problem is the most difficult and painful. We all want to be Olympic Marathon runners, but we cannot finish the last mile. As Napoleon used to say, execution is everything.
Finally, we must Review our achievements, be honest where we went wrong and change for the better. The cycle of innovation begins anew. As a habit, I have always made a year-end review of what I achieved and where I failed. In 2009, I am grateful that my book From Asian to Global Financial Crisis was published. But this year, I failed in spending more time with my family.
My New Year wish for 2010 is to write a new book and spend more time with my family. Time is what we spend like water when we are young and treasure every moment when we are old. That is the cycle of change.
Happy 2010, everyone.
● Andrew Sheng is Adjunct Professor at the University of Malaya, Kuala Lumpur and Tsinghua University, Beijing.
THINK ASIAN
By ANDREW SHENG
Thomas Edison used to say that invention is 99% perspiration and 1% inspiration. What he really meant was that the 99% perspiration was spent on the process of innovation and perhaps only at the last minute could he have a mental breakthrough to create something new.
We are truly living in the age of innovation, where technology has created new ways of living and communicating that we could not have envisaged. Thirty years ago, when the TV series Star Trek began, we saw Captain Kirk flip his communicator and speak to the Starship Enterprise. Travelling in the Moluccas in the Spice Islands this Christmas, I was amazed how in the most remote islands of Indonesia, young people were communicating with their friends using the latest Blackberrys.
Yet, at Saumlaki airport, two bikers had to go out to the runway first to chase away the cows before our plane could take off. How do we create something new? The management guru Peter Drucker said that he had to learn a new craft every three years to obtain new insights into old problems. For example, he studied Japanese literature to gain understanding of how Japanese thought about problems. According to him, every innovation comes from the cross-fertilization of ideas from different fields.
INSEAD professors Kim and Mauborgne put it very elegantly by saying that you need to move out of traditional, heavily competitive areas like the Red Sea to explore Blue Oceans where there are few competitors. This is easier said than done, because breaking out of old mindsets is very painful. We would all like to play tennis like Roger Federer, but I don’t have the patience or the willpower to diet, exercise rigorously, practice and compete day in, day out.
Innovation is a process, a cycle of steps that must be rigorously followed to achieve what you set out to achieve. First you must have a Strategy or goal what you want to achieve. This is the search and browse function. It is like shopping in a supermarket. Some people begin with very clear ideas of what they want. Others browse by looking to see what attracts them.
Genghis Khan mausoleum in Inner Mongolia, China. The ancient ruler must be one of the greatest of institutional innovators, because he created innovative teams of warriors out of individualistic nomad rabble.
The second step is to Prioritise, because we must narrow down our choices. Many people have difficulty making up their minds, because they want everything and end up doing nothing. Success comes from having focus.
The third is to Incentivise. If you set a goal, you must create the incentives to achieve that, either to reward yourself or your colleagues. Incentives mean both the rewards and the punishments. People tend to forget that we fail mostly because the incentives are wrong. If you reward failure, you will get failure.
The fourth is to set the Standards. Success or failure must have benchmarks. Are you aiming for the Olympics or just the Asian Games, the local market or the global market? A small country like the Danes can create badminton champions because they start their children young and train them through competitive leagues, using world champion trainers.
The fifth is the Structure. People think that innovation comes from individual genius, forgetting that genius can only create if the ecology is right. Michelangelo grew up in an age of great artistic creativity. He learnt from great masters and had inspired pupils, as well as rich patrons. If he was Robinson Crusoe on a lonely island, no one would appreciate or discover his genius.
It also takes passion and leadership to create the right ecology for genius and originality to thrive. Most bureaucracies stifle creativity because they want everyone to think alike. The greatest universities encourage their professors and students to think out of the box.
Sixth, you have to have Process. The word ‘process’ is so boring, whereas Innovation is so sexy. This is because most people associate Innovation with Product innovation, whereas the greatest achievements have been in Process Innovation and Institutional Innovation. Henry Ford did not create the motorcar, but he revolutionised manufacturing by inventing the assembly line process of production. The Japanese improved on this by creating the Just-in-Time assembly process, without famous engineers but through workers on the shop floor.
