Category Archives: Society and the economy

How has technology development changed the nature of society and the economy?

It’s time to make the hard decision

Toyota, as you’ve probably heard, is shutting down operations in Australia. This has triggered the expected wave of commentary claiming that this is the end of manufacturing in Australia and that unless the government does something about this industrial relations problem then the entire car manufacturing supply chain (i.e. everything from final assembly back) will collapse with disastrous consequences for the Australian economy.

This point of view is both disingenuous and unhelpful as it ignores the fact that the viability of car manufacturing in Australia is strongly influenced by both economic trends outside our borders and by systemic challenges within the car industry itself. Australia might be an island, but that does not mean that events outside our borders will not affect us. Industrial relations might be part of the challenge, but it’s not the whole story.

Pouring more money into the domestic car manufacturing supply chain may provide short term relief, but it does not address the root cause of the problem.

We need to make the hard decision.

If car manufacturing is to be part of our industrial mix in the longer term then we need to transform the domestic industry, creating a new operating model that enables a stable manufacturing industry in Australia within the global context.

If we cannot create a sustainable car manufacturing industry in Australia, then we should immediately start to transition the resources (people and assets) to new industries that do have a future here.

Simply propping up an industry who time has come will only ever be a short term solution, and one which is a disservice to the generation just entering the workforce.

Capital has won over labour

The global car industry is in trouble. There’s too many factories and not enough people buying cars.

Similar situations are not uncommon in other capital intensive industries. Decades spent automating and streamlining processes has transferred costs from labour to capital. This has been great for customers as it lowers the unit cost of the goods manufactured. The manufacturers, on the other hand, find that their business, or even their entire industry, can all too easily be pushed into a never ending cycle of boom-and-bust. We only need to look to containerisation and the development of the global container network to see these forces in action.

Containerisation transformed the old, manual, approach to shipping into a highly automated and efficient global logistics network. Goods were packed into large metal containers and craned onto and off ships, rather than relying on stevedores to manhandle individual barrels. This resulted in a dramatic reduction in shipping costs and time (somewhere between 60% and 80%), since the majority of the work was in the manual loading and unloading.

However, building a container network required a huge investment. New ships were commissioned, larger ships with complex racks to hold the containers. Fleets of containers were required to carry the goods. Docks also need to be changed from the fingers sticking out of a bank that was suitable for manual loading, to the large container terminals that host huge cranes.

These investments allow shipping companies to slash the cost of shipping. It also made these businesses very inflexible. Previously shipping companies could trim costs when demand dropped off, parking ships and laying off their crews. Now, with huge investments in container infrastructure, the shipping companies were forced to keep the boats moving during the down turn, as the revenue was needed to service loans or pay dividends to investors.

Times were good when demand was high, with the low shipping rates helping to drive volume up. When times were bad when demand was low, as the boats needed to keep moving even if it meant that they were losing money.

Car Manufacturing in Australia

Australia finds itself wanting to protect its traditional car manufacturing industry when the dynamics of the global car industry and economy conspire against us.

Car manufacturers need to improve factory utilisation if they are to remain profitable. Shutting factories down for a few weeks is not enough, nor is trimming labour rates, as the majority of their costs are in the plant and equipment contained within these factories, and not in the labour required to operate and management.

With too many (expensive) factories and not enough people buying cars, car companies are looking to consolidate their operations. Ideally the final resting place for these factories will be adjacent to major markets in a comparatively low cost geography. (Despite the balance of costs being in equipment, moving from a high to a low cost geography can still shave 10% off the total cost of manufacturing.)

Similarly, reducing the time from final assembly to delivery to the customer by placing the factory as close as practical to the customer, helps to reduce costs by reducing the time it takes for product to flow through the supply chain. This cuts the amount of working capital required as well as cutting the time required to push product updates through the supply chain.

Ideally, given current manufacturing technology, one of these manufacturing centres will be right in the middle of South-East Asia, enabling quick and convenient access to the the fastest growing car markets in the world. Thailand looks good. Another would be somewhere in the centre of the Americas, allowing it to service both North and South America. Perhaps Mexico or the southern states of the US? Eastern Europe might get a look in for a third manufacturing hub, but then it might just be easier to service Europe out of S.E. Asia or the Americas. (Note that niche plays such as BMW are the exception to this rule, as they are not selling into the mass market.)

So what does this mean for car manufacturing in Australia? Australia fairs rather badly on both the dimensions we just considered.

As a high cost country we can expect cars manufactured domestically to cost roughly 10% more than those manufactured in a low-cost hub. Unfortunately wage bargaining will be little help unless we’re willing to slash wages to the same levels as Mexico and Thailand, which is something that the Australian public is unlikely to find palatable.

Our position below S.E. Asia and a long way from the US and Europe also puts us at a disadvantage. While shipping a car from Australia to S.E. Asia, the Americas or Europe will not significantly affect the final price, the delay pushes up working capital requirements while the longer supply chain is more challenging to manage.

We can’t expect our domestic car industry to export its way out of this problem. Nor is the domestic market large enough to sustain it when cheaper imports are flowing in from overseas manufacturing hubs. The car industry is, after all, a global industry.

