Day 6 – Regions, Resources & Populism

This is the last list of potential disruptive factors that could influence the Canadian Public Service over the next decade or so.  See the previous blogs for the previous set of disruptions and Seven Days of Disruption blog for the entire set.  These are in support of November 22, 2017 FMI Conference – Disruptive Writers.

  • Quebec and Regional Tensions (editor)
  • Resource and Commodity Supply, Demand and Price (adapted from 2015)
  • Rising storm of populism; Canada and Cultural War in the Age of Trump and the Progressives (adapted from 2016 and editor)

Quebec and Regional Tensions (editor)

A full generation has grown up without ever hearing about Quebec separation, referendums or regional tensions.  Can it last?  The first challenge is geography, Canada is big – very big.  Many Canadians will never visit all of the provinces and territories, how can you sustain a country in which geography conspires against a sense of affiliation.  The next challenge is economics.  Canada has been sustained in the past half century by a wealth transfer from the Western Provinces to the vote rich eastern regions.  Despite multi-billion dollar provincial deficits, Alberta is still a ‘have’ province and will contribute to the ‘have-not’ areas.  Finally there is tribalism or regional identity.  Quebec has been the center of this with two referendums and the 1999 Clarity Act being central activities in the twenty years from 1980 to 2000.  Northern Canada, with the creation of Nunavut, seeks its own path to prosperity.  Atlantic Canada continues to struggle economic although recent mineral discoveries have brightened these prospects. So, will Canada continue to exist and prosper as it moves toward its bicentennial or will it be tore asunder by its size, politics and economics?

Resource and Commodity Supply, Demand and Price

Adapted from A.T. Kearney 2015: The resource “super-cycle” of the early 2000s saw global prices for energy, minerals and agriculture prices hit 30-50 year highs.  A new global resource “slump cycle” began in 2014, characterized by a dramatic oil price drop.  These underlying dynamics mean that the resource slump cycle will continue into the foreseeable future. Past resource cycles have continued on average for 13 to 15 years, because it takes time for supply infrastructure to realign with demand dynamics. Therefore, the current mismatch in demand and supply is likely to persist until 2027–2029. Renewable energy is a wild card as it is expected to continue to attract steady investment despite lower prices—likely as a result of less costly technologies, government regulations, and consumer preferences for cleaner power.  As a major exporter of minerals and an energy super power, this slump will particularly hurt the Canadian economy and the ability to maintain government tax revenue.

Canada and Cultural War in the Age of Trump

Adapted from A.T. Kearney 2016: A populist, worldwide backlash to globalization and neoliberal economic policies continues to spread in the wake of the Global Financial Crisis due to a broad range of underlying structural issues, from digital information proliferation to wealth inequality. This backlash is creating policy instability and raises the risk of a potentially hostile environment for globalized business models.  A.T. Kearney defines populism as a mass political movement that harnesses “the power of the people” to reject the elite and the status quo. Populism is usually concentrated around a charismatic leader, and often includes advocating for more redistributive economic policies—or even illiberal tendencies to concentrate power in a single individual.  The impact for governments is navigating protectionist trade partners; volatility in civil, constitutional, policy and regulatory endeavours, and the risk of knee-jerk reactions resulting in the break down of civil society.  Compounding this challenge is the ‘dumbing-down’ effect of social media converting civil discussion and complex thought into 144 character sound bits and simple likes and memes.

Editors Note: There is a description that a cultural war is underway in the United States between ‘progressives’ or left and ‘populists’ or right.  Hillary Clinton, Bernie Sanders and the Democratic Party are progressives with Sarah Palin and being populists.  Generally the left accuse the right as being fascists (for more on how this may be topsy turvy, see: ‘The Big Lie: Exposing the Nazi Roots of the American Left‘) and the right accuses the left of destroying liberal democracy through masked thugs and censorship of institutions such as universities.  In Canada we have less of this possibly because our political system allows for a more nuanced reflection of opinions (e.g. we have left of center NDP, right of center Conservatives and the center-left Liberal Parties. Nevertheless, what is the impact of this cultural war coming to Canada and can our democratic institutions survive the battles?

Day 5 – Islandization, IT and Post-Consumerism

This is the second last list of potential disruptive factors that could influence the Canadian Public Service over the next decade or so.  See the previous blogs for previous disruptions and Seven Days of Disruption blog for the entire set.  These are in support of November 22, 2017 FMI Conference – Disruptive Writers.

  • “Islandization” of the global economy (2017), NAFTA Negotiations and the rise of protectionism (editor)
  • IT Revolution 2.0 and the Rise of the Machines (adapted from 2015)
  • Post Consumerism (adapted from 2016)

“Islandization” (2017), NAFTA Negotiations and the rise of protectionism (editor)

Adapted from A.T. Kearney 2017: After a quarter century of rapid globalization, restrictions on immigration, trade, and other cross-border flows are now increasing. A new phase—which we call “islandization”—has begun, marked by growing levels of nationalism, protectionism, and parochialism. While the United States is at the center of this trend, many of the countries leading the globalization charge are also quietly islandizing, creating a dramatically different operating environment for global businesses and governments.

Editors Note: Returning to the Great Depression, one of its acknowledged causes of its prolongation was the establishment of trade barriers between advanced economies exactly at the time when economic activity was needed the most.  At the same time, exporting jobs and manufacturing skills undermines an economy and a tax base.  In other words trade like most things is something to be managed with no exact ‘pre-set’ value.  Canada is a directly beneficiary of being a trading nation even if most of it goes south to our NAFTA partner.

IT Revolution 2.0 and the Rise of the Machines

Adapted from A.T. Kearney 2015: The Internet of Things (IoT) is a fast-growing constellation of connected “smart devices,” such as smartphones,  self-driving cars,  household appliances, industrial robots and smart electrical grids. With continued dramatic growth in connectivity, these machines increasingly transmit information to one another and take real-world actions without humans in the loop. Beyond gizmos and conveniences, IoT may lead to dramatic change for societies, economies and governments.  For example, if self-driving vehicles take off, what are the regulatory, economic and employment impacts of giving up this human activity?

Editors Note: Industrial robots are an important IoT growth and China is forecasted to become the world’s largest user of industrial robots by 2017.  This means greater competition for manufacturing jobs and industries in Canada.  Beyond productivity, the IoT also contains significant cyber-security and privacy concerns for consumers and citizens.  As a positive, the innovation and productivity gains are central to the miracle of human development we have seen over the past two hundred years.  The Industrial, Green, Fossil Fuel and Information Revolutions have all created greater material wealth for humans… notwithstanding the negative corresponding negative impacts to the planet and our fellow species.  In other words, two hopes: 1) we can manage the rise of the machines to generally improve the human condition and 2) our robot overlords treat us better than we have treated some of our fellow animals and humans.

Post Consumerism

Adapted from A.T. Kearney 2016: Consumer values and preferences in developed markets are shifting toward buying fewer physical goods and valuing experiences over possessions. While this is creating new business opportunities for service providers, it also raises important challenges for traditional consumer products groups and retailers.  Concurrent with this change is the emergence of the Amazon.com who are effectively competing for a shrinking pool of consumption.  The OECD reports that the rate at which member countries consume physical materials has begun to decline and that at present “OECD countries generate 50 percent more economic value per unit of material resources than in 1990.” While this change is generally good for the environment (and likely good for the soul – editor) it may also pose challenges to governments as retail outlets fail and small business retailers cannot compete with either Amazon or online digital experiences.

Editors Note: Remember Abraham Maslow and his hierarchy of needs?  If post-consumerism turns out to be a ‘thing’ it certainly would validate Maslow’s work?  There is some tough sledding though including unwinding a century of modern marketing and an economic structure based on consumption.  Nevertheless our landfills and planet would probably thank us.

Day 4 – Debt, Immigration and First Nations

This is the fourth list of potential disruptive factors that could influence the Canadian Public Service over the next decade or so.  See the previous blog for the first set of three and Seven Days of Disruption blog for the entire set.  These are in support of November 22, 2017 FMI Conference – Disruptive Writers.