In my view, Genghis Khan must be one of the greatest of institutional innovators, because he created innovative teams of warriors out of individualistic nomad rabble. His teams invented new methods of mobile warfare and siege techniques. He destroyed the old order and conquered all the way to Europe, forcing the Europeans to respond through their cultural and scientific Renaissance.
Seventh, you have to execute or implement what you want to achieve. Most of us make New Year wishes, but by the middle of the year, we would have forgotten to execute that wish, because it was too difficult, inconvenient or we got distracted by something more exciting. Execution is tough, because it creates what Schumpeter called “creative destruction”.
There is no gain without pain. No wonder most of us do not achieve what we desire. The “last mile” problem is the most difficult and painful. We all want to be Olympic Marathon runners, but we cannot finish the last mile. As Napoleon used to say, execution is everything.
Finally, we must Review our achievements, be honest where we went wrong and change for the better. The cycle of innovation begins anew. As a habit, I have always made a year-end review of what I achieved and where I failed. In 2009, I am grateful that my book From Asian to Global Financial Crisis was published. But this year, I failed in spending more time with my family.
My New Year wish for 2010 is to write a new book and spend more time with my family. Time is what we spend like water when we are young and treasure every moment when we are old. That is the cycle of change.
Happy 2010, everyone.
● Andrew Sheng is Adjunct Professor at the University of Malaya, Kuala Lumpur and Tsinghua University, Beijing.
Charting the Real-Time Web
Charting the Real-Time Web
Now social media has the equivalent of the Times Square "deficit clock."
By David Talbot
Today the Web is bursting with social media content and a burgeoning supply of (and demand for) "real-time" information. This information is created as people open new Facebook and other social media accounts, churn out Tweets and other microblogs, post photos and videos, and tirelessly text one another. But getting a grip on exactly how much is happening--and what the primary sources are--is a slippery task, especially since web companies often jealously guard their metrics.
The new social media counter. Credit: Gary Hayes.
Now there's a social-media "clock" of sorts, which you can check out here. It charts the second-by-second accumulation of social-media accounts, blogs, Tweets, photo uploadings, status updates, and the like. Consider it the social-media equivalent of that national-deficit "clock" in Times Square.
The effort does require a reality check. It's not actually an accurate rendering of the real-time Web. Rather, it's a counter, created by an Australia-based virtual-world entepreneur named Gary Hayes. Hayes set the various rates of increase according to various estimates culled from disparate sources such as analysts, company blogs, and news media accounts. Some of the estimates are several months old and may not actually be accurate or complete.
But, while it may not provide any new primary information, or be accurate in all categories, Hayes' social-media clock is nevertheless an excellent visualization of where much of the Web's growth is coming from these days.
Tags: Facebook, social media, Web 2.0, twitter, virtual worlds
Now social media has the equivalent of the Times Square "deficit clock."
By David Talbot
Today the Web is bursting with social media content and a burgeoning supply of (and demand for) "real-time" information. This information is created as people open new Facebook and other social media accounts, churn out Tweets and other microblogs, post photos and videos, and tirelessly text one another. But getting a grip on exactly how much is happening--and what the primary sources are--is a slippery task, especially since web companies often jealously guard their metrics.
The new social media counter. Credit: Gary Hayes.
Now there's a social-media "clock" of sorts, which you can check out here. It charts the second-by-second accumulation of social-media accounts, blogs, Tweets, photo uploadings, status updates, and the like. Consider it the social-media equivalent of that national-deficit "clock" in Times Square.
The effort does require a reality check. It's not actually an accurate rendering of the real-time Web. Rather, it's a counter, created by an Australia-based virtual-world entepreneur named Gary Hayes. Hayes set the various rates of increase according to various estimates culled from disparate sources such as analysts, company blogs, and news media accounts. Some of the estimates are several months old and may not actually be accurate or complete.
But, while it may not provide any new primary information, or be accurate in all categories, Hayes' social-media clock is nevertheless an excellent visualization of where much of the Web's growth is coming from these days.
Tags: Facebook, social media, Web 2.0, twitter, virtual worlds
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