Pouring money into the industry might support it in the short term, but at what cost? If it cannot complete globally then it will eventually succumb to the pressure. And given the perilous state of the global and domestic car industries, that time will probably be sooner than later.

In the mean time we’re encouraging a generation of eager and talented young adults to build their lives around a career and an industry that we know will no be able to support them. They deserve better.

Can technology save us?

One solution to our dilemma is to find a model for the industry that can work for Australia.

Consider, for a moment, the replicator from Star Trek. Or, if you’re less inclined to science fiction, the recent explosion of 3D printing and the maker movement.

If we can slash the investment required to manufacture cars by slashing the investment required to build a factory, then the decision on where to locate that factory might tip in our favour. If a rather large 3D printer costing AU$10,000 could print a car, then every dealer would have one. Why ship a finished car from one of the manufacturing hubs when you can pick the model and options you want, have it printed, and pick it up in a day or two.

3D printing might be some way off, but there are people out there looking at this problem. iStream, for example, is the result of looking at the manufacturing process to see if there is a better, faster and cheaper way to manufacture cars. The result is a manufacturing plant that is 20% the size of a conventional factory, and which reduces the typical capital investment by up to 80%.

If we can use technology such as iStream, or one of its descendants, to reduce the factory footprint then we might be able to arrive a solution that can be sustained by our domestic market.

Taking this path would require an investment at the national level. The major car manufacturers are struggling with their older, more capital intensive, operating model and have no interest in a new approach. If we are to take this route then we cannot rely on the existing brands.

Should we cut out losses?

If technology cannot save us, if the consensus is that it is not possible to build a sustainable, mass market, car industry in Australia, then we need to consider our options.

Should we copy a page from Germany’s playbook, and invest in building a high-value, niche industry? An Australian equivalent to BMW or Mercedes?

Or are there other manufacturing industries that can absorb the work force? Should we, for example, invest in becoming the leading manufacture of pre-build housing? (We already have some form in this area.) What industries can we excel in? As others have pointed out, ending car production is not the end of the world.

It’s time to make the hard decision

Pointing out the key role the car industry has historically played in our economy, and focusing on how we might keep the industry alive, is ignoring that fact that the domestic troubles are part of a larger global trend, a trend that we can do little about.

Regardless of the path we each, as individuals, prefer, the debate we need to having is on how will we choose between the the options available too us.

Manufacturing is not returning to the West

There’s many claims over the last year or so that “manufacturing is returning to the West” and “China’s days as the world’s factory are numbered”{{1}}. These claims are misguided.

[[1]]Vivek Wadhwa (23 July 2012), The End of Chinese Manufacturing and Rebirth of U.S. Industry, Forbes[[1]]

We’ve just reached a time where manual and skilled labour is no longer a major manufacturing cost, causing final assembly to slowly drifting toward the customer base it serves. This shift reduces the length of the supply chain from assembly to your front door resulting in a reduction in turn-around time which, in turn, reduces working capital requirements and allows manufacturers to push product updates through the supply chain faster.

Manufacturing isn’t leaving China and other low cost manufacturing centres. What has changed is that it now makes good sense to manufacture some high value but low volume and bulky products in other major markets, such as the U.S.

The problem with thinking that manufacturing is returning to the first world is the implicit assumption that this also means that the old manufacturing jobs will return. They won’t. They no longer exist. It also ignores that fact that the huge scale of manufacturing in China will help it to grab the lions share of the world manufacturing market for some time to come.

Manufacturing as a manual process

Consider Henry Ford’s assembly line from 1913: a complex, labour intensive process that created a large number of good, blue collar jobs.

566px-Ford_assembly_line_-_1913Source: Public Domain

When we think of manufacturing this is the image we usually have in head. It’s a bit like those train crossing signs that have a caricature of a steam engine on them. It might not be the current reality, but it’s the image we use to understand what’s going on around us.

As transport costs dropped, work moved to lower cost countries

Back in Henry Ford’s day transportation was expensive. Factories were often located close to the markets they served to minimise transport costs, with management struggling to ensure that enough raw materials arrived at the factory to keep it busy. However, the development of railroads, steam ships, and the shipping container network incrementally cut the cost of transport until it cost roughly the same to move a box across the world as it did to move it across the country.

As Marc Levinson points out in his book, The Box{{2}}:

[[2]]Marc Levinson, The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger. iBooks.[[2]]

As transportation costs decline relative to other costs, manufacturers can relocate first domestically, and then internationally, to reduce other costs, which come to loom larger. Globalization, the diffusion of economic activity without regard for national boundaries, is the logical end point of this process. As transport costs fall to extremely low levels, producers move from high-wage to low-wage countries, eventually causing wage levels in all countries to converge. These geographic shifts can occur quickly and suddenly, leaving long-standing industrial infrastructure underutilized or abandoned as economic activity moves on.

This is the shift we’re thinking of when we consider off-shore manufacturing: China as the source of cheap (and fairly unskilled labour).

Today, manufacturing is not a manual process

Apple released an interesting video the other day{{3}}. It shows the manufacturing process for the new Mac Pro.

[[3]]Greg Koenig (22 October 2013), How Apple makes the Mac ProAtomic Delights[[3]]

SourceApple

What’s interesting about this process is how few people are involved.

