WHEN the Berlin Wall fell in 1989, free market fundamentalists crowed that it was the end of central planning and the triumphalism of their philosophy. Twenty years later, with excesses of fiscal spending and having to bail out the banking system, the Western economies all have very large state involvement in the economy and fiscal deficits are historical huge by any standards.
No country today can claim with an honest face that their banking systems are totally private owned. Many are still being kept on life support by huge deposit guarantees and cheap funding by central banks, including large state ownership. In order to generate employment, governments are spending unprecedented amounts.
How big is the size of the state in the total economy? The more advanced economies tend to have very large governments. France has government expenditure around 50% of GDP and the US at 40% of GDP. By comparison, China and Indonesian government expenditure are only 20% of GDP. According to historical data, for most of Chinese history, government revenue never exceeded 10% of GDP.
Government has grown in size due to growing demand for government services. The minimum government services are defense, security, health, law, infrastructure and education. Government was not always financed by taxation. Throughout history, government has been financed sometimes by monopoly over certain activities, such as sales of salt, tobacco or alcohol. Thus, including state-owned enterprises into the sphere of government activity would increase the size of the public sector.
As Asia grew faster than the West, there has been considerable unease that Asian governments have been much more intrusive and mercantilist than the advanced economies. When Japan became the first Asian economy to join the ranks of industrial countries, the Japanese government was quite keen to push the Japanese model of development, especially the positive role of the public sector. In the 1980s, the Japanese government financed a World Bank Study on the Asian Miracle.
The World Bank economists, who were imbued by free market philosophy, were initially unwilling to accept the fact that governments have a major positive role in economic development. But as they dug into East Asian growth, they realised the strong role government played in fostering sound markets. Indeed, without an active role of Asian governments in building up the infrastructure, devoting resources to education and health and providing political stability and protection of property rights, Asian markets could not have grown so fast. The World Bank economists admitted that Asian state-market cooperation succeeded because the state “mimicked” the market.
Even though the free market World Bank economists hated the idea of governments “picking the winners”, they had to admit that Asian technocrats somehow did select the key industries to develop, but with crucial input from the market. They did not pick winners from thin air, but worked with the market and had good feedback on when to advance and when to retreat.
With the failure of central planning, free market philosophy gained dominance. Throughout the advanced economies, the philosophy was to reduce the role of the state and roll back government intervention. For the developing economies, the advice was to privatize, whereas for the advanced economies, former government activities became joint-ventures through what is known as Private-Public Partnerships. When the governments could not afford to undertake any infrastructure investment, the private sector was invited to invest through Build-Operate and Transfer contracts.
In many countries, this strategy worked and efficiency did increase. But in other countries, privatisation became “piratisation”, in which politically connected elites enjoyed the perfect game – private profit at public expense. Indeed, while economists argued for free markets, the democratic movement was arguing for exactly the opposite, more and more government intervention to deal with social justice, protecting the environment and better social infrastructure.
The global financial crisis has laid bare the free market dogma. The market cannot solve all problems and may create excesses that need to be curbed. If regulation is too market friendly, the system may be captured so that “too large to fail” institutions can hold whole countries to ransom. Indeed, global banks have become larger than national governments who were forced to bail them out with public debt. In less than five years, the US public debt has doubled to 100% of GDP. Governments have been forced to be more intrusive in markets because of the high cost of moral hazard.
Actually, where Asian government has succeeded is not whether the government led the way, but where the balance between government and the market was delicately calibrated. Economies work well where governments knew how to let the market work where it functioned best and the government concentrated on what it did best. The idea of Hong Kong being the freest market in the world is a bit of a myth, considering that half of Hong Kong citizens live in government owned low-cost housing and the government provided superb social welfare. Positive non-intervention did not mean no intervention.
It meant that the government provided the environment for the private sector to thrive, without competing directly with the private sector. How far the pendulum has swing is demonstrated in the recent report that US regulators have begun to ask hedge funds not to destroy trading records on euro bets, as Europe and the US step up scrutiny of the funds’ role in the Greek debt crisis. I still remember when Asian governments asked the developed markets to investigate the role of hedge funds, the advanced market regulators were so skeptical of market manipulation that they set up task forces to prove that the hedge funds were not responsible for the market turmoils in Asia.