  • Growing debt overhang (2017)
  • Immigration and Changes to the Canadian Values and Characters (editor)
  • Indigenous Power (editor)

Growing debt Overhang

Adapted from A.T. Kearney 2017: Driven by historically low-interest rates, debt levels around the world have risen dramatically and now stand at all-time highs. These debt obligations are on increasingly shaky ground as a result of both their sheer size and key policy shifts under way in the United States and China. An adjustment—orderly or more likely otherwise—will occur in the near to medium term.  Concerns are for debt in governments, corporations and households.  Canadian Government total debts is less than its G20 peer countries but still well above 85% of national GDP (source wikipedia).  Unfortunately Canada trails its G20 peers in corporate and in particular household debt.  Household debt is also worryingly high with Canada at the epicenter of this debt buildup. Canada is among the developed markets in which household debt rose 2 to 3 percentage points in 2016—in large part due to a rise in mortgage lending and housing markets that seem to be overheating. Household debt now stands at over 101 percent of GDP in Canada.

Editors Note: The Great Depression of the 1930’s is often attributed to the accumulation of debt both at a personal and national level.  Credit purchase of goods and mortgages were both relatively new financial tools which fueled a rapid expansion of the US economy in the 1920’s.  Beyond consumables, the stock market was also a beneficiary of leveraged purchases.

At a national level, Europe was still reeling from the effects of the First World War.  The massive allied debt owed to the United States and its unwillingness to forgive this debt made the allies less forgiving in turn for German war debts and reparations.  Add in protectionism and an entire house of cards folded with the correction of the stock market in October 1929.  Interestingly many of the same conditions have parallels in our own time.

Immigration and Changes to the Canadian Values and Characters (editor)

Canada has been a net beneficiary of immigration since humans first started to leave Africa tens of thousands of years ago.  However when most people think of immigration it is not of Bering Straight land bridges but instead of the initial waves of mostly European settlers from the 16th to the end of 20th century.  Since the 1970’s, government policies and changing demographics have seen immigration sources move from European sources to being from all parts of the globe.

A greying Canadian population will mean that immigration must continue even to maintain our current population let alone allow from natural growth.  Despite a Canadian government policy of multiculturalism, what is the impact of displacing a predominantly Euro-centric population and set of cultural values with a more global set of values?  As well, are there risks of a ‘Balkanization’ of Canada such that a Canadian citizen may grow up in an enclave without ever leaving the culture (or perhaps language) of their ancestral home.  Are there risks of a loss of Euro-centric values of liberalism and individual freedoms if in migration was attracted to these norms in the first place?

Indigenous Power (editor)

Human colonization of the North American continent started many thousand of years ago with either the current first nations or perhaps even an earlier wave of human migration.  Irrespective, the people who make up Canada’s first nations have a long standing claims and association with the land. In many parts of Canada this association was articulated in a series of treaties. The Truth and Reconciliation Commission and more recently the National Inquiry into Missing and Murdered Indigenous Women and Girls are two recent government efforts to make for a better arrangement between Canadian society as a whole and the First Nation segment.  For Canadian governments and the larger society, the questions of how to resolve land claims (including competing claims for the same territory), integrating this culture while still maintaining the liberal principles of equality for all.  As well, there is the question of what is the end game for all of the players?  What does resolution look like and exactly what will it cost to achieve this state?

Day 3 – Greying Population, AI and Extremism

This is the third list of potential disruptive factors that could influence the Canadian Public Service over the next decade or so.  See the previous blog for the first set of three and Seven Days of Disruption blog for the entire set.  These are in support of November 22, 2017 FMI Conference – Disruptive Writers.

  • Depopulation Waves (2015)
  • Evolving Artificial Intelligence (2015)
  • Geopolitical Realignment (2015) and Continued Global Violent Extremism (2015)

Depopulation Waves

Adapted from A.T. Kearney 2015: As global population growth slows, some countries’ populations are already shrinking. Global population growth is decelerating from 1.8 percent in the 1980-2000 to just 1.1 percent in the 2000–2025 period. The three main drivers of depopulation are aging, international migration, and high mortality and morbidity rates.  Depopulation presents a range of challenges including labor shortages, weaker consumer demand, lower tax revenue and higher health care costs as the greying population lives longer.

Editor Note: Additional impacts to the above are a massive transfer of wealth from the baby boomers to their children.  Of course this wealth is only of value if the economic and social structures continue to exist to support them.

Evolving Artificial Intelligence

Adapted from A.T. Kearney 2015: Artificial intelligence (AI) is already used in sectors as distinct as finance, journalism, and engineering, and it continues to find new applications. For instance, AI is used in security trading dark pools, writes breaking news articles, and dominates humans in many games (such as chess, backgammon, Scrabble, and even Jeopardy!). It is also being leveraged in an attempt to cure cancer (as part of the Big Mechanism project being run by the Pentagon’s Defense Advanced Research Projects Agency [DARPA]) and make lethal decisions on the battlefield through its integration into the weapons systems of several countries. Increasing investment in deep learning technologies will enable AI to expand to even more sectors.

Editor Note: This topic has been explored in detail both in the business press and in fiction (anyone remember HAL from the movie 2001: A Space Odyssey?).

Geopolitical Realignment and Continued Global Violent Extremism

Adapted from A.T. Kearney 2015: Global economic and political power is increasingly diffuse thus compli­cating leadership efforts within the international system. In the years since the Global Financial Crisis, the United States and other Western powers have receded from the global stage  while rising regional powers have increased their political influence.  These changing power dynamics are decreasing the effectiveness of global political institu­tions. These institutions have transformed little in the past 60+ years and are failing to accommodate shifting power dynamics.  Global arms spending, has grown in recent years after decades of decline following the conclusion of the Cold War.

Today’s most pressing issues, including security concerns, are global in nature but cooperation has proved increasingly difficult in the current international environment. The international security architecture has been slow to address global terrorism and transnational organized crime. Moreover, lack of trust in govern­ments and businesses complicates international efforts to prevent cyber threats.

Editor Note: Canada has been a direct participant and beneficiary in the international movements of the second half of the 20th century.  From being a founding member of the United Nations and NATO to conceiving the concept of peace keepers, Canada has been described as ‘punch above its weight’ in international affairs.

Day 2: Power, Cyber-Security and Renewables

This is the second list of potential disruptive factors that could influence the Canadian Public Service over the next decade or so.  See the previous blog for the first set of three and Seven Days of Disruption blog for the entire set.  These are in support of November 22, 2017 FMI Conference – Disruptive Writers.

  • Changing Nature of Power (2015)
  • Cyber Insecurity (2015)
  • Dawning of a new urban transportation age and the Canadian City (2017 and editor)

Changing Nature of Power (2015)

Adapted from A.T. Kearney 2015: In today’s world, power is increasingly fleeting and diffuse.  It is disseminated across individuals empowered by new technologies such as search engines and social media; to lower levels of government, including cities; and to start-ups and user-driven networked organizations. The rise of the global middle class is leading to greater individualism and expectations for service from their governments and from businesses, with consumers having never had a broader freedom of choice. Global trust in most institutions reached an all-time low in 2015, with governments continuing to be the least-trusted institution.

Editor note: So What?  The answer is that trust is foundation of a society and an economy.  It profoundly reduces the transaction cost in both.  Public institutions support this trust by enforcing social norms. In a strange twist, public institutions are sometimes powerless at the hands of a small but vocal group of individuals.

For example, an August 2017 discussion on free speech at Ryerson University was cancelled because the University was concerned about safety and security.  Described as domestic terrorism by one of the panelists, this is an example of public institution (Ryerson) self-censuring thought and discussion with a resulting degradation of its own power and trust.  While the individuals involved may congratulate themselves on forcing their view points onto an entire institution, they should also recognize that they are sharing a common heritage with the black, brown or red shirts who dominated politics a century ago.

Cyber Insecurity (2015)

Adapted from A.T. Kearney 2015:While the upside of the Internet is enormous, cyber threats continue to multiply. Estimates put global cyber crime losses at somewhere between $375 billion and $575 billion annually.  All connected devices and systems are vulnerable to attack. Computer systems, for example, are vulnerable to ransomware. The growing IoT also lacks strong security systems and is highly vulnerable to data theft.  To make matters more complex, the cyber arena is a growing domain of warfare between countries, in which businesses can be caught in the crossfire. The “Darknet”—parts of the “Deep Web” that are not discoverable by traditional search engines—remains a serious criminal threat, especially with the rise of crypto-currencies. It is cloaked with encryption software that provides anonymity to users. The Darknet is used as a source of cyber attacks, as well as a place to buy and sell ransomware and other cyber weapons. Another business risk of the Darknet is that it provides a marketplace for stolen data collected through cyber attacks, augmenting hackers’ motivation to continue conducting such attacks.

Editor note: Governments see online services as a way to provide better government for fewer resources.  The Singapore, Scandinavia and the United Kingdom are acknowledged leaders in this effort although the Canada Revenue Agency has also made great strides in allowing for a digital experience.  Nevertheless, governments have a number of challenges including the Facebook-effect, the Shiny-bauble problem and resource asymmetry.