Manufacturing has changed a lot in the last few decades. What was once dominated by manual labour is now an automated and highly efficient process. Machines have replaced people. We can see this in many of the factories that are returning to the West: they’re all highly efficient, highly automated, capital intensive operations that require very little manual or skilled labour.

7395855880_053e6daede_cSource: Steve Jurvetson

Machines, however, have yet to replace engineers

While capital has won over manual and skilled labour, that same is not true for engineers: knowledge workers.

As Roger Martin found in his research for a recent HBR article{{4}}:

[[4]]Roger L. Martin (October 2013), Rethinking the Decision Factory, Harvard Business Review[[4]]

I vividly remember working with the CEO of one of North America’s largest bread manufacturers in 1990–1991. He had just replaced a labor-intensive and antiquated plant with the most advanced bread bakery on the continent. He proudly told me that the new computerized ovens and packaging machinery had reduced direct labor costs by 60%. But meanwhile, a throng of new and expensive knowledge workers had been added at both the head office and the plant—engineers, computer technicians, and managers—to take care of the sophisticated computer systems and state-of-the-art equipment. The new plant wasn’t quite the unalloyed good that it appeared at first sight. Variable costs of manual labor fell, but the fixed cost of knowledge workers rose, making it critical to keep capacity utilization high—which was possible in some years but not in others.

While the West has been worried about losing it manufacturing capability, many of the off-shore manufacturing destinations have been investing in education. China, for example, now has a huge engineering workforce that companies can draw own to sort out their manufacturing problems.

It’s this incredible ability to mobilise huge workforces that is keeping many manufactures in China. An article in the New York Times from last year has an Apple anecdote that shows this in action{{5}}.

[[5]]Charles Dugigg & Keith Bradsher (21January2012), How the U.S. Lost Out on iPhone Work, The New York Times[[5]]

Another critical advantage for Apple was that China provided engineers at a scale the United States could not match. Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States.

Moving closer to the customer

The rapid pace of change in today’s market is driving companies to reduce the time between final assembly and when the product drops into the customer’s waiting hands.

Zara is the poster child for this shift, with a supply chain can create a new product and then have it in the stores in around two weeks. Zara has used this ability to disrupt the traditional annual, seasonal fashion cycle, resulting Zara becoming one of the largest retailers in the world.

Apple’s recent decision to make the Mac Pro in the U.S. is part of a trend to move the manufacturing of high value but low volume and bulky products closer to the customer. Elon Musk’s Tesla is also part of this trend.

Manufacturing automation technology has reached the point that it makes more sense to locate the manufacturing of these products closer to the customer, allowing transport costs and delivery times to be minimised.

We shouldn’t assume, however, that this trend will end with manufacturing returning to the West.

It’s easy to forget the more people live in Asia than in the entire rest of the world combined. If manufacturing is moving to be closer to the customer, then we need to remember that there are more customers in Asia than in the rest of the world. China’s position as a manufacturing powerhouse appears safe for the time being.

CK6aONG

Source: valeriepieris

What we mean by “export” is changing

So just where will this trend take us? (And, by extension, will our old export industries return, bringing their jobs back with them?)

The future of manufacturing and export seems – like to many industries – connected to the knowledge economy.

Those old manufacturing jobs are never coming back. They no longer exist. Similarly, thinking in terms of operating a factory and then exporting to another country is also looking somewhat antiquated.

Today (or perhaps, tomorrow) a manufacturer is a simply company that is run from one country and, from there, manages the sale of products in another.

Kogan{{6}} is a great example of this. The business is run from South Melbourne, Australia, which is where the products are designed. The products themselves are made in China and (in many cases) shipped directly to the United Kingdom where they are sold via the company’s UK web site (which is also managed from Port Melbourne, but hosted somewhere “in the cloud”).

[[6]]Kogan @ PEG[[6]]

An even more interesting example is another local business which sells safety barriers that are placed around robots in factories to ensure that workers aren’t accidentally injured. They recently started exporting to Europe. They did this by setting up a small, automated factory in Germany to service the European market. The barriers are designed in Australia and the designs are beamed directly to the machines in Germany, machines that consume resources from all over the globe.

So manufacturing – as we’ve traditionally understood it – is not returning to the West. The blue collar jobs that went overseas are not coming home to give our rather lacklustre economies a boost.

We can also expect China to remain an manufacturing powerhouse for the foreseeable future. The huge scale of operations over there, and the ability to rapidly redeploy these resources, will allow China to grab more than it’s fair share of the world manufacturing market.

Manufacturing, like so many industries{{7}}, is changing, and changing rapidly. What’s most interesting though, is how a new generation of companies are emerging that are finding ways to exploit this situation to “export”, and create new, knowledge intensive jobs at home in the process.

[[7]]The destruction of traditional retail @ PEG[[7]]

Source: Steve Jurvetson

Malls are the casinos of middle class suburbia

The department stores are empty but the malls (or at least the malls here in Australia and nearby in China and South-East Asia) are full. Why is there such a difference when department stores and malls seemingly offer shoppers the same thing: Chanel, Yves Saint Laurent, Prada, Vivienne Westwood and Alexander McQueen (and a bunch of lower status retailers) all under one roof?