By contrast, China recently approved the use of short selling, whereas in 2008 the leading Western banks were the first to complain to their regulators to ban naked short-selling on their stocks to prevent their meltdown.
Regulators investigating the role of hedge funds speculating on the euro would be wise to start measuring the proprietary trading position of their large banks and prime brokers first to find out whether these positions are larger than those of the hedge funds. During the Asian crisis, I learnt that it was not always your enemies who are acting against your interests. If you have friends like these, who needs enemies?
● Datuk Seri Panglima Andrew Sheng is adjunct professor at Universiti Malaya and Tsinghua University, Beijing. He has served in key positions at Bank Negara, the Hong Kong Monetary Authority and the Hong Kong Securities and Futures Commission, and is currently a member of Malaysia’s National Economic Advisory Council. He is the author of the book “From Asian to Global Financial Crisis
Saturday 6 March 2010
Friday 5 March 2010
Dirty Air in California Causes Millions Worth of Medical Care Each Year, Study Finds
ScienceDaily (Mar. 5, 2010) — California's dirty air caused more than $193 million in hospital-based medical care from 2005 to 2007 as people sought help for problems such as asthma and pneumonia that are triggered by elevated pollution levels, according to a new RAND Corporation study.
Researchers estimate that exposure to excessive levels of ozone and particulate pollution caused nearly 30,000 emergency room visits and hospital admissions over the study period. Public insurance programs were responsible for most of the costs, with Medicare and Medi-Cal covering more than two-thirds of the expenses, according to the report.
"California's failure to meet air pollution standards causes a large amount of expensive hospital care," said John Romley, lead author of the study and an economist at RAND, a nonprofit research organization. "The result is that insurance programs -- both those run by the government and private payers -- face higher costs because of California's dirty air."
While much work has been done previously to catalog the economic impact of air pollution across California, the RAND study is the first to quantify the cost of hospital-based medical care to various payers caused by the failure to meet federal clean air standards across the state. More people in California live in areas that do not meet federal clean air standards than in any other state.
Romley said the findings show that private insurers, employers and public insurance programs all have a financial stake in improving California's air quality.
"These costs may not be the largest problem caused by dirty air, but our study provides more evidence about the impact that air pollution has on the state's economy," Romley said.
Researchers used records from air pollution agencies and hospitals to estimate how failing to meet federal and state standards for particulate matter and ozone would affect private and public insurer spending for hospital admissions for respiratory and cardiovascular causes, and emergency room visits for asthma throughout California from 2005-2007.
Researchers say the most common hospital-based medical care triggered by elevated air pollution levels are emergency room visits for asthma among children aged 17 and under, with more than 12,000 visits over the three-year study period.
The most costly conditions examined by researchers were hospital admissions triggered by air pollution for acute bronchitis, pneumonia and chronic obstructive pulmonary disease. Those conditions accounted for nearly one-third of the $193 million in health care spending documented over the study period.
Nearly three-quarters of the health events identified by researchers were triggered by high levels of fine particulate pollution -- tiny pieces of soot that can lodge deep in lungs. The health events examined in the study were concentrated in the San Joaquin Valley and the four-county South Coast Air Basin.
The cost of treating health events caused by air pollution is equal to the expense of providing flu vaccines to 85 percent of California children under age 15, according to the report.
Researchers say their study provides a conservative estimate about the costs of medical care triggered by air pollution because it does not include outpatient care provided in clinics or medical offices. Details about that type of medical care are not routinely reported to state agencies and thus could not be analyzed.
The study also includes case studies of individual hospitals in Fresno, Lynwood, Palo Alto, Riverside and Sacramento. That analysis demonstrates that costs and types of illness reported vary by region.
To conduct the study, researchers used epidemiological studies that link elevated pollution levels to respiratory and cardiovascular illnesses, and compared that information to pollution levels measured across the state from 2005 to 2007 by various public agencies. Researchers also reviewed detailed records hospitals report to the state about the patients they treat, the illnesses diagnosed and who pays for that care.
