Rolling Wave

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  • China's New Age Of Reform  [View article]
    Excellent article - a strong analysis of trends and likely rationale for easing of short term macro growth to lay basis for better long term Chinese growth trends and increased global influence. The conclusion that you don't have to trade financial reforms for long term growth resonates, although the political difficulties are considerable. There might be more about the micro implications of China 3 decade debt binge, and where past investments in infrastructure and markets, or how much the new consumer priorities are likely to receive senior action and reform. Your view of the friction between party elites shaping economic choices through the SOE lending model, and the Xi/Li reform desires to grow domestic productivity by securing control over major assets and increasing the private sector share in business decision-making, clearly challenges a popular model which has worked pretty well for 3+ decades. Your take on recent developments resonates, but three questions come to mind about the future:
    1) recent Economist and other articles raise the question of a different Chinese business and management model contributing further to China's economic surge - Pompano Frog above raises the same variable in a different way. Is there an emerging Chinese economic firm model, neither western, nor Asian/Indian?, and, what are the implications for the economic priorities that the new leadership will follow in freeing and gingering their private sector to respond to consumer demand?
    2) Is the Xi/Li reform agenda an honest effort to shift their robust economic model into a new dynamic, which will engender substantial pushback in itself (there are good reasons Deng's commitment to consensus always dominated reform moves, ultimately enabling the shift to market solutions to be so accepted today), as there are institutional agents worldwide who fed off the previous regime's excesses, and who now provide a huge reservoir of support for any counter reaction; or, will there be new favourites and reinforced factionalism, that undermines the sustainability of such major changes. The proof will be in the evenhandedness of the housecleaning and whether the agents of change bring a newer, more transparent morality to leadership decision-making. So, how would you keep score?, how would Pettis measure this?
    3) The decision to constrain party influence in business decisions is equally a challenge in the West; cosying up to the government trough is the human condition from the military-industrial complex, to the permit-Raj, the Russian kleptocracy/oligarchs and the old guard Party elite. Freeing Chinese business to reach global scale raises the same question raised by Hong Kong and Taiwanese activists over the last two days, will it increase the pressures for greater pluralization in political decision-making, and how will the Chinese model adapt and respond to this - and of course, what does it mean for the investor? (sotto voce query: May one assume Mathew will be long China when their domestic market opens to foreign investors next month?)
    Sep 29, 2014. 03:05 AM | 2 Likes Like |Link to Comment
  • Apple Uniquely Positioned To Cash In On Android  [View article]
    Will competitive pressures to ensure open access, e.g. European competition authorities, diversity of Asian suppliers, plus growing ubiquity of Cloud and presence of Linux, not continue to reduce stickiness of apps? I.e., if you can work around Google Android, can OSX be that defensible a moat, particularly as cloud operability becomes a real alternative in Asia? QNX may have potential, but wait two years for users to reach a critical mass, before placing your bets!
    Feb 9, 2013. 05:05 PM | Likes Like |Link to Comment
  • Consumers who buy phones from cellular carriers no longer have legal protection to unlock the devices so they can work on another operator's network. Under a change in regulation from the Library of Congress's Copyright Office that came into force yesterday, unlocking phones is not expressly permitted under law. "It may go to court some time, and then it will be up to a judge," says lawyer Mitch Stoltz.  [View news story]
    Interesting - the Library of Congress rule here is a reversal of normal common law, and western culture. In essence, it is saying that unless you have permission, you may not unlock the phone - whereas normally our culture permits any application or innovation unless the law specifically forbids it. The risk of this approach is a kleptocracy - unless you satisfy the official/system/control process, you do not have the freedom to take an action, which enables the system to extract an unearned rent. There probably should be a clear distinction between a phone 'leased' i.e., still under contract, and an owned phone after expiration of the initial contract. Most Asian countries have already moved to this model, in contrast to their traditional legal system, thereby encouraging greater competition and innovation - witness the two chip phone from China which enables the user's phone to work on several proprietary networks at once, which shifts use to the lower priced service provider.
    Jan 28, 2013. 11:53 AM | 2 Likes Like |Link to Comment
  • How the Crash Will Reshape America  [View article]
    Hmm, a decade long experiment in shifting a larger share of national income to the corporate sector from government and workers has not worked, as rent seekers from finance to housing got greedy then abusive exploiting their market power. The challenge in restoring demand and growth is not to let another interest group tilt any new framework in their direction. This latest pitch by Florida is very remniscent of Faith Popcorn and others from the 90's about how the new economy will generate high paying idea jobs - but most of these wonderful scenario's seem to include government ensuring these idea jobs are publicly supported.

    The entire thesis risks turning into a self-interested money grab by intellectuals who aspire to live off public money to guide this 'new growth'. There is agreement with Florida's conclusions about many of the likely losers, particularly in the exurbs, manufacturing and services with higher transport inputs. But failing to address the very large number of service jobs dependent upon protected markets and artificially high input costs that hobble business in North America misses the key point about whether any of these new idea jobs will be sustainable in a globalized information age.

    The reality is higher paid idea or service jobs in both America and Canada are now at risk, so long as our economies impose not only high priced jobs, but also high priced business inputs on the job-generating private sector. A steadily growing protected market of idea jobs is not sustainable, whether in health care or mega city development - when the latest technologies are globalized and ubiqutous with a younger generation from Boston to Beijing to Bangalore, or Toronto to Taipei to Mumbai, all capable of providing the needed ideas. A software program, a policy paper even a development plan from government or academia, all are increasingly competitive when sourced in Bangalore or Shanghai rather than Harvard or the University of Toronto.