While department stores have been in decline for at least the last thirty years{{1}} many malls have never seemed busier. The crowds we expect at the mall during Christmas are popping up every other weekend, forcing us to park at the far corner of the back parking lot before running through the rain only to arrive at the mall proper just in time to catch our film.

[[1]]Winners and Losers in Retail @ PEG[[1]]

As I pointed out in The Destruction of Traditional Retail{{2}}:

[[2]]The Destruction of Traditional Retail @ PEG[[2]]

Department stores [bring] together a collection of departments, each selling a different type of product, where a department could be a small to mid-sized store on it’s own.

Department stores traditionally offered the aspirational suburbanite or rural visitor an opulent setting where they could while away the day drifting from shoes to cosmetics with a stop for a light lunch and a visit to the bookstore, florist or hairdresser. They would make the long trip to the centre of town (or to the city even) for that much needed pair of shoes and formal dress, only to find themselves spending the entire day there.

Malls, though (again from The Destruction of Traditional Retail):

… took this model to the logical extreme by collecting together a large number of separate stores to create a shopping destination.

Ironically, many malls were often built around a department store playing the role of anchor tenant. The department store provided that critical mass of products that would convince shoppers to try their luck at the mall rather than head somewhere else.

If malls and department stores so similar then why is one succeeding while the other fails?

The first difference is the Gruen transfer.

The invention of the classic indoor mall is generally credited to Vienna-born architect Victor Gruen. Gruen first outlined his vision for malls in a 1952 article in the US magazine Progressive Architecture. Most Americans were moving out to suburbia but still shopping downtown. Gruen considered suburbia soulless and heartless. The mall, he thought, could remedy these problems by recreating the town marketplace or public square and providing the suburbs with a cultural focus.

Gruen’s malls were extremely effective both at luring customers and holding them captive. The later effect was named the Gruen Transfer, much to Gruen’s chagrin as it was one aspect of the his invention that he disavowed.

From the FAQ on The Gruen Transfer’s{{3}} web site{{4}}:

[[3]]The Gruen Transfer is also the name of a television program on Australia’s ABC1 network. The show discusses the methods, science and psychology behind advertising.[[3]]

[[4]] What does ‘The Gruen Transfer’ mean? from the The Gruen Transfer FAQ[[4]]

The Gruen Transfer refers to the moment when we as consumers unwittingly respond to cues in the shopping environment that are designed to disorientate. Factors such as the lighting, sounds, temperature and the spatial arrangements of stores and displays interact, leading the customer to lose control of their critical decision making processes. Our eyes glaze over, our jaws slacken, we forget what we came for and become impulse buyers. So if you go into a mall to buy a mop and walk out with a toaster, a block of cheese and a badminton set, then the Gruen Transfer has probably played a role. Or maybe you just really like cheese.

The second difference is in the portfolio nature of a mall.

A department store is a single business that operates a number of departments. While it might include a merry-go-round and large man in a red suit at Christmas, the focus is firmly on shifting product. The department store is a shopping destination: it’s somewhere you go when you have a need to be filled.

Malls, on the other hand, operates a portfolio of businesses. While the portfolio might include retailers (or, as has been the case to date, dominated by retailers) the focus of the mall is keeping punters in the mall and keeping them circulating. As along as the punters are circulating they’re spending money, and the mall will be taking their percentage.

The mall is less concerned with shifting product than keeping you at the mall bouncing between stores, as the more time you spend there the more money you’re likely to spend. Turn up for a movie, end up having a meal, get a foot massage and have your toenails painted, and you might even buy a pair of shoes.

Consumer behaviour, as I’ve said before, is changing though. We used to head out the door to find some product we needed: soap, some nails, or a suit for the wedding next weekend. Now we head out to be entertained: to see a movie, meet friends at the food court, or even just to hide from the heat in the mall’s air-conditioning (that foot massage sounds good too).

Department stores are contracting because we don’t head out the door on a shopping mission as much as we used to. Their addressable market – people who want to spend the afternoon wandering between racks of products while they pick up a few things they need (or even things they don’t need) – has shrunk.

Malls, though, are having no problem attracting punters.

Victor Gruen was right: we do need a place that we can gather as a community. What he got wrong is that we don’t want a market place or public square. What we’ve ended up with is a casino; somewhere exciting and entertaining where we can bounce between activities or even just catch up with friends in amongst the hustle and bustle. Malls have become the casinos of middle class suburbia.

The challenge malls have is to find the mix of business that provide us, the consumers, with the most engaging visit possible. Revenues might be down a little at the moment{{5}} but it’s not a long term trend (as with department stores), the malls are still full and there’s lots of possibilities to explore.

[[5]]Sarah Danckert (18 October 2013), Mall growth plans reined in, The Australian.[[5]]

Image source: Alpha.

Winners and losers in retail

There’s a lot of talk in the media at the moment about the soft retail market. Consumer confidence is down[1]Australian Consumer ConfidenceTrading Economics and we (as we’re all consumers) are not spending like we used to, or at least we’re not spending like the retailers would like us to, and that when we do spend that we’re running to cheaper online retailers. I’m not sure that this is the whole story though.