Facebook Effect – You are the Product

The Facebook-effect is the problem of comparing government services to a for profit service such as Facebook.  If Facebook can provide service xyz or make its offerings free, why can’t a government?  There are of course a number of answers to this.  Firstly Facebook is not constrained by the same legal, moral and democratic frameworks.  Facebook has an entirely different revenue model.  For social media, the user is the product.  Thus your likes, shares and contributions builds up a profile of you as a person which can then be monetized.  For governments such monetization of a citizen would be outrageous.  Finally, Facebook can fail while governments are expected to be enduring.  If Facebook ceased to exist tomorrow it would be inconvenient but a new social media product would take its place (anyone still using MySpace?).

The Shiny-Bauble Problem

Governments like to implement new things.  Ribbon cutting and shovel turning is good press and leads to the primary objective of any government – staying in power.  As a result, governments get distracted by the Shiny-Bauble which have a short-term effect or solution that has little enduring value and may cause long-term harm to a society.  The worst thing about Shiny-Baubles is that they may become entrenched in a society by a small group who benefit from the government largess.  In other words, the only thing worst than a Shiny-Bauble is trying to turn one-off.

Resource Asymmetry

Governments often have fewer and less enabled resources to delivery digital services or fight cyber-threats than the legitimate and illegitimate competitors.  The above Facebook discussion is one aspect of this resource asymmetry and consuming valuable government resources pursuing a Shiny-Bauble is another.  A darker example of asymmetry is that the bad guys only need to look for and exploit a single weakness in a government’s cyber environment.  At the same time, a government must fight all threats while trying to provide services.

Dawning of a new urban transportation age and age of renewables (2017 and editor)

Adapted from A.T. Kearney 2015: The global urban population has risen steadily over the past two decades. According to the United Nations (UN), there were about 2.9 billion urbanites in 2000, but that number has increased to 4.1 billion and will hit 4.5 billion in 2022. The number of megacities, defined as cities with 10 million or more inhabitants, rose from just 17 in 2000 to 29 in 2015, and the total is projected to rise to 36 by 2025. Hyper-urbanization is heightening congestion levels in cities around the world. The age of the automobile may be ending as cities adopt innovative new technologies and use more traditional mass and individual transit methods to enable smarter and more sustainable urban transportation and growth.

(Editor) Public transit and electric vehicles are two ways that urbanization will change the face of a city but tele-commuting and promoting walk/bike-able cities are another.  This raises a challenge for Canadians as much of our housing stock has been built since the mid-20th century and the economics and logistics for all of these mitigating solutions will require significant government investment and coordination.  It will also require a change in cultural norms and expectations as owing a home has become central to financial and personal-security well-being.

Day 1: Climate, Biotech and Canadian Competitiveness

What are some of the larger potential disruptive factors that could influence the Canadian Public Service over the next decade or less.  The following three are the first in a list that will be used at the November 22, 2017 FMI Conference – Disruptive Writers.

  • Seven Days of Disruption (Initial Blog).
  • Accelerating Global Climate Change and the cost to mitigate (2015 and editor)
  • Biotechnology: Frankenstein, Super-bugs and Super-cures (adapted from 2016 and editor)
  • Canadian Competitiveness and Productivity (editor)

Accelerating Global Climate Change and the Cost to Mitigate

Adapted from A.T. Kearney 2015: Food production, rising sea levels, increased range of tropical diseases and impacts to fragile environments such as the arctic and northern forests are some of the negative impacts identified.  At the same time, Canada could be a net beneficiary as more of its land mass becomes suitable for agriculture and lower cost for exploration of mineral wealth in the arctic.  These are tenuous gains as compared to social and mass population upheavals however.

Editor note: in many ways the past 200+ years of using fossil fuels can be compared to a young person inheriting a vast fortune from an unknown dead relative.  The changes have been both negative and positive.

On the positive side, there are billions of people alive today or who have lived in the past two centuries that would not have lived without the exploitation of fossil fuels.  Fossil fuels have given us a standard of living in which even the poorest Canadian is living better than many past kings or queens.  Hydrocarbons deliver clean water, warm homes, take away sewage, pave our streets, move food to our stores, fix nitrogen out of the air to grow the food and give us miracle materials such as plastics.

However, like a young adult waking up from a massive party we are also noticing that the trust fund is running low.  As well, 200+ years of living with fossil fuels has directly or indirectly killed many of our fellow species, polluted our homes.  The hunt for the fuels have led to corruption and creating vast fortunes in societies that have exported extremism and intolerance of things like women’s rights.

The cost to leave the fossil fuel era is considerable and may not occur in our lifetime.  The reality is that the engineering and technologies to replace an energy dense and convenient storage medium such as gasoline is considerable.  Canada has committed to shutter its coal power plants.  In 2014 this represented approximately 10% of the nation’s total generation nearly all in Western Canada [1].  Assuming these plants are closed by the target date of 2030, 63.6 terrawatt hours of capacity will need to be replaced [2].  Globally, Canada’s coal generation represents 0.67% of the total world generation capacity [3].  Thus the cost of leaving fossil fuels in the ground are not only direct but indirect as we place ourselves at a competitive disadvantage despite being a global powerhouse in energy reserves.

Biotechnology

Adapted from A.T. Kearney 2016: Just four years after its invention, “copy-and-paste” biotechnology is bending the cost and timeline curves for major scientific breakthroughs. CRISPR-Cas9—which stands for “clustered, regularly interspaced short palindromic repeats” and “CRISPR-associated protein number nine”—was discovered in 2012. This biotechnology has the ability to delete, repair, or replace genes, making it a function for genetic manipulation that will allow researchers to do three things more cheaply and effectively than ever before: alter human genetic code, cure diseases, and even create new lifeforms.   Its applications will have far-reaching impacts on a multitude of industries, altering business models, regulatory environments, and consumer demands and preferences worldwide.

Editor’s Note: Bio-technology is one of the things that makes us human even if the technology part has advanced considerably.  10,000 years ago the methods would have included burning forests to plant crops or encourage grazing animals; selecting grains such as wheat, rye or rice; or domesticating the dog, horse or cow.

More recently state sponsored food research was central to of the green revolution of the late 20th century.  Genetically modified food has continued this revolution although with a sense of unease.  Bio-technology promises designer cures for diseases and an improved standard of living for humanity.  The shadow includes Frankenfoods, designer babies and other nightmares from science fiction.  Regulation and a stable civil society is one way to control this.  Another method is to ensure that the work is done in a culture of openness and transparency – something perhaps more difficult if the research leaves Western countries and is taken up in repressive regimes or nations lacking a history of civil discussion.

Canadian Competitiveness

Adapted from the Conference Board of Canada: Canada’s standing on the 2017 Global Competitive Index as issued by World Economic Forum improved one place to 14th.  Switzerland ranks first, followed by the United States, Singapore, the Netherlands, and Germany.  Taxation and government regulation impeded competitiveness while a good K-12 and post-secondary education systems provided an offset.  Canada benefits from efficient labour markets and a sound financial and securities systems.  Canada lacks consistent investment in research and development, has degrading public infrastructure, poor coordination between universities and business and an over-reliance on natural resources.

Editors Note: This subject was discussed at the September 21, 2016 FMI Edmonton Chapter event Fostering Innovation in the Public Service When Money is Tight.

[1] Adapted from Canada Coal Profile, Figure 6 and Table 1, accessed 2017-11-13; https://www.iea.org/ciab/papers/Canada.pdf.
[2] ibid Power generation (gross) in TWh in 2014.
[3] Key World Energy Statistics, Electricity Generation by source, accessed 2017-11-13;  http://www.iea.org/publications/freepublications/publication/KeyWorld2017.pdf

Seven Days of Disruption

On November 22, 2017, the Edmonton Chapter of the Financial Management Institute is running an event entitled ‘Disruptive Writers‘.  In addition to hearing 3 great speakers discuss their books on either future disruptions or managing change, we will be playing a game called ‘Pin the Tale on the Disruption‘.  Sort of a mini-Delphi of what participants at the conference think will be the biggest challenge to the Canadian Public Service between now and …. ohhhh, say…. 2025 (e.g. about 7 years hence).