The study, "The Impact of Air Quality on Hospital Spending," is available at www.rand.org. Support for the study was provided by the William and Flora Hewlett Foundation. Other authors of the study are Andrew Hackbarth of the Pardee RAND Graduate School and Dana Goldman of RAND and USC.
Researchers estimate that exposure to excessive levels of ozone and particulate pollution caused nearly 30,000 emergency room visits and hospital admissions over the study period. Public insurance programs were responsible for most of the costs, with Medicare and Medi-Cal covering more than two-thirds of the expenses, according to the report.
"California's failure to meet air pollution standards causes a large amount of expensive hospital care," said John Romley, lead author of the study and an economist at RAND, a nonprofit research organization. "The result is that insurance programs -- both those run by the government and private payers -- face higher costs because of California's dirty air."
While much work has been done previously to catalog the economic impact of air pollution across California, the RAND study is the first to quantify the cost of hospital-based medical care to various payers caused by the failure to meet federal clean air standards across the state. More people in California live in areas that do not meet federal clean air standards than in any other state.
Romley said the findings show that private insurers, employers and public insurance programs all have a financial stake in improving California's air quality.
"These costs may not be the largest problem caused by dirty air, but our study provides more evidence about the impact that air pollution has on the state's economy," Romley said.
Researchers used records from air pollution agencies and hospitals to estimate how failing to meet federal and state standards for particulate matter and ozone would affect private and public insurer spending for hospital admissions for respiratory and cardiovascular causes, and emergency room visits for asthma throughout California from 2005-2007.
Researchers say the most common hospital-based medical care triggered by elevated air pollution levels are emergency room visits for asthma among children aged 17 and under, with more than 12,000 visits over the three-year study period.
The most costly conditions examined by researchers were hospital admissions triggered by air pollution for acute bronchitis, pneumonia and chronic obstructive pulmonary disease. Those conditions accounted for nearly one-third of the $193 million in health care spending documented over the study period.
Nearly three-quarters of the health events identified by researchers were triggered by high levels of fine particulate pollution -- tiny pieces of soot that can lodge deep in lungs. The health events examined in the study were concentrated in the San Joaquin Valley and the four-county South Coast Air Basin.
The cost of treating health events caused by air pollution is equal to the expense of providing flu vaccines to 85 percent of California children under age 15, according to the report.
Researchers say their study provides a conservative estimate about the costs of medical care triggered by air pollution because it does not include outpatient care provided in clinics or medical offices. Details about that type of medical care are not routinely reported to state agencies and thus could not be analyzed.
The study also includes case studies of individual hospitals in Fresno, Lynwood, Palo Alto, Riverside and Sacramento. That analysis demonstrates that costs and types of illness reported vary by region.
To conduct the study, researchers used epidemiological studies that link elevated pollution levels to respiratory and cardiovascular illnesses, and compared that information to pollution levels measured across the state from 2005 to 2007 by various public agencies. Researchers also reviewed detailed records hospitals report to the state about the patients they treat, the illnesses diagnosed and who pays for that care.
The study, "The Impact of Air Quality on Hospital Spending," is available at www.rand.org. Support for the study was provided by the William and Flora Hewlett Foundation. Other authors of the study are Andrew Hackbarth of the Pardee RAND Graduate School and Dana Goldman of RAND and USC.
Political interference greatest risk for banks
Bankers see politics distorting their lending decisions
KUALA LUMPUR: Political interference is the greatest risk facing the global banking industry now, according to the latest Banking Banana Skins 2010 survey.
In a briefing yesterday, PwC Malaysia partner Ong Ching Chuan said the poll put political interference at the top of a list of 30 most serious risks to banks “as a result of bailouts and takeover” which posed a major risk to their financial health.
The survey shows that the dash by governments to rescue their banks from disaster may have staved off a collapse of the system, but it has left attitudes to the banking industry deeply politicised, a development which is seen by respondents to be the greatest risk now facing the financial sector.