With a spare Sunday afternoon on my hands I decided to spend some time trawling through the ABS retail data and take a look beyond the month-on-month trends. Working on an Australian version of the Shift Index[2]The Shift Index: Measuring the forces of long term change, Deloitte has nudged me to wonder about the long term trends that are affecting retail.

Continue reading Winners and losers in retail

The destruction of traditional retail

Le Bon Marché à Paris (1875)

A steady stream of news stories is trying to convince us that online is killing retail, that online has an unfair advantage and show rooming is evil. There’s some handwaving around omni-channel and claims that that if you sharpen your approach a bit then you will be able to stand out from the online crowd and stay alive, but it’s all a distraction. The problem is that ‘retail’ is just not something we need as much as we used to.

It’s not that we no longer need retail stores. We don’t, however, need as many of them as we have today.

Retail stores serve many purposes, but the most common is to be the last stage in someone else’s supply chain. This role – the retail store that is little more than a convenient place to make a purchase – is dying.

The internet and smartphones mean that we can now shop and purchase when and were we want. We’re no longer forced to pick between the meagre offerings at a nearby store.

Browsing is something we do in a spare moment, sitting in front of the TV with our tablet or via smart phone during our commute on the train. We purchase when we realise that we’ve found something we want or need, where ever we are at the time.

The other uses for local shops and businesses will remain:– community gathering places, restaurants etc. Life for your typical retail store is looking grim though, as they are simply something that we no longer need as much of as we used to.

Continue reading The destruction of traditional retail

Open Data might have failed, but Open Government is still going strong.

It would seem that the shine is starting to wear off the Open Government movement, with a recent report to the US congress challenging some of the assumptions which drove the dictate out of the U.S. Open Government Office[1]The Obama Administration’s Open Government Initiative: Issues for Congress [PDF], forcing U.S. departments to publish their data sets. The report found that simply pushing out data has negative outcomes as well as positive ones (which should be no surprise), and that often the cost of pushing out (and maintaining) a data set didn’t outweigh the benefits. Most importantly, it raised the question of whether or not publishing these data sets was a good use of the public’s money.

So, has the business case behind Open Government been found lacking in the harsh light of day? Or is this one of those cases where some faith is – similar as with the investment in the U.S. highway network – because the benefits of stepping into the unknown are not calculable with the crude mechanism of ROI. The truth seems to lie somewhere between the two.

I wouldn’t confuse the investment in the US road network post WWII (or AU’s current investment in a NBN) with Open Government. The former was an investment in an asset which the U.S. government of the time made largely on faith, an investment which is currently seen to be returning $14 billion to the U.S. economy annually. (Australia’s NBN might be heading on a similar journey[2]The NBN wants to be free @ PEG.) The latter is actually a philosophical point of view about an approach to government.

The problem is that we confuse “Open Data” with “Open Government”. They’re related, but not the same. Open Government is a move to streamline service acquisition and delivery by exposing the bureaucracy of government and integrating it more tightly with other service providers, and has been progressing nicely for a decade or more now. Open Data is a desire to change the relationship between government and the population, reducing the government to a simple data conduit between the public (or corporations) providing services and the public consuming them.

Open Government has made government easier to deal with by making it easier to find and consume the services you need, and by fostering community. Everything from applying for the dole, getting a grant through to organising a council supported street party is orders of magnitude easier than it was a few decades ago, mainly due to increased transparency. This has been delivered via a range of means, from publishing information on line, through providing better explanations for the services offered and promoting multi-channel access and self service delivery. The latest wave of Open Government is seeing departments integrating external services with their own, putting even more data out in public in the process, as they move from a service-provider to a service-enabler. Ultimately though, if government (as separate from politics) is focused on keeping folk feed and feeling safe then it’s doing it’s job. It’s basic Maslow[3]Maslow’s hierarchy of needs @ Changing Minds.

Open Data, though, is based on the view that government should do as little as possible, hand over the data, and let individuals in the public get on with doing what they want. It’s claimed that this will provide transparency (the public has all the data, after all) as well as fostering entrepreneurs to provide innovative solutions to the many problems that confront us today.

It’s quite possible to have transparency and Open Government without the need to publish all your data, and maintain these published versions, as claimed by the Open Data proponents. People need to understand how the wheels of government turn if they want to trust it, and the best way of doing this is usually through key figures and analysis which builds a story and names the important players. Drowning people in data has the opposite effect, hiding government operation behind a wall of impenetrable details. Wikileaks was a great study in this effect, as it was only when the traditional journalists became involved, with their traditional analysis and publication weaving together a narrative the broader public could consume, that the leaks started to have a real impact. (It’s also interesting that the combination of the anonymous drop boxes being created by conventional media, and Open Leaks‘ anonymous mass distribution to conventional media, looks to be a more potent tool than the ideologically pure Wikileaks.)

Nor is treating government as an integration medium the only way to solve the world’s problems. While entrepreneurs and VCs might be the darlings of the moment, there’s many other organisations and governments which are also successfully chipping away at these problems. For every VC backed Bloom Box{{5}} who has mastered marketing hype, there’s a more boring organisation that might have already overtaken them[4]New Solid Oxide Fuel Cell System Provides Cheap Grid Energy From CNG and Biogas @ IB Time UK. The entrepreneur model will be part of the solution, but it’s not the silver bullet many claim it to be.