The Source of Disruption

There is a variety of sources for the disruptions but they are primarily based on the excellent work of the A.T. Kearney who have produced 3 Global Trend documents (available as follows):

It’s tough to make predictions, especially about the future (Yogi Berra)

A word of caution about the difficulty of making predictions.  Inevitably something better or worse will have muscled all of the excellent possible futures out of the picture.  In addition, Black Swans and the unpredictable are a near certainty.  So, to my future self, I profusely apologize/acknowledge for being so absolutely wrong/right in naming the following future disruptions.

A Laundry List of Disruption (in alphabetical order)

  1. Accelerating Global Climate Change and the cost to mitigate (2015 and editor)
  2. Biotechnology: Frankenstein, Super-bugs and Super-cures (adapted from 2016 and editor)
  3. Canadian Competitiveness and Productivity (editor)
  4. Changing Nature of Power (2015)
  5. Cyber Insecurity (2015)
  6. Dawning of a new urban transportation age and the Canadian City (2017 and editor)
  7. Depopulation Waves (2015)
  8. Evolving Artificial Intelligence (2015)
  9. Geopolitical Realignment and Continued Global Violent Extremism (2015)
  10. Growing debt overhang (2017)
  11. Immigration and Changes to the Canadian Values and Characters (editor)
  12. Indigenous Power (editor)
  13. Islandization” of the global economy (2017), NAFTA Negotiations and the rise of protectionism (editor)
  14. IT Revolution 2.0 and the Rise of the Machines (adapted from 2015)
  15. Post Consumerism (adapted from 2016)
  16. Quebec and Regional Tensions (editor)
  17. Resource and Commodity Supply, Demand and Price (adapted from 2015)
  18. Rising storm of populism; Canada and Cultural War in the Age of Trump and the Progressives (adapted from 2016 and editor)

Can We Monetizing Government Services?

On November 7, I attended a session put on by the Canadian Institute called “Government Connects“. All levels of government spoke about digital transformation of their services.  One of the speakers was the boss of all Alberta Public Servants, Marcia Nelson.  Marcia did a great job discussing what the Government of Alberta is doing in moving its services online.  Certainly Digital Government is the nirvana for most governments as they see cyberspace as being a cheaper, faster and more effective way to deliver more services to citizens.

The User as the Product

Marcia, and many of the speakers, talked about the expectations of citizens relative to their other digital experiences.  For example the ease to create a Facebook account, the functionality available via a GMail account or how a LinkedIn profile is now almost as important as a resume or a business card.  The question from Marcia, and others was ‘how can governments compete with these products?‘.

The other side of these services is a profit motive.  Facebook makes it easy to set up a profile so it can target you with advertisements. Gmail wants you as an email client so it can scan your email and target its advertisement.  LinkedIn wants you to buy a premium membership or at least get your eyeballs on its advertisements.  All of the above are examples of monetizing you as a user into becoming their product.  Assuming informed consent, there is nothing wrong with monetization.  It is an economic transaction in which a slice of your privacy is exchanged for some really good services (like watching cat videos on Facebook just saying).

The Digital Government Disadvantage

So where does government fit into this?  Firstly there is the challenge of resources.  A quick scan of the September 2016 quarterly results of Facebook shows they have about $10.6USD Billion in physical and intangible assets*.  Included in this number is $5.1USD Billion of network and computer software assets (physical) in addition to $1.7USD Billion in technologies and patents (intangible).  In other words, Facebook has excellent technical infrastructure to offer a premium product for free to users.  And if they don’t have a good product now, their $30.3USD Billion in current assets (e.g. cash, securities, etc.) can be used to buy that good product.

* Note, for those accounting weenies out there, an interesting item they have on their balance sheet is ‘Acquired users’.  I could not readily find a definition for this term but it appears that the users are really the Product!

Pity someone like the Government of Alberta (GoA).  A $50 billion a year organization in which an estimated 2.5%, over $1 billion, is spent annually on Information Management and Technology (IMT) (adapted from: GoA IMT Plan, 2016 – 2021, p. 4). From the GoA’s most recent financial statements, they have $4.4CAD Billion (about $3USD Billion) of computer assets – hey not bad – of which 78% of is fully depreciated (e.g. over 5 years old) – YIKES! (adapted from GoA 2015-16 Financial Statements, p. 63).

Beyond relying on old technology, the GoA has to do a lot more than Facebook.  While Facebook can focus on social media, the GoA needs to run registry systems (e.g. vital statistics, land titles or drivers licenses), health systems (e.g. immunization, medical records), education (K-12, student finance, apprenticeship certificates), business (collect taxes/royalties/fines) and human social functions (tracking children in foster care, seniors or homelessness).

The above is not a new story but it is worth repeating every now and then that governments do things that no one else wants to with a tiny fraction of the resources of private industry.  Governments must also build and run systems that have almost no tolerance for failure.

Risk and Skin in the Game

To the last point, risk, this is where government is at a further disadvantage.  The original investors in FaceBook backed a winner.  Those who put money in to Myspace, Friendster or DIGG did not fare so well (huh, never heard of some of these, check out the grave yard of failed social media infographic from the Search Engine Journal January 25, 2013).  Nicholas Taleb calls investors (win or lose) people with ‘Skin in the Game‘ from his book Anti-Fragile.  In contrast, public servants never have skin in the game.  We are always spending other people’s money and our fantastically worst case for abject failure is forced retirement or perhaps being fired – maybe.

In other words, governments have both an advantage and disadvantage around risk. The individuals involved do not have personal risk (advantage) but the organizations also lack the mind focusing benefit of the ‘terror of failure’ (disadvantage).

The Monetization Continuum and How Can Governments ‘Compete’

The reality is that Governments can’t and shouldn’t compete with the Facebook’s of the world.  Creating a bleeding edge user experience would be an inexcusable use of public funds and without the terror of failure would not likely be successful anyway.

But because thought exercises can lead to innovation, I am proposing the ‘Monetization Continuum‘ for governments; a government simply needs to pick a point on a line.  At one end (generally status quo) is ‘Mind and Accept the Gap‘ at the other is ‘Full Monetization‘ with other options falling between these two.  Definitions are provided below as well as way points but generally if you are Singapore you may be more comfortable having McDonald’s ads on your obesity website.  If you are at the other extreme – well this is where Minding the Gap comes in.

Monetization Continuum

End Points Definition Examples
Mind and Accept the Gap Governments acknowledge that they will lag and explain why to their citizens. Periodically, governments leap-frog into a stronger position. Status Quo
Monetize Fund digital government through ad, premium memberships or sponsorship revenue.

Premium services could even be tax-deductible!

Faster border crossing via Nexus.

On the Subject of Not Likely

The reality is that governments will and should never monetize their services.  There is a slippery slope of what is reasonable and in good taste.  Governments have something that Facebook or Google does not have – the coercive powers of taxation and legislation. Perhaps governments does not need to build systems when they can force organizations operating in its jurisdictions to offer the services.  There is a long tradition of this in the telecommunications world, for example.  This would not be monetizing users as products, this would monetizing providers as servants for the public good.  Just a thought.

Monetizing Being a Public Servant

Early season snow storms are dangerous things.  Not only for driving but also when you take a long walk and your brain slips into thought experiments.  For example, when you are walking along and your brain says – hey you could potentially retire in a few years and do something outside the public service where you currently work.

In other words the snow and my brain conspired to ponder the question, ‘How do you monetize your career as a public servant?’.

Monetizing the Problem

First a definition, what is monetization? There are a swack of definitions but they all generally boil down to trying to convert something to ready cash. The following extract from Wikipedia’s definition provides a good example:

… attempting to make money on goods or services that were previously unprofitable or had been considered to have the potential to earn profits.

So, what exactly are we monetizing in this context? How to have a career post public service that commands a similar level of pay, respect and respect. Not to put too fine of a point on it, but public servants have a (not)/justifiable reputation of being unemployable post government.

The Obvious Methods

So, after a career of say 25, 30 or more years, how do you convert that experience into a second career or even part-time income?  The obvious answers that came to me include:

  1. Maximize a Public Sector Pension and/or Semi-Retirement
  2. Gain Unique Experience of Value to Someone
  3. Retire from a Senior Position that has Cache and Contacts
  4. Keep Your Toe in the Real World

Maximize a Public Sector Pension and/or Semi-Retirement

This is the most obvious method is that you enjoy the government backed annuity otherwise known as a public sector pension.  Sure, maybe you will do some greeting at Wal-Mart or try to convert a hobby into a paying proposition – but generally you don’t monetize the experience.