Political interference has never been a top risk since 1996. The top risk is closely linked to the third risk – “too much regulation” – and the concern that banks will be further damaged by over-reaction to the crisis.
Ong Ching Chuan (right) Soo Hoo Khoon Yean at the briefing At No. 2 is credit risk which stemmed from concern about the effects of the economic recession on the banking industry.
Other top risks identified are too much regulation, macro-economic trends, liquidity, capital availability, derivatives, risk management quality, credit spreads and equities.
“With political interference as the top risk and “too much regulation” at number three, the concern is that the financial crisis has taken the banking industry’s future out of its own hands,” Ong said.
He added that the top risk also brought up other concerns such as moral hazard, politicisation of lending and how governments would withdraw their support.
This view was shared by all types of respondents in all the major banking regions.
Bankers saw politics distorting their lending decisions while non-bankers said political rescues had damaged banks by encouraging reckless attitudes.
Meanwhile, regulators are worried that governments would withdraw their support from banks before they had the time to rebuild their financial strength, precipitating another collapse.
Ong said banks might feel it was alright to fail as they would be bailed out. “The managing director of risk at a large US bank said that it had already begun to breed complacent attitudes: ‘We’ll always be bailed out’.”
Meanwhile, the bulk of the respondents fears a “double-dip” recession with a further wave of bad debts hitting the banks. In the Asia-Pacific region, respondents are worried that a new asset bubble may burst, bringing about a collapse of confidence in the credit markets.
However, the survey shows that some risks are seen to be easing as the world pulls out of the economic crisis. A number of financial risks – liquidity, derivatives, credit spreads and equities – are down from the previous poll in 2008.
A striking fall is the risk from hedge funds, down from tenth to number 19, as their threat is seen to diminish.
Meanwhile, respondents from the Asia-Pacific put “too much regulation” as their top risk. Macro-economic trends and credit risk took the second and third place respectively.
PwC Malaysia partner Soo Hoo Khoon Yean said Malaysia’s issues were probably more akin to the results from the Asia-Pacific.
He said new regulations such as Basel 2 and changes to regulatory capital structure may not be friendly to emerging economies like Malaysia.
Soo said there were some concerns on banks’ capital requirement but it was not as acute as in Western countries, noting that most Malaysian banks were already well capitalised.
The survey, conducted by the Centre for the Study of Financial Innovation (CSFI) in association with PricewaterhouseCoopers (PwC), is based on 443 responses of which 62% are bankers, 32% observers and 6% regulators from 49 countries.
However, there were no responses from Malaysia in the survey. The study was conducted in November and December 2009.
Source: The Star, By Leong Hung Yee
KUALA LUMPUR: Political interference is the greatest risk facing the global banking industry now, according to the latest Banking Banana Skins 2010 survey.
In a briefing yesterday, PwC Malaysia partner Ong Ching Chuan said the poll put political interference at the top of a list of 30 most serious risks to banks “as a result of bailouts and takeover” which posed a major risk to their financial health.
The survey shows that the dash by governments to rescue their banks from disaster may have staved off a collapse of the system, but it has left attitudes to the banking industry deeply politicised, a development which is seen by respondents to be the greatest risk now facing the financial sector.
Political interference has never been a top risk since 1996. The top risk is closely linked to the third risk – “too much regulation” – and the concern that banks will be further damaged by over-reaction to the crisis.
Ong Ching Chuan (right) Soo Hoo Khoon Yean at the briefingOther top risks identified are too much regulation, macro-economic trends, liquidity, capital availability, derivatives, risk management quality, credit spreads and equities.
“With political interference as the top risk and “too much regulation” at number three, the concern is that the financial crisis has taken the banking industry’s future out of its own hands,” Ong said.
He added that the top risk also brought up other concerns such as moral hazard, politicisation of lending and how governments would withdraw their support.
This view was shared by all types of respondents in all the major banking regions.
Bankers saw politics distorting their lending decisions while non-bankers said political rescues had damaged banks by encouraging reckless attitudes.