The problem is that Open Data is the result of a libertarian political mindset rather, rather than being a solution to a pressing need. Forcing government to publish all its data sets does not provide or guarantee transparency, nor does it have a direct impact on the services offered by the government. It can also consume significant government resources that might be better spent providing services that the community needs. Publish a data set of no obvious value, or build a homeless shelter? Invest in Semantic Web enabling another data set few use, or pay for disaster relief? These are the tradeoffs that people responsible for the day-to-day operation of government are forced to make. Claims by folk like Tim Berners-Lee that magic will happen once data is out there and ontology enabled have proven to be largely wrong.

However, Open Data does align with a particular political point view. Open Data assumes that we, as a population, want such a small government model, an assumption which is completely unjustified. Some people trust, and want, the government to take responsibility for a lot of these services. Some want to meet the government somewhere in the middle. Open Data tries to force a world that works in shades of grey into a black-or-white choice that driven by a particular world view.

Deciding what and how much the government should be responsible for is a political decision, and it’s one that we revisit every time we visit the ballot box. Each time we vote we evolve, by a small amount, the role government plays in our lives[5]What is the role of Government in a Web 2.0 world? @ PEG. (Occasionally we avoid the ballot box and revolt instead.) Should government own the roads? The answer appears to still be yes. Should government own power stations? Generally, no. Should they own the dams? We’re still deciding that one.

It’s in the context of the incremental and ongoing evolution of government’s role in our lives that we can best understand Open Data. Forcing Open Data onto government through mandate (as Obama did) was a political act driven by a desire to force one group’s preferred mode of operation on everyone else. You might want Open Data, but other people have differing priorities. Just because they disagree doesn’t make them wrong. The U.S. congressional report is the mechanism of government responding by documenting the benefits Open Data brought, the problems it caused, and the cost. The benefits (or not) will now be debated, and its future decided at the ballot box.

Open Government is alive and well, and is driving the evolution of government as we know it. Services are being improved, governments are increasingly their integrating services with those of the private sector, and more data will be released to support this. The assumption that all government data should remain secret unless proven otherwise has been flipped, and many public servants now assume that data should be made public unless there’s a good reason not to publish. Government is investing in moving specific information assets online, were it makes sense, and departments are opening up to social media and much closer involvement (and scrutiny) with the public sector. The mechanism of government is evolving, and this is a good thing.

Open Data, though, as an expression of a political point of view, looks like it’s in trouble.

Social media: bubble, definitely not; revolution, probably not; evolution, absolutely

Is Social Media in general (and mobility in particular) a bubble or revolution? Is it a a powerful and disruptive force that will transform governments and social organisations? Or is it no? There seems to be a few{{1}} people{{2}} pondering this question

[[1]]The video above is less than a minute long. Please … @ bryan.vc[[1]]
[[2]]Is The Mobile Phone Our Social Net? @ AVC[[2]]

Mobile phones are interesting as they are addressable. Two-way radios made communication mobile a long time ago, but it wasn’t until mobile phones (and cheap mobile phones, specifically) that we could address someone on the move, or someone on the move could address a stationary person or service.

The second and third world showed us the potential of this technology over ten year ago, from the fishermen using their phones to market and sell their catch while still on the boat, through to the distributed banking based on pre-paid mobile phone cards. Image/video sharing is just the latest evolution in this.

The idea that this might be a revolution seems to be predicated on the technology’s ability to topple centrally planned and controlled organisations. Oddly enough, central planning is a bad enough idea to fall over on its own in many cases, and the only effect of mobile technology is to speed up a process which is already in motion. The Soviet Union might well be the poster child for this: collapsing under the weight of it’s own bureaucracy with no help from social media (or mobile phones, for that matter). Even modern democracies are not immune, and the US energy regulation policies leading up to deregulation in the late 70s is a great example of the failures of central planning{{3}}. The (pending) failure of some of today’s more centralised, and authoritarian regimes, would be more accurately ascribed to the inability of slow moving, centrally managed bureaucracies to adapt to a rapidly changing environment. Distributed planning always trumps central planning in a rapidly changing environment.

[[3]]The Role of Petroleum Price and Allocation Regulations in Managing Energy Shortages @ Annual Review of Energy[[3]]

If we pause for a moment, we can see that governments do a few distinct things for us.

  • They provide us with what is seen as essential services.
  • They create a platform to enforce social norms (policies and laws).
  • They engage with the rest of the world on our behalf.

The reality is that many of the essential services that government provides are provided by the government because it’s too difficult or expensive for citizens (and to some extent, corporations) to access the information they need to run these services themselves. Mobile phones (and social media) are just the latest in a series of technologies that have changed these costs, enabling companies and citizens to take responsibility for providing services which, previously, were the sole domain of government. From energy, water and telecoms, through FixMyStreet and the evolving use of social media in New Orleans, Haiti and then Queensland during their respective natural disasters, we can see that this is a long running and continuing trend. Government is migrating from a role of providing all services, to one where government helps facilitate our access to the services we need. Expect this to continue, and keep building those apps.