There is of course a cliché here that public servants have gold-plated pensions and to certain extent it is true (to learn more about this subject, see the post-conference notes on public sector retirement by the FMI).  The other side of this cliché of course is the lack of stock options, bonus and other non-monetary factors related to be a public servant.  Nevertheless, a thirty-five year pension is a pretty sweet bit of monetization!

Gain Unique Experience of Value to Someone

The fellow who spent his career as a spot-mountain-frog-lip-taster-technician may discover that he has a very unique skill set.  Governments do things that business and organizations don’t so this is definitely a consideration for monetization – assuming there is a market for the specialization – and there is the rub.  No other organization may want to pay for (thus monetize) frog-lip-tasting.  However there are some less obvious examples of converting experience into post-retirement careers.

If you work in an administrative function, likely the experience can be monetized – to a point.  A human resource consultant, accounting clerk or procurement specialist can find (if they want) post-retirement employment.  Unfortunately, the more senior the public sector experience the less likely of making a lateral leap.  As an accountant, I have managed to avoid dealing with taxes, shareholder accounting and the like because I have focused on budgets, systems and governance.  As a result, most controller roles are closed to me because I lack this basic for-profit experience.  The same examples can be made for other administrative functions in human resources, procurement, etc.

Retire from a Senior Position that has Cache

Retiring as a Deputy Minister or City Manager may open up future opportunities.  Think of the senior politicians, for example, who have gone back into law firms or think tanks.  Alas often the value you can bring to an organization are the contacts and systems knowledge of the recently departed government.  This knowledge is perishable in the extreme, particularly if there is a subsequent change in government or significant re-organization.

Mandatory cooling off periods may further diminish the relative value of recent experience if one needs to wait six to twenty-four months before cashing in.  Nevertheless, if you got to be a senior civil servant, you probably have skills of value beyond a government context.

Keep Your Toe in the Real World

One method of ensuring the ability to work in the real world post public service is to not really ever leave it.  A toe in may range from owning real estate property, working part-time (e.g. doing taxes if you are an accountant) or teaching courses.  In this way you have non-government experience to point to.  A further upside is having additional income of doing some or all of these things.  A downside is working more than one job during your career.

Monetization May Mean More than Money

If you are willing to stretch the definition of monetization, there is more to life than a second (third, fourth or fifth) career.  You can also use your experience in a volunteer capacity helping our or other societies.  For example Canadian Executive Services Overseas takes retired executives and places them globally and here at home (e.g helping first nation communities).  Churches, non-profit boards and community leagues are other potential beneficiaries of a life time in the service of the public.

Not all of these will pay the bills if one’s pension is not fully maximized.  However if money is not a primary driver (hey, you did take a government job after all), then you may be paid in post-retirement experiences!

Thank you snow storm for helping me clear my thoughts whilst walking… now back to work because I am not quite at the point of being able to start monetizing….

Cash is King but Flow is the Empress

David Trahair writes on financial matters and provides a very welcome Canadian point of view on retirement and investment considerations.  In his 2012 book: Cash Cows, Pigs and Jackpots; The Simplest Personal Finance Strategy Ever he provides both financial advice and some self-help to boot!

The central theme running through this book is the importance of positive cash flow (Cash Cows) versus negative flow (Cash Pigs).  Trahair also goes into a few pleasant surprises such as lottery winning as a retirement strategy (Jackpots).

Pig Tied to a Stake; Frederick George Richard Roth; Metropolitan Museum of Art: #06.404

Keep your Cash Pigs under control. Pig Tied to a Stake; Frederick George Richard Roth; Metropolitan Museum of Art: #06.404

On the one hand, much of what is in this book you may have read elsewhere in similar financial and investement books.  On the other hand, he does a good job of combining a number of different threads together including why happiness should be a high on your list of wealth

Happiness as an Investment Strategy

Trahair references the science of happiness, for example, you have a happiness set point.  50% of your happiness is pre-determined by both your genetics and your early up bringing.  The other 50% is split 10/40 between external circumstances (e.g. job, new things; 10%) and intentional activities (e.g. things you choose to do such as physical activity, 40%).

Huh? What the heck does happiness have to do with my investment strategy?

The answer is, be careful that you are not trying to buy things that are free.  If you had an unhappy working career there is every chance you will have a miserable retirement. Figure out how you can be happy and then plan the money around it.  You may discover that you need less treasure then you originally thought!

Before leaving this theme, Trahair references a movie and a book that I will need to track down and read on the subject of happiness:

  •  ‘Happy‘; a documentary on happiness by Roko Belic; and
  • Happy for No Reason‘; a book on the same subject by Marci Shimoff.

Some Old (But Still Very Good) Advice

Trahair revisits advice given by other financial sages such as David Chilton, the Wealthy Barber including these timeless gems:

  • Record your expenses, doing so will help you understand where your money goes.
  • Avoid bad debt, e.g. debt to purchase non-enduring assets such as vacations, electronics or meals (Bad debt = Cash Pig).
  • Avoiding debt is easier by living within your means.
  • Living within your means includes owing less house than what the bank says you can afford.
  • Enter into home ownership only after considering the merits of renting.

To the last point, Trahair provides a good summary of the merits, terms and considerations of owning a home, renting and even buying a condo.  Once again this material is available in other sources but Trahair does a good job of making these technical details easy to read and understand.

This includes understanding what inflation is (how the Canadian Price Index is calculated) as well as the state of the Canada Pension Plan (pretty good by all accounts).  Pulling it altogether, Trahair provides an overview of how a Cash Pig at one point in your life (saving for retirement) can become a Cash Cow later on (cashing in RRSPs).

A Bit Too Much Excel but Still a Good Graduation Gift

One fault Trahair has is going into too much detail of his Excel tools (which you can download free from www.trahair.com).  I recognize that these are good mechanisms to demonstrate his point and the scenarios that he is painting – but they also bog down the narrative.  Hopefully in future editions he sticks to the key messages and moves Excel-Explanations into annexes.

Nevertheless, if you know someone who is graduating this year and are thinking about a present I would suggest a bundle of books.  Firstly all of Trahair’s editions (available from his website) and Chilton’s series on the Wealthy Barber.

Good luck with you cash pigs and cows – and may the FLOW be with you!

Antifragility – What Does not Bankrupt Us Makes Us Stronger

Nicholas Taleb is back with a new book, ‘Antifragile: Things That Gain From Disorder‘.  Okay the book has been on the market for a few years but I am behind in my reading.

Think of Taleb as that brilliant curmudgeon neighbour/uncle/airplane seat mate who holds views that both connect with you and which make you uncomfortable.  He challenges most of our preconceived notions but also provides an underlying (albeit difficult to implement) life philosophy.

A Table of Taleb Tenants

Taleb is a bit of an enigma.  He made gazillions [1] off of the fiscal crisis of 2008 and is a strong capitalist.  At the same time he has little time for corporate suits and less time for those who would game their way to wealth.  Thus in the very simple Facebook’esque Right versus Left, here are some of his positions and why he is a contradiction – and why this makes him much more of a real person.

Taleb Tenant Score (Left/Right)
Entrepreneurs should be accorded near hero status in our society.  “… Modern society should be treating ruined entrepreneurs in the same way we honor dead soldiers…” (p. 79) Right: Yeah, capitalists finally get their due!
Governments (as well as individuals and corporations) must avoid debt at all costs.  “I have an obsessive stance against government indebtedness… people lend the most to those who need it the least” (p. 53) Right: fiscal conservatism rocks!
The best form of government is small and local.  Nation states and Big Government creates fragile political systems.  As well, the benefits (in addition to the friction, petty fights and local compromises) are not scalable… “(or what is called invariant under scale transformation)… The difference is qualitative: the increase in the number of persons in a given community alters the quality of the relationships between the parties” (p. 88). Switzerland, Sweden and Denmark are all examples of governments with most of the power and decision making local levels. Right: This is consistent with the Libertarian philosophy of avoiding large governments.
The Iraq War was perpetrated by individuals such as Thomas Friedman or George W. Bush who had only upside and no downside to the decision.  “I got nauseous in Davos making eye contact with the fragilista journalist Thomas Friedman who … help cause the Iraq War.  He paid no price for the mistake. … He promoted the “earth is flat” idea of globalization without realizing that globalization brings fragilities, causes more extreme events as a side effect, and requires a great deal of redundancies to operate properly”. (p. 384). Left: the Iraq War was instigated by War Criminals and ultra-conservative lackeys.
Large corporations are in the business of making us either sick (e.g. tobacco, soft drinks)  or are in the business of making us well as result of getting sick (e.g. pharmaceutical companies).  “… small companies and artisans tend to sell us healthy products  … larger ones … are likely to be in the business of producing wholesale iatrogenics [editor’s note, treatment in which the harm exceeds to benefits]” (p. 402).