Meanwhile, regulators are worried that governments would withdraw their support from banks before they had the time to rebuild their financial strength, precipitating another collapse.
Ong said banks might feel it was alright to fail as they would be bailed out. “The managing director of risk at a large US bank said that it had already begun to breed complacent attitudes: ‘We’ll always be bailed out’.”
Meanwhile, the bulk of the respondents fears a “double-dip” recession with a further wave of bad debts hitting the banks. In the Asia-Pacific region, respondents are worried that a new asset bubble may burst, bringing about a collapse of confidence in the credit markets.
However, the survey shows that some risks are seen to be easing as the world pulls out of the economic crisis. A number of financial risks – liquidity, derivatives, credit spreads and equities – are down from the previous poll in 2008.
A striking fall is the risk from hedge funds, down from tenth to number 19, as their threat is seen to diminish.
Meanwhile, respondents from the Asia-Pacific put “too much regulation” as their top risk. Macro-economic trends and credit risk took the second and third place respectively.
PwC Malaysia partner Soo Hoo Khoon Yean said Malaysia’s issues were probably more akin to the results from the Asia-Pacific.
He said new regulations such as Basel 2 and changes to regulatory capital structure may not be friendly to emerging economies like Malaysia.
Soo said there were some concerns on banks’ capital requirement but it was not as acute as in Western countries, noting that most Malaysian banks were already well capitalised.
The survey, conducted by the Centre for the Study of Financial Innovation (CSFI) in association with PricewaterhouseCoopers (PwC), is based on 443 responses of which 62% are bankers, 32% observers and 6% regulators from 49 countries.
However, there were no responses from Malaysia in the survey. The study was conducted in November and December 2009.
Source: The Star, By Leong Hung Yee
Bank Negara ups interest rates
Overnight policy rate increased to 2.25%
PETALING JAYA: Bank Negara raised its overnight policy rate (OPR) by 25 basis points to 2.25% yesterday, signalling the time was ripe to normalise interest rates with the improvement in economic conditions.
The Monetary Policy Committee (MPC) said the hike was to prevent any financial imbalance that could take place should rates remain too low for longer than necessary and said Malaysians should expect the rate of inflation to rise but remain moderate given the prevailing economic conditions.
The hike in OPR, the benchmark interest rate which determines banks’ lending rates, is the first increase in close to four years.
“The recovery in the global economy is progressing amidst continued policy support and improvements in financial conditions,” the central bank said in a statement yesterday.
Dr Yeah Kim Leng (left)expects an increase of between 75 and 100 basis points this year It said going forward, domestic growth was expected to strengthen further, supported by domestic demand and continued improvement in external demand, particularly from the regional economies which had expanded strongly in the fourth quarter.
Malaysia recorded its first growth of 4.5% after three consecutive quarters of contraction in the last quarter after a combination of government spending, a lower inflation rate and accommodative monetary policy helped boost domestic demand.
“Given this improved economic outlook, the MPC decided to adjust the OPR towards normalising monetary conditions and preventing the risks of financial imbalances that could undermine the economic recovery process,” it said.
While external factors, including rising global commodity and food prices might exert some additional upward pressure on domestic prices, inflation was expected to remain moderate this year, Bank Negara said.
Domestic consumer prices rose for a second month in January, up 1.3% year-on-year.
The OPR has remained at a historical low of 2% since February last year amid a severe and fundamental economic downturn. “These conditions no longer prevail,” Bank Negara said, adding that the stronger growth performance in the fourth quarter affirmed that the economic recovery was “firmly established”.
Accordingly, the floor and ceiling rates of the corridor for the OPR were raised to 2% and 2.5% respectively yesterday.
RAM Holdings Bhd chief economist Dr Yeah Kim Leng described the hike both as a signal of the central bank’s confidence that the local economy recovery was on track and as a “gradual normalisation” of the historically low rates.
Bank Negara had earlier also indicated the need for the normalisation of rates, adding that any increase should be viewed as “normalisation” and not “tightening”, which is normally implemented to slow consumer demand in an overheated economy with high inflation.