As a platform for agreeing and enforcing social norms, then it’s hard to see anything replacing government in the short to mid term. (As always, the long term is completely up for grabs.) These social norms are geographical – based on the people you interact with directly on a day-to-day basis – and not virtual. Social media provides a mechanism for government to broaden the conversation. Some governments are embracing this, others, not so much. However, while people like to be consulted, they care a lot more about results. (Think Maslow’s Hierarchy of Needs{{4}}.) Singapore has a fairly restrictive and controlling government, which has (on the whole) a very happy population. China is playing a careful game of balancing consultation, control and outcomes, and seems to doing this successfully.

[[4]]Maslow’s Hierarchy of Needs @ Abraham-Maslow[[4]]

Finally we come to the most interesting question: government as a means for us to engage with the rest of the world. In this area, government’s role has shrunk in scope but grown in importance. Globalisation and the Internet (as a communication tool) has transformed societies, making it cheaper to call friends across the globe than it is to call them around the corner. We all have friends in other countries, cross-border relationships are common, and many of us see ourselves as global citizens. At the same time, the solutions to many of today’s most pressing issues, such as global warming, have important aspects which can only be addressed by our representatives on the global stage.

So we come back to the question at hand: is social media a bubble, a revolution, or an evolution of what has come before.

It’s hard to see it as a bubble: the changes driven by social media are obviously providing real value so we can expect them to persist and expand. I was particularly impressed by how the Queensland government had internalised a lot of the good ideas from the use of social media{{5}} in the Victorian fires, Haiti et al.

[[5]]Emergency services embrace Social Media @ Social Media Daily[[5]]

We can probably discount revolution too, as social media is (at most) a better communication tool and not a new theory of government. (What would Karl Marx think?) However, by dramatically changing the cost of communication it is having a material impact of the role government in our lives{{6}}. Government, and the society it represents is evolving in response.

[[6]]The changing role of government @ PEG[[6]]

The challenge is to keep political preference separate from societal need. While you might yearn for the type of society that Ayn Rand only ever dreamed about, other people find your utopia more akin to one of Dante’s seven circles of hell. Many of the visions for Gov 2.0 are political visions – individuals’ ideas for how they would organise an ideal society – rather than views of how technology can best be used to support society as a whole.

China is the elephant in this room. If social media is a disruptive, revolutionary force, then we can expect China’s government to topple. What appears more likely is that China will integrate social media into its toolbox while it focuses on keeping its population happy, evolving in the process. As long as they deliver the lower half of Maslow’s Hierarchy, they’ll be fairly safe. After all, the expulsion of governments and organisations – the revolution that social media is involved in – is due to these organisations’ inability to provide for the needs of their population, rather than any revolutionary compulsion inherent in the technology itself.

What is the role of government in a Web 2.0 world?

What will be the role of government in a post Web 2.0 world? I doubt it’s what a lot of us predict, given society’s poor track record in predicting it’s own future.

One thing I am reasonably sure of though, is that this future won’t represent the open source nirvana that some pundits hope for. When I’ve ruminated in the past about the changing role of government, I’ve pointed out that attempting to create the future by dictate is definitely not the right approach. As I said then:

You don’t create peace by starting a war, and nor do you create open and collaborative government through top down directives. We can do better.

There was an excellent article by Nat Torkington, Rethinking open data, posted over at O’Reilly radar which shows this in action. As it points out, the U.S. Open Government Directive has prompted datasets of questionable value to be added to data.gov; while many of the applications are developed as they are easy to build, rather than providing any tangible benefit. Many of the large infrastructure projects commissioned in the name of open data suffered the same fate as large, unjustified infrastructure projects in private enterprise (i.e. they’re hard for the layman to understand, they have scant impact on solving the problems society seems plagued with, and they’re overly complex to deliver and use due to technological and political puritism).

A more productive approach is focus on solving problems that we, the populace, actually care about. In Australia this might involve responding to the bush fire season. California has a similar problem. The recent disaster in Haiti was another significant call to action. It was great to see the success that was Web 2.0 in Haiti (New Scientist had an excellent article).

As Nat Torkington says:

the best way to convince them to open data is to show an open data project that’s useful to real people.

Which makes me think: government is a tool for us to work together, not the enemy to subdue. Why don’t we move government on from service provider of last resort, which is the role it seems to play today.

Haiti showed us that some degree of centralisation is required to make these efforts work efficiently. A logical role for government going forward would be something like a market maker: connecting people who need services with the organisations providing them, and working to ensure that the market remains liquid. Government becomes the trusted party that ensures that there are enough service providers to meet demand, possibly even bundling service to provide solutions to life’s more complex problems.

We’ve had the public debate on whether or not government should own assets (bridges, power utilities etc.), and the answer was generally not. Government provision of services is well down a similar road. This frees up dedicated and hard working public servants (case workers, forestry staff, policy wonks …) to focus on the harder problem of determining what services should be provided.

Which brings me back to my original point. Why are we trying to drive government, and society in general, toward a particular imagined future of our choosing (one involving Open Government Directives, and complicated and expensive RDF infrastructure projects). We can use events like the bush fires and Haiti to form a new working relationship. Let’s pick hard but tractable problems and work together to find solutions. As Nat (again) points out, there’s a lot of data in government that public servants are eager to share, if we just give them a reason. And if our efforts deliver tangible benefits, then everyone will want to come along for the ride.