Bail outs of corporations reward corporate mismanagement and transfer wealth from the taxpayer to a privileged few who were likely directly or indirectly authors of their own misfortune. Taleb’s suggestion to prevent gaming a bailout of a corporation at risk of needing a bailout is to pay everyone according to a civil servant’s salary scale (p. 391).

Left: all large corporations are evil and are out to get our money and ruin our health.

Left: corporate bailouts are part of a conspiracy of the 1%’ers.

Mother nature is our best expert and absence of evidence does not mean evidence of absence.  Thus before a new drug, process or product is introduced – the manufacturer must demonstrate that it will not harm the planet.  “So when the (present) inhabitants of Mother Earth want to do something counter to nature, they are the ones that need to produce the evidence, if they can” (p. 349). Left: Eat vegan, wear raw wool, live in an unheated cave and drink unpasteurized beverages.

Anti-Fragility Defined (with Examples from your Grandmothers China Collection)

The above slightly tongue in cheek Taleb-tenant-table demonstrates that he does not conform to standard left-right narratives (actually he hates that word, narratives).  This makes him considerably more interesting as an author or potential influencer than one who does neatly fit into such categories.  His underlying philosophy can be described as such: ‘arrange your personal, family, community and national activities to be at least robust if not anti-fragile’.  Anti-fragile means that whatever we are talking about (our personal lives, economic systems, organizations, etc.) likes and improves because of small changes or stressors.

Two examples from his book are instructive.  A porcelain tea-cup is a highly fragile entity.  It does very well for the environment it was created to exist in: your grandmother’s china cabinet.  However, it does not weather change particularly well beyond these narrow environmental parameters.  For example it does not survive the four-year grandchildren visiting or even a minor earthquake (both of which can be considered stressors and perhaps even a black swan event – depending on the upbringing of the four year old).

Teacup and saucer (Detail) Designer: Designed by Karl L. H. Müller (ca. 1820–1887). Metropolitan Museum of Art, Accession Number: 69.194.9, .10

Teacup and saucer (Detail) Designer: Designed by Karl L. H. Müller (ca. 1820–1887). Metropolitan Museum of Art, Accession Number: 69.194.9, .10

Compare this with a living entity.  Small changes and stressors benefit living entities.  This is the reason we go to the gym to work out – so as to stress muscles so they respond to change and new ones are created.  Small financial systems work in a similar way.  The middle-eastern souk can more readily absorb small changes in the economy than large corporations.  A souk is closer to a living entity than Wall or Bay Street.  Taleb provides the example of Switzerland in which there is a very limited national government and much of the governing work goes on at the municipal level.  While this makes for many petty squabbles it also makes for an inherently stable form of government in which small disputes are resolved locally and are not allowed to fester or escalate to the national level.

Lessons Learned and Becoming More Taleb

Anti-fragility is an intellectual workout.  Taleb takes us down the roads of classic history (complete with a character called Fat Tony besting Socrates in an intellectual brawl), modern medicine, economics (the charlatan art) and modern science.  Although Taleb asks the reader to consider the book as a complete work he also is a strong proponent of the use of heuristics (rules of thumb) as the basis for knowledge.  So here are the key tenets from anti-fragility that I already/plan-to follow:

  • To a Point: the following are all limited by both external factors and common sense.  Thus none of the following can be taken to an extreme – they can only be taken to the commons-sense grey zone of ‘to a point’.
  • Optionality: in making a decision, attempt to provide yourself with the greatest number of choices possible so that no matter the outcome of an event, you can be a beneficiary (or at least not a loser).
  • Bar-Bell Options: a bar bell option (technically, a bi-modal strategy, p. 161) avoids middle-of-the-road options and hedges the potential downside of one option with the upside of another option.  A currency exchange hedge is one example in which a company may hedge a change in exchange rates.
  • Procrastinate: the longer you not make a decision the greater your optionality – to a point.
  • Avoid Debt: owing money to others reduces your options and gives them to those who have lent you the money.  Freedom from debt (financial and other varieties) gives you the greatest optionality.
  • Tinker and Fail Fast: make your makes mistakes small, early and with the least possible costs.
  • Seek Redundancy: develop fail safes and redundancies so when a minor stressor or a Black Swan event occurs, there are multiple levels you can fall back on.
  • If it is Not Broken – Break It! [2]: Okay, Taleb did not actually use these words (in fact he probably would scorn any business book with such a catchy title) but effectively he subscribes to this concept.  Small stressors make the living entity stronger so it can survive larger unpredictable future stressors.
  • Organic or fractal Survives the Best: Humans tend to build in straight lines whereas nature tends to be fractal or messy.  Thus neat rows and columns that look appeasing to the human eye are also the less robust, resilient or anti-fragile than say the intertwined seeming mess of an ant hill or bird’s nest.  This is an important consideration when designing such mundane things as office layout, organizational structure or dinner party seating arrangements.  Once again, to a point rules the day as the applicability to architecture or bridges may require an engineering degree to fully apply and appreciate.

The Limitations of the Tales of Taleb

There are many things that I agree with Taleb on.  The underlying conservatism (small c variety) and the recognition that nature probably has already figured out the best way of doing things (heck that is the basis of the website that you are reading this blog on).  Nevertheless, there are some holes that the reader should be aware of before adopting Taleb as your current patron Saint or prophet:

What About the Rest of Us?  A number of times, Taleb mentions the benefits of being independently wealthy primarily because of one or two inspired and optionality-based opportunities.  A few million is the minimum and seven to eight digits is preferred.  While we would all like to be men and women of leisure, only 1% of the 1%’ers fall into Taleb’s suggested lifestyle.  This is not particularly useful advice for us poor working stiffs.

Cartoonish Characterizations.  Soccer moms ruin our society by over planning their children’s lives (creating school attuned nerds who cannot survive in the real world, p. 242).  Every corporate employee is an empty suit not even worthy of his scorn and every government bureaucrat pines for private sector exploitation of their experience in the civil service (so much for optionality I guess).  Most of the rich he meets at conferences are globetrotting plastic shells of people – and worse, not even as rich as he.  Okay, perhaps some slight exaggeration both in my portrayals of his portrayals and his need to exaggerate to make his point.  Nevertheless, his caustic contempt is a bit tiresome and sometimes (not always) misplaced.

Let’s Do the Time Warp Now.  Taleb returns again and again to the past for inspiration.  The Greeks, Romans and other pre-modern Mediterranean cultures.  His reason is that they have survived the greatest number of stressors and thus can provide us with antifragile lessons.  Certainly his take on lessons from classical Greco-Roman history is interesting but I am not sure he should be wanting to go back to fast.  To start, these periods were brutal and violent.  Many of the civilizing things that perhaps make us somewhat fragile also have reduced the likelihood we will die a horrible and early death.  Next, these civilizations never developed many of the mental models that Taleb himself admires, such as the scientific process.  Finally, we have an incomplete reading on these cultures because of the massive destruction of writings and knowledge.  His faith may be misplaced on too few surviving artefacts.

Stop Develop… of any Sort… Now! Taleb correctly points out the impact of the law of unintended consequences.  Antibiotics create super bugs when they are over used.  Thalidomide caused birth defects and burning fossil fuels is creating global anthropogenic changes in our climate.  These examples are valid ones and our hurtling towards genetic engineering, nanotechnologies and transferring our consciousness into computers (the singularity) may have their own (greater?) unintended consequences.  The reality is though that a certain amount of risk taking is necessary to if we want to improve our lot.  To take an example to an extreme scenario (well beyond, ‘to a point’), had our ancestors listened to Taleb, we would still be debating the merits of the use of fire or invention of the wheel and their impact on the planet (both good and bad as it turns out).

A Little too Enamoured with the Mafia. Taleb often references the mafia as role models for behaviour and organizational design.  Typically this is because of their loyalty to the organization and personal honour ‘It was said that “a handshake from the famous mobster Meyer Lansky was worth more than the strongest contracts that a battery of lawyers could put together.”‘

While the honour of the Mafia maybe laudable I suspect Taleb’s understanding of it is a bit rose-tinted and ignores the violence and depravity criminal organizations inflict on communities.

Little Regard for Theories or Education. Although Taleb holds an advance degree, he has very little respect for academics in general and finance/economics in particular.  While I would agree with him that there is a lot of fluff in today’s post-secondary curriculum, a point that Taleb misses is the apprenticeship of teaching how to think in post-secondary institutions.  He might see this as weakness but the academic model relies (in theory) on evidence and peer review rather than perpetuating oral traditions and old-wives tales.