According to Yeah, a “normal” level for the OPR is between 3.25% to 3.5%. He expects an increase of between 75 basis points to 100 basis points this year backed by improving economic conditions.
AmResearch Sdn Bhd senior economist Manokaran Mottain said the increase was within AmResearch’s expectations and believed that given increasing inflationary pressures, there would be at least another increase of 25 basis points this year.
“It is needed for a gradual move towards the normalisation of rates,” he said.
At the new OPR level, the stance of monetary policy continued to remain accommodative and supportive of economic growth, said Bank Negara yesterday.
For Bank Negara statements click here
Source: The Star, By Yvonne Tan
PETALING JAYA: Bank Negara raised its overnight policy rate (OPR) by 25 basis points to 2.25% yesterday, signalling the time was ripe to normalise interest rates with the improvement in economic conditions.
The Monetary Policy Committee (MPC) said the hike was to prevent any financial imbalance that could take place should rates remain too low for longer than necessary and said Malaysians should expect the rate of inflation to rise but remain moderate given the prevailing economic conditions.
The hike in OPR, the benchmark interest rate which determines banks’ lending rates, is the first increase in close to four years.
“The recovery in the global economy is progressing amidst continued policy support and improvements in financial conditions,” the central bank said in a statement yesterday.
Dr Yeah Kim Leng (left)expects an increase of between 75 and 100 basis points this yearMalaysia recorded its first growth of 4.5% after three consecutive quarters of contraction in the last quarter after a combination of government spending, a lower inflation rate and accommodative monetary policy helped boost domestic demand.
“Given this improved economic outlook, the MPC decided to adjust the OPR towards normalising monetary conditions and preventing the risks of financial imbalances that could undermine the economic recovery process,” it said.
While external factors, including rising global commodity and food prices might exert some additional upward pressure on domestic prices, inflation was expected to remain moderate this year, Bank Negara said.
Domestic consumer prices rose for a second month in January, up 1.3% year-on-year.
The OPR has remained at a historical low of 2% since February last year amid a severe and fundamental economic downturn. “These conditions no longer prevail,” Bank Negara said, adding that the stronger growth performance in the fourth quarter affirmed that the economic recovery was “firmly established”.
Accordingly, the floor and ceiling rates of the corridor for the OPR were raised to 2% and 2.5% respectively yesterday.
RAM Holdings Bhd chief economist Dr Yeah Kim Leng described the hike both as a signal of the central bank’s confidence that the local economy recovery was on track and as a “gradual normalisation” of the historically low rates.
Bank Negara had earlier also indicated the need for the normalisation of rates, adding that any increase should be viewed as “normalisation” and not “tightening”, which is normally implemented to slow consumer demand in an overheated economy with high inflation.
According to Yeah, a “normal” level for the OPR is between 3.25% to 3.5%. He expects an increase of between 75 basis points to 100 basis points this year backed by improving economic conditions.
AmResearch Sdn Bhd senior economist Manokaran Mottain said the increase was within AmResearch’s expectations and believed that given increasing inflationary pressures, there would be at least another increase of 25 basis points this year.
“It is needed for a gradual move towards the normalisation of rates,” he said.
At the new OPR level, the stance of monetary policy continued to remain accommodative and supportive of economic growth, said Bank Negara yesterday.
For Bank Negara statements click here
Source: The Star, By Yvonne Tan
Thursday 4 March 2010
States, Innovate in IT or Else
California and other states lumber along with antiquated, expensive IT systems, leaving them on the outside of innovation
While Grandma can flip through photo albums on a state-of-the-art laptop or, before long, an Apple (AAPL) iPad, many government agencies and corporations are still entrusting critical tasks to antiquated computer systems that cost a fortune to operate and maintain.The probtlem is particularly acute at the state level. Each U.S. state has its own unique computer systems to process the same types of information and provide the same services as every other state. Worse, even within states, each division or agency has its own IT department and maintains its own computer systems. We're talking about hundreds of billions of dollars of IT spending every year—on clunky old infrastructure.