Updated: The reports are in: data.gov has quality issues. I’ve updated the text updated with the following references.

Updated: More news on data.gov’s limitations highlighting the problems with a “push” model to open government.

The changing role of Government

Is Government 2.0 (whichever definition you choose) the ultimate aim of government? Government for the people and by the people. Or are we missing the point? We’re not a collection of individuals but a society where the whole is greater than the parts. Should government’s ultimate aim to be the trusted arbiter, bringing together society so that we can govern together? Rather than be disinterested and governed on, as seems to be the current fashion. In an age when everything is fragmented and we’re all responsible for our own destiny, government is in a unique position to be the body that binds together the life events that bring our society together.

Government 2.0 started with lofty goals: make government more collaborative. As with all definitions though, it seems that the custodians of definitions are swapping goals for means. Pundits are pushing for technology driven definitions, as Government 2.0 would not be possible without technology (but then, neither would my morning up of coffee).

Unfortunately Government 2.0 seems to be in danger of becoming “government as a platform”: GaaP or even GaaS (as it were). Entrepreneurs are calling on the government to open up government data, allowing start-ups to remix data to create new services. FixMyStreet might be interesting, and might even tick many of the right technology boxes, but it’s only a small fragment of what is possible.

GovHack

This approach has resulted in some interesting and worthwhile experiments like GovHack, but it seems to position much of government as a boat anchor to be yanked up with top-down directives rather than as valued members of society who are trying to do what they think is the right thing. You don’t create peace by starting a war, and nor do you create open and collaborative government through top down directives. We can do better.

The history of government has been a progression from government by and for the big man, through to today’s push for government for and by the people. Kings and Queens practiced stand-over tactics, going bust every four to seven years from running too many wars that they could not afford, and then leaning on the population to refill their coffers. The various socialist revolutions pushed the big man (or woman) out and replaced them with a bureaucracy intended to provide the population with the services they need. Each of us contributing in line with ability, and taking in line with need. The challenge (and possibly the unsolvable problem) was finding a way to do this in an economically sustainable fashion.

The start of the modern era saw government as border security and global conglomerate. The government was responsible for negotiating your relationship with the rest of the world, and service provision was out-sourced (selling power stations and rail lines). Passports went from a convenient way of identifying yourself when overseas, to become the tool of choice for governments to control border movements.

Government 2.0 is just the most recent iteration in this ongoing evolution of government. The initial promise: government for the little man, enabled by Web 2.0.

As with Enterprise 2.0, what we’re getting from the application of Web 2.0 to an organisation is not what we expected. For example, Enterprise 2.0 was seen as a way to empower knowledge workers but instead, seems to be resulting in a generation of hollowed out companies where the C-level and task workers at the coal face remain, but knowledge workers have been eliminated. Government 2.0 seems to have devolved into “government as a platform” for similar reasons, driven by a general distrust of government (or, at least, the current government which the other people elected) and a desire to have more influence on how government operates.

Government, The State, has come to be defined as the enemy of the little man. The giant organisation which we are largely powerless against (even though we elected them). Government 2.0 is seen as the can opener which can be used to cut the lid off government. Open up government data for consumption and remixing by entrepreneurs. Provide APIs to make this easy. Let us solve your citizen’s problems.

We’re already seeing problems with trust in on-line commerce due to this sort of fine-grained approach. The rise of online credit card purchases has pull the credit card fraud rate up with it resulting in a raft of counter-measures, from fraud detection through to providing consumers with access to their credit reports. Credit reports which, in the U.S., some providers are using as the basis for questionable tactics which scam and extort money from the public.

Has the pendulum swung too far? Or is it The Quiet American all over again?

Gone are the days where we can claim that “The State” is something that doesn’t involve the citizens. Someone to blame when things go wrong. We need to accept that now, more than ever, we always elect the government we deserve.

Technology has created a level of transparency and accountablility—exhemplified by Obama’s campaign—that are breeding a new generation of public servants. Rather than government for, by or of the people, we getting government with the people.

This is driving a the next generation of government: government as the arbitrator of life events. Helping citizens collaborate together. Making us take responsibility for our own futures. Supporting us when facing challenges.

Business-technology, a term coined by Forrester, is a trend for companies to exploit the synergies between business and technology and create new solutions to old problems. Technology is also enabling a new approach to government. Rather than deliver IT Government alignment to support an old model of government, the current generation of technologies make available a new model which harks back to the platonic ideals.

We’ve come along way from the medieval days when government was (generally) something to be ignored:

  • Government for the man (the kings and queens)
  • Government by the man (we’ll tell you what you need) (each according to their need, each …)
  • Government as a conglomerate (everything you need)
  • Government as a corporation (everything you can afford)

The big idea behind Government 2.0 is, at its nub, government together. Erasing the barriers between citizens, between citizens and the government, helping us to take responsibility for our future, and work together to make our world a better place.

Government 2.0 should not be a platform for entrepreneurs to exploit, but a shared framework to help us live together. Transparent development of policy. Provision (though not necessirly ownership) of shared infrastructure. Support when you need it (helping you find the services you need). Involvement in line with the Greek/Roman ideal (though more inclusive, without exclusions such as women or slaves).