The use of theories is similarly held in contempt by Taleb.  For him, the practical day-to-day knowledge and actions are more important than a theoretical framework as to why something works.  While I am a fan of pracademics, I think Taleb is missing the greater value of a theory – providing a mental model that allows the mind to be prepared to incorporate future knowledge.  This is what Louis Pasteur called, ‘chance favours the prepared mind’.

Economies of Scale are Both Fragile and Leviathans

A key theme in this book that size, complexity, growth, etc. create inherently anti-fragile results.  His go to example is the current financial system which had to be rescued with the debt of taxpayers across many different economies.  He is of course correct, over the long-term, size and complexity become increasingly likely to fail.  The flotsam of failed empires, corporations or other human endeavours are all examples.

However these systems worked until they failed.  They provided homes, jobs and other human benefits.  As well, larger complex systems are highly effective and accomplish amazing results.  The relative wealth we have now is a result of fragile systems.  An example closer to Taleb home is his home of Northern Levant, a region roughly corresponding to northern part of Syria and Lebanon (p 94).  This area included a large Christian en clave and has been ruled by various empires (Roman, Byzantine & Ottoman) as well as the French and then the nation of Syria.

The local municipalities of this area largely flourished under each of these rulers – if left alone (assuming taxes were paid).  The point being though is that the area was subject to the economies of scale of larger empires and did not have the ability to dictate their own destiny.  Thus the city states of Levant proved to be anti-fragile but the region as a whole was subject to invasion (and taxation) by larger, albeit fragile, empires that benefit from large economies of scale.

The other side of this localization is of course balkanization of a region in which the inward looking small municipal view trumps larger human concerns.  History in general and the recent history in the Balkans in particular suggests that an anti-fragile provincial view can create enormous human tragedy.

Take Away Taleb To-Dos

Nicholas Taleb has the personal and intellectual horse power to pull off this book.  I believe that he is spot on with the concept of fragile/antifragile systems.  I also think that ultimately, he is only half right.  By dismissing the fragile systems that have contributed to the betterment of the human condition, he is missing the value fragile systems contribute.  In effect, he is downplaying or dismissing the role of Yin while suggesting that Yang is paramount.

Nevertheless, Taleb has described his view of Yang extremely well and as a result, it is possible to apply the concepts to Yin like structures – such as corporations, governments or even – God forbid! – economists.

Notes:

All page references are from the 2014 Random House Paperback Edition.

  • [1] Gazillions is a bit imprecise but likely his net worth is more than one hundred million and less than a billion dollars based on various (dubious) internet sources.
  • [2] If It Ain’t Broke…break It!: And Other Unconventional Wisdom for a Changing Business World; Robert J. Kriegel, Louis Palter, Grand Central Publishing, March 1, 1992.

 

 

 

 

 

Procurement Questions

On February 26, 2015, the FMI-Edmonton Chapter is hosting a professional development session, ‘Procurement-Who Does it Well?’.  The pre-event program notes are available (including speaker biographies) for those wanting a bit more detail or context.

Louis Moeller,

Louis Moeller,

The purpose of this session is to explore:

Canadian governments (federal, provincial, municipal and agencies) collectively procure  billions of dollars each year. Efficient and effective procurement is critical to the proper functioning of government operations and central to a modern economy.  This professional training session will consider the public sector procurement challenges from many perspectives including procurement professionals, public servants who need to purchase goods/services, the financial manager, system providers and of course the taxpayer who ultimately pays for the purchase.  This is a joint presentation by FMI and PwC Canada – a global leader in supply chain and procurement.

 With any good session, a set of questions helps to explore the issues.  Available to speak to (if not answer the questions) are experts from PriceWaterhouseCoopers (PwC) as well as Federal/Provincial/Municipal government finance and procurement professionals.  In addition, we will also use the ‘wisdom of crowds’ for this session in which individuals attending can text/email in responses to questions which they think better answer or contribute to the question.

Questions fall into one of the following themes:

1. The Future of Procurement

(Questions relating to changes in People, Process and the Products of the procurement process?  This includes the use of technologies, legislation, training, etc.).

  • Alberta has recently introduced legislative and Treasury Board directive changes increasing the difficulty of conducting sole-source contracts, the use of contract review committees, changes to conflict of interest and other amendments.  Where do these changes place Alberta relative to the rest of Canada for transparency and over-sight of the procurement process?  Should any of the changes be adopted by other levels of government, if not already; in particular, by municipalities?
  • How well do government organizations in Alberta coordinate their procurement activities? Do other jurisdictions to a better job and if so, what will Alberta need to do to match this performance?
  • How procurement-literate is the average public servant?  What is the minimum they should know and where is the best place to learn this?

2. The Current Practicalities of Procurement

(Questions relating to how to ensure compliance with existing organizational and legislative rules and procedures.  This includes reducing the burden compliance while selecting the best vendor during a procurement event).

  • How much is public-sector procurement a technology problem, a political problem, a people problem, a process problem – or is there a problem?
  • How do private sector vendors perceive the government procurement processes in Alberta?  How and how much should their perceptions, needs and circumstances be taken into consideration when designing a procurement process or running a procurement activity?
  • Are inefficiencies in the public-sector procurement process used to discourage expenditures and thus they are a form of cost avoidance or containment on the part of a government?

3. From the Procurement Professional’s Perspective

(Questions related to how a procurement professional can support public servants in selecting vendors of goods and services).

  • How does an organization know that it has a good procurement process?  What metrics should an organization track against to make this assessment and are benchmarks available in general or in particular to public-sector procurement?
  • Who is the ‘pin-up organization’ that every procurement manager wishes their organization could emulate?  Who is the best of the best when it comes to public-sector procurement?
  • A common compliant amongst public servants are the Byzantine procurement rules, seemingly arbitrary changes to the procurement process and endless legal reviews.  How much is this perception real and how can procurement professionals streamline and the process without losing accountability for a fair, open and transparent bidding process?
  • When should a procurement professional be the person to negotiate price with a vendor?  What other procurement attributes (e.g. delivery, quality, terms, conditions, etc.) should be the responsibility of the public servant making the purchase versus the procurement professional?

4. From the Financial Manager’s Perspective

(Questions related to what a financial manager must consider when supporting public servants or procurement professionals).

  • Canadians were perhaps shocked with the revelations of corruption in Quebec.  Over all, how does Canada or Alberta fair on its public-sector procurement being free of corruption?  What are the pro-active and retro-active activities to maintain a corruption free status (or to de-corrupt it, as applicable).
  • What is the one way a financial professional can assist a public servant or a procurement professional in the context of procurement?

5. Alberta’s Contract Review Committees

(Questions specific to operating a contract review committee within a public sector organization with a specific focus on the province of Alberta’s implementation of a review committee).

Alberta Context: A Government of Alberta Treasury Board directive requires that all departments have in place a contract review committee ‘to support the procurement accountability framework’. This framework in turn will: ‘support consistent goods and services procurement practices, including those in respect of Construction, across all departments, that reflect best practices and foster accountability, fairness, effectiveness, and efficiency ‘.

  • Some Alberta Ministries already have contract review committees, how much is this experience being considered when setting up new contract review committees?
  • Are the experiences of other governments also being considered, for example ad hoc committees used in selection of federal or municipal committees.
  • Should the vendor experience or perspective be considered as part of the deliberations of a contract review committee?
  • Some ministries had review committees while others have yet to establish a committee before the April 1, 2015 deadline.  How much should and will the committees differ across the ministries?  What are the FOIPP and public disclosure consideration for these committees?

Proofiness

Mathematics can be used and presented in a manner that distorts the underlying truth or at least the underlying likelihood of a truth.

A mathematician seated at a table, working on mathematical equations

A mathematician seated at a table, working on mathematical equations

YAWWWNNNNN, who cares – Charles Seife does and tells us why you should care too in this book, “Proofiness: How You’re Being Fooled By The Numbers“.

Seife’s position is that bad math is more than being hoodwinked into buying oatmeal (see Quaker Oatmeal cholesterol numbers); bad numbers disenfranchise voters and erodes the democratic rights of Americans.