Consider California. The most populous U.S. state is more advanced than most, though it faces big IT challenges. It has roughly 130 agencies and departments, each with its own IT staff and computer systems. Each collects its own information and maintains its own databases. The systems of one department are not usually integrated with the systems of another. When they do share data, it is usually through the computer equivalent of Excel spreadsheets. The state has more than 40 separate computer applications to collect the same personal and demographic information about citizens. So, for example, when a business has to update an address, it typically has to inform multiple agencies.
Keeping up with regulatory changes is also a huge burden for the state's IT staff. Simple changes cost tens of millions of dollars and can take years. When President Obama signed legislation extending benefits for unemployed workers in November, out-of-work Californians had to wait as long as two months because the systems couldn't be updated.
New Technologies
Today's PCs and the Web are often more robust, secure, and fast than the massive enterprise systems used by governments and some businesses. A modern laptop has greater processing power than the mainframes for which many enterprise systems were designed.A social networking site like Facebook or Twitter processes more transactions (in the form of messages) in a day than many financial companies and states process in a month. Sophisticated computer applications that used to take years to build can be built in months. And the newer applications are usually far easier to use and much more scalable.
So why isn't there a massive move to new technologies? If anything, the chasm between the old and new has grown wider. This was made plain to me after I posted a blog to the tech Web site TechCrunch. I wrote about California's IT challenges and encouraged Silicon Valley entrepreneurs to come to the rescue. I cited an example of one system for which the state has budgeted $50 million over several years, which I believed could be rebuilt for less than $5 million in less than a year. I received several credible offers.
Yet the idea appears to be very threatening to a handful of large system administrators that have built enormous businesses on antiquated state systems. I was challenged by a senior vice-president at CA Inc. (CA) who called me naive and chided me for knocking something I "know absolutely squat about." Her argument was that standards, processes, and people had to change first. Otherwise disaster would happen and "set California back even further." Others wrote to argue that government procurement processes can't be changed and that big government contractors with political connections would always hold back progress.
Out-of-Touch Opponents
I believe these critics are simply out of touch with the new reality. Security breaches of large government IT systems are common due to the ongoing cyberwars taking place between nations. Amazon.com (AMZN) is just as juicy a target, but has a far better history of IT security than most big government agencies. As for my lack of understanding of the problem: In my tech days, I developed several large enterprise systems, and I started two companies that marketed systems development and legacy systems reengineering software.So I know there is a problem and a relatively simple solution. I also realize the challenges for governments to allocate contracts in a fair and equitable manner. But the disaster I see is if we continue the way we are. And it's a failure beyond the bloated costs, entrenched mainframe systems integrators, and dated computer
languages. The greater danger is that, by trapping the public-sector IT architecture in this tired old wrapper, we miss out on huge chances not only to improve system performance but also to reinvent government. The public sector is effectively walled off from the innovation that has made Web 2.0 a rich, contextually relevant environment. In this context, there will be no Netflix (NFLX) Prize, no Google (GOOG) voice-automated transcription engine, and virtually no other true technology innovation.
Many people realize this. Web founder Sir Tim Berners-Lee has just launched a venture for the U.K.government to make public data available online so that entrepreneurs can build technologies to harness this information.Federal Chief Technology Officer Aneesh Chopra also launched an initiative to make federal government data available.And in the wake of my earlier posting, California Chief Technology Officer P.K.Agarwal has launched a crowd-sourcing Web site where he's asking the public to weigh in on how the state might improve its tech strategy.
So there is progress. More states need to make similar moves. We need to open the bidding to new players, loosen opaque requirements written under the false guise of security and compatibility, and retool our way of thinking about IT for the public sector. In the cloud computing era, big government IT doesn't have to be so big. The rest of America has done more with fewer IT dollars for over a decade now. It's time for Uncle Sam and his state and local brothers and sisters to join the parade.
By Wadhwa, who is senior research associate at the Labor & Worklife Program at Harvard Law School and executive in residence at Duke University. He is an entrepreneur who founded two technology companies. His research can be found at www.globalizationresearch.com. Follow him on Twitter "@vwadhwa".
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