    Without a recommitment to a competitive domestic policy framework and system that enables productive growth by business, the long term result of the Florida utopia is an ever larger government directed sharing of the public pot to maintain mega-cities with high priced professionals needing government transfers to maintain their standard of living. That experiment has not worked from socialist Sweden to communism in Russia and China (having lived and worked in all three) - the past century is a clear demonstration that for all its faults, markets are the superior vehicle to any bureaucratic or politically directed alternative in allocating and adjusting resources to respond to opportunity and eliminating bad ideas and misdirected public subsidies.

    The mega cities, like the craft towns of renaissance Italy, do generate innovation, but if that innovation does not go to market, it becomes like all those wonderful Chinese inventions which were instead commercialized by European and then American companies. The health of new North American megacities will be dependent upon sharing in the global response to the demands generated by the 2 billion middle class consumers emerging in China and India over the next two - three decades. Dr. Florida has identified the critical importance of adjustment out of uncompetitive sectors and urban or rural areas, but he has omitted the even more fundamental requirement for a competitive environment for limited liability enterprises to operate and grow by providing what the growth markets of the 21 st century demand - not what some bureaucrat deems is a wise choice.

    Those high priced jobs will survive in competitive growing firms, with a smart regulatory framework which ensures special interest groups can not extract too large a share of national income to service their "perceived needs", but instead shapes competitive input prices so our business sector can afford high wage jobs. From North America's exorbitant business taxes near the top of the OECD, (in contrast to the low business tax Nordics), to among the highest rates in the OECD for data transfer, cell telephone, cable, and a range of other business inputs, governments have mandated North American cost model that is not globally competitive nor sustainable.

    Florida's proposals for systemic change need to incorporate clear standards based on market outcomes, to ensure our future economy can adjust away (i.e. eliminate through competition) from uneconomic protected service jobs, as quickly as he proposes to adjust away from uneconomic regions into denser mega cities.
    Feb 14, 2009. 08:09 PM | 1 Like Like |Link to Comment
  • Inclement Weather, Recession Shouldn't Stop Great Canadian Gaming  [View article]
    It will have to be a very long term perspective for any growth. Canadian is dumping staff quickly, offering packages. Likelihood is more consolidation, even forced sales....
    Jan 15, 2009. 11:16 PM | Likes Like |Link to Comment
  • Economic Systems and the Bang-Bang Solution  [View article]
    Darwin's key lesson was that the most successful organisms are those which adapt best to changing life conditions. The research described in this article would seem to confirm Wallace's corollary that the organization with adaptive mechanisms that kick in most effectively in times of stress (feedback loops at bang-bang/extreme stress turning points) to bring the system (or organism) back quickly to its evolutionary growth line is the organism best capable of withstanding or coping with times of unusual stress and surviving for longer periods.

    The implication for the current period of global economic instability could be:
    a) selective intervention to bail out favoured sectors or players (viz finance, but not industrial) but not ensuring that the economic system and feedback signals continue to incent and protect growth likely will not eliminate instability, but merely shift the costs from those responsible for the stress problems to those required to support a broad government bailout (the many co-opted to fund the ineffective control operations of the few). This likely will slow system or organization evolution, prolonging the stress and instability as well as the life of the less adaptive organizations;

    b) bang-bang extremist interventions or feedback loops which work effectively should be copied quickly and adopted widely, not prevented or protections erected to defend the status quo - systems and organizations with faulty or weak extreme control mechanisms should be allowed, even encouraged, to disappear or adapt towards a more optimal growth paths.

    c) smart regulatory management should ensure the regulatory framework include feedback loop directions or required actions for times of extreme stress which force an immediate (bang-bang, full on control interventions) return to the growth fundamentals of the activity or organizations being regulated.

    Darwin has said that a key inspiration to his understanding and development of the theory of evolution was the work of Adam Smith forty years before. It might be fitting for control mechanisms which have evolved in nature to provide guidance for ensuring current economic systems are encouraged towards effective long term growth paths.
    Rolling Wave
    Nov 12, 2008. 11:55 AM | Likes Like |Link to Comment
  • Bull or Bear? Let History Be the Guide  [View article]
    The fundamental driver of the exceptional post WWII growth was the increasing demand of these emerging consumer class in the US, Europe and Japan - about a billion people. The uneven growth of the first half of the last century lacked that economic driver, and secure base to generate growth.

    1900-50 is not comparable 2000 to 2050 - the latter period will have roughly 2 billion new consumers in China/India and elsewhere in Asia embracing and joining the middle class in real terms. In the big picture, the effective global market will triple the billion consumers that the US, Europe and Japan let loose from 1945-50 to drive the growth of the past half century. This new surge will provide, with the inevitable bumps and mistakes (from governments to greed and corruption) an engine of growth that will pressure commodity prices (current 15 year uptick), then new tech goods and services to new levels of growth.

    Only issue is whether US will continue to embrace global opportunities this represents, or let small interest groups (like the million US farmers which scewered the Doha trade round two weks ago) protect their comfortable and uncompetitive monopolies and subsidies. It was US business which led the charge to globalization since 1950, with huge benefits for American prosperity and consumers. Only question is whether US business will continue to exploit these emerging market growth opportunities.

    My conclusion argues against the article - that average growth can stay above the 50 year trend, if American business seizes their share of future bet is yes, regardless of the initial hesitation about the adjustment pressures this will foce on the old economy players, and the bumpiness of the ride.
    Aug 13, 2008. 12:27 PM | 2 Likes Like |Link to Comment