A Bad Math Field Guide

Be warned, this is a heavily American-focused book in which about half is dedicated to the challenges of the US voting systems.  If you can get past this bias, some interesting terminology and underhanded methods are exposed.  Here are a few:

  • Truthful numbers: come from good measurement that is reproducible and objective
  • Potemkin* numbers: derived from nonsensical or a non-genuine measurement
  • Disestimation: taking a number too literally without considering the uncertainties in its measurement
  • Fruit packing: Presentation of accurate numbers in a manner that deceives through the wrong context.  Techniques include cherry-picking, apples to oranges and apple polishing.
  • Cherry picking: Selection of data that supports an argument while underplaying or ignoring data that does not.
  • Comparing apples to oranges: ensuring the underlying unit of measurement is consistent when comparing two or more populations.
  • Apple-polishing: data is touched up so they appear more favourable (this was the Quaker Oatmeal trick).
  • Randumbness: because humans are exceptional at discerning patterns we also suffer from randumbness, insisting there is order where there is only chaos.
  • Prosecutors Fallacy**: Presenting a probability incompletely and leading to a false data assumption.

* Named for Prince Potemkin who convinced the empress of Russia that the Crimea was populated by constructing villages that were only convincing when viewed from a distance – such as a passing royal carriage.  An example of a Potemkin number was Joe McCarthy’s famous claim of 205 communists in the State Department.

** This one is worth a blog on its own so for more, read: http://en.wikipedia.org/wiki/Prosecutor’s_fallacy.

Take Your Field Guide With You to Work

These are important concepts for not only a citizen to consider when looking at dubious polling information but in the business or public policy world as well.  If there is a shortcoming in Seife’s book, this is it.  In my opinion he over focuses on the bad use of numbers in the public arena without touching on how CEO’s, CFOs, Boards and government-Ministers may also be hoodwinked.

Individuals being asked to make decisions based on numbers need to be able to cut through the packaging techniques discussed above.  This is becoming more important as our society moves to a 144 character Twitter attention span and public policy needs to be distilled down to a simple infographic.  As well, while developing a dashboard for a business is valuable, be sure that it is not filled with polished, cherry picked, Potemkin numbers based on a disestimation

Disenfranchising a few Million

Returning to the book, Seife has some advise for the US when it comes to the United States census.  Written into the constitution, once-every-decade process of counting all American citizens costs about $6.5 Billion dollars.  For this expenditure, it is estimate that the census misses about 2% of the United States population and double counts about 1%.  While these numbers would in theory cancel each other out (more or less), the impact is that there about 10 million US voters not accounted for in the census.

This error rate can be mitigated through techniques known as statistical sampling which will smooth out the distortions.  The result would be generally more people counted in poorer, racial minority areas who don’t like to fill in census forms or talk to government officials.  The ‘result of the result’ would be these people would then have more politicians to vote for (larger representation) and to send to Washington.

So far sounds good except that poor, non-white folks tend to vote for the Democrats which is why there is another perspective: only a count – counts. This being America, the counting challenge has generated a lot of legal attention and two population numbers.  One used by everyone who needs precise data to estimate everyday population trends and another used to reapportion the House of Representative seats.  After numerous legal battles, millions of Americans are disenfranchised because only a more error prone enumeration technique is permitted (see pages 185-198 for a more thorough explanation and also some very impressive legal gymnastics by the Supreme Court).

A Math Journey with a Curmudgeon

Seife sees himself as unbiased journalist although his leftiness tends to negate this somewhat.  He distrusts political polls, NASA, fluffy articles in scientific journals and the social sciences.  In other words, reading Proofiness is like visiting with a self-indulgent, opinionated curmudgeon – who is also brilliant and often right.  If you use numbers to make decisions in your day to day life, I would encourage you to take your ‘Proofiness-Field Guide’ with you.

Triumph of the City

How can you not love a book that combines economics, civil engineering and history!  Edward Glaeser combines these elements into a generally good read that traces the impact of the city from its earliest times to its modern incarnations.  His thesis is that building-up is good and environmentally responsible; sprawl is understandable but not sustainable.

Origin of a City

Cities started and thrive on technology.  The invention of agriculture and the domestication of beasts of burdens was the genesis for our urban journey.  As a result, cities became gateways along trade routes for the spread of culture, innovation and disease.  Since these earliest times, ongoing technological changes have allowed cities to flourish.  The creation of a better transportation (the wheel, canals, steam, street car, automobile, etc.) have allowed for cities to take advantage of the exchange of goods and services.

More recently (e.g. the last 150 or so years) social changes and technologies have allowed cities to move from places of pestilence to locations where you are more likely to be healthier, happier and live longer than your rural cousins.  These technologies are of course the lowly toilet, sewer system, asphalt (to reduce dust), internal combustion engine (to reduce things like horse dung) and clean water.  Parallel political structures needed to be created to provide these externalities* such as effective police forces, water works, street maintenance and an (ideally) non-corrupt overall administration to manage these services.

The Conquest of Pestilence in New York City; Stirling Behavioural Science Blog

The Conquest of Pestilence in New York City; Stirling Behavioural Science Blog

Slums as a Success Story

At this point, many people would point to the slums of Mumbai or Rio and suggest that the conditions there make cities a failure.  While Glaeser does not minimize the human suffering that does occur in quasi-legal no man’s land of slums, he also suggests that those living there are (on average) better off than their rural kin who they left behind.  Cities encourage innovation, reward hard work and there is a better chance to have access to medical care, clean water and schools for your children in a slum than in a rural province.

Once again, it is important to differentiate anecdotal, statistical and absolutes at this point.  For the young man who left a rural village in Brazil and died the next day in gang warfare in a Rio slum – cities would seem to be a bad deal.  But his tragedy has to be matched against the many others who became middle class through hard work, innovation or access to education.

Political Impact on Cities

Cities and political processes go hand in hand.  For example, the more democratic a country is, the more distributed its cities are likely to be; conversely, the more autocratic, the more likely that a single city will lord over other cities (the largest cities in dictatorships, … contain, on average 35 percent of the countries’ urban population versus 23 percent in stable democracies, p. 235).  Over the past 100+ years perhaps the greatest political influence on a city was the favouring of the automobile through the creation of highways and mortgage deductions for private ownership.

In the United States, the creation of the inter-state highway system (which was partially completed to support improved military transportation) has allowed for the creation of suburbs compounded by three other factors: road economics, tax policy and school funding.  The fundamental law of road congestion states that as roads are built, they are filled at nearly the same rate as their construction.  Thus more roads mean more traffic with only congestion pricing (a political hot potato if there ever was one) mitigating this effect.  Returning to the United States, a generous mortgage interest deduction further encouraged the purchase of the best available home a family could afford.  The localization of school boards and their funding meant that parents would also select a home where the good schools were.  The impact since the end of the WWII was the creation of a suburban sprawl and the gutting of inner-city communities.

The urban riots the United States has experienced can be partially traced to the flight of educated and leadership enabled citizens (white and black) away from the urban centers.  This was more than a lack of policing or social policy, this was as much the destruction of the social fabrics of the communities.  Akin this effect in the United States, Glaeser comments on how much safer the Mumbai slums are than the Rio equivalents despite the former being poorer.  Mumbai slums are better functioning social spaces and thus they provide their own safety nets and controls that are less likely to be found in the more transient Rio slums.

Creating Great Cities

Glaeser offers some direction on how to keep cities healthy, happy, lower environmental footprint and safe.  Firstly, allow cities to grow up.  This increases the density per square metre meaning that the same public-service is being optimized.  Green spaces are important to allow parents to raise their families and community safety must occur concurrently.  Community-based and adequate policing is part of the safety equation in addition to creating functioning social-spaces and communities.  Further to this, a community needs to have a say in the make-up of its local environment (bars, night clubs, daycares, etc.) but must not have a complete veto otherwise cities become balkanized into enclaves of Not in My BackYard.

Glaeser also strongly supports the consumption pricing of public goods.  Thus those driving in from the suburbs should be paying for this right or the developer constructing a high-rise tower should pay a sufficiently high enough fee to compensate the local community for this vertical-intrusion.  These are excellent economic principles that often falter in harsh light of political reality.  Nevertheless, at least they should be part of the discourse on what type of city we want to live in and have available to us.

Triumph of the City is a good read for anyone interested in the practical application economics and civil engineering to the messy realities of human communities.  The book is strongly skewed toward the United States context but Glaeser should be commended in bringing in numerous global examples to balance this bias out.  There are lots of juicy footnotes for those who want a deeper dive into the details.  Triumph of the City is a good book for any History/Economics/Civil Engineering-wonks out there.

(*) In economics, an externality is the cost or benefit that affects a party who did not choose to incur that cost or benefit [WIKIPEDIA].