Author Archives: Net economy

The world is running out of time

By Bertrand Badré – In 2015, the international community launched a renewed effort to tackle collective global challenges under the auspices of the United Nations Sustainable Development Agenda and the Framework Convention on Climate Change (COP21). But after an initial flurry of interest, the progress that has been made toward achieving the Sustainable Development Goals and tackling climate change has tapered off. Around the world, many seem to have developed an allergy to increasingly stark warnings from the UN and other bodies about accelerating species extinctions, ecosystem collapse, and global warming.

Now is not the time to debate whether progress toward global goals is a matter of the glass being half-full or half-empty. Soon, there will no longer even be a glass to worry about. Despite global news coverage of civic and political action to address our mounting crises, the underlying trends are extremely frightening.

For decades, most of the major economies have relied on a form of capitalism that delivered considerable benefits. But we are now witnessing the implications of the Nobel laureate economist Milton Friedman’s famous mantra: “the social responsibility of business is to increase its profits.”

A corporate-governance model based on maximizing shareholder value has long dominated our economic system, shaping our accounting frameworks, tax regimes, and business-school curricula.

But we have now reached a point where leading economic thinkers are questioning the fundamentals of the prevailing system. Paul Collier’s The Future of CapitalismJoseph E. Stiglitz’s People, Power, and Profits, and Raghuram G. Rajan’s The Third Pillar all offer comprehensive assessments of the problem.

A capitalist system that is disconnected from most people and unmoored from the territories in which it operates is no longer acceptable. Systems do not work in isolation. Eventually, reality asserts itself: global trade tensions reemerge, populist nationalists win power, and natural disasters grow in frequency and intensity.

Simply put, our approach to capitalism has exacerbated previously manageable social and environmental problems and sowed deep social divisions. The explosion in inequality and the laser focus on short-term results (that is, quarterly earnings) are just two symptoms of a broken system. more>

Updates from Chicago Booth

Who’s at fault for student-loan defaults?
By Howard R. Gold – A central driver of growing income inequality in recent decades has been the earnings premium commanded by those with technical skills, and a widening gap between college graduates and those with a high-school diploma or less.

Workers in the United States have responded by seeking college courses to improve their skills, and many have been drawn to for-profit institutions, which offer two- or four-year degrees or professional certificates in fields such as health administration, culinary arts, and cosmetology. But rather than enjoying an income boost, many graduates of for-profit schools have found themselves struggling to pay back student loans, and defaulting on their debts.

This has particularly affected nontraditional students, according to research by Harvard’s David J. Deming, Claudia Goldin, and Lawrence F. Katz.

Nontraditional students tend to be older than 25 and often they are the first in their families to attend college. They tend to have lower family incomes than typical college students. They are disproportionately women and single parents. They are more likely to be Hispanic or African American.

To be sure, college tuition rose almost 360 percent between 1985 and 2015, and graduates of professional schools, which boast some of the highest tuition rates, tend to owe the most. The median student debt of a new medical-school graduate was $190,000 in 2017, as reported by the Association of American Medical Colleges, while the average debt for graduates of US business schools was $70,000, according to the consumer-finance site SoFi.com, which derived the figure from 60,000 student-loan refinancing applications submitted between January 2014 and September 2016. more>

Related>

Updates from Ciena

Trouble-to-Resolve: Assure Layer 3 Service Performance in Minutes
By Don Jacob – Service provider networks have come a long way from the flat networks of yesteryear. Today, they are highly complex with multiple hierarchies and layers, while running a plethora of services and technologies. Providers use the same underlying network to cater to different applications, ranging from financial applications to streaming video, each with its own unique performance and fault-tolerance requirements.

In this complex scenario, how can service providers assure performance of their Layer 3 services, to verify that services are being delivered and ensure customer satisfaction? Take the case of a service provider who’s providing MPLS services to hundreds of customers. Let us look at how the network engineer managing a service provider network handles a routing issue without a routing analytics solution.

Today, when a customer raises a ticket for a reachability or service delivery problem, the provider manually analyzes the issue, making their trouble-to-resolve process long and time consuming.

To start with, if the customer raises the trouble ticket while a connectivity issue is in progress, the first thing the provider needs to know is the routing path taken by the service. This requires the network engineer finding the source router and then running a traceroute from that router to determine all the hops along the path. Once the routers along the path have been identified, they would then log into each router to understand its performance.

This process is repeated on all routers along the path until the problematic router or link is identified. more>

Related>

Globalization’s Wrong Turn

And How It Hurt America
By Dani Rodrik – Globalization is in trouble. A populist backlash, personified by U.S. President Donald Trump, is in full swing. A simmering trade war between China and the United States could easily boil over. Countries across Europe are shutting their borders to immigrants. Even globalization’s biggest boosters now concede that it has produced lopsided benefits and that something will have to change.

Today’s woes have their roots in the 1990s, when policymakers set the world on its current, hyperglobalist path, requiring domestic economies to be put in the service of the world economy instead of the other way around. In trade, the transformation was signaled by the creation of the World Trade Organization, in 1995. The WTO not only made it harder for countries to shield themselves from international competition but also reached into policy areas that international trade rules had not previously touched: agriculture, services, intellectual property, industrial policy, and health and sanitary regulations. Even more ambitious regional trade deals, such as the North American Free Trade Agreement, took off around the same time.

In finance, the change was marked by a fundamental shift in governments’ attitudes away from managing capital flows and toward liberalization. Pushed by the United States and global organizations such as the International Monetary Fund and the Organization for Economic Cooperation and Development, countries freed up vast quantities of short-term finance to slosh across borders in search of higher returns. more>

Why economics must go digital

By Diane Coyle – One of the biggest concerns about today’s tech giants is their market power. At least outside China, Google, Facebook, and Amazon dominate online search, social media, and online retail, respectively. And yet economists have largely failed to address these concerns in a coherent way. To help governments and regulators as they struggle to address this market concentration, we must make economics itself more relevant to the digital age.

Digital markets often become highly concentrated, with one dominant firm, because larger players enjoy significant returns to scale. For example, digital platforms incur large upfront development costs but benefit from low marginal costs once the software is written. They gain from network effects, whereby the more users a platform has, the more all users benefit. And data generation plays a self-reinforcing role: more data improves the service, which brings in more users, which generates more data.

To put it bluntly, a digital platform is either large or dead.

As several recent reports (including one to which I contributed) have pointed out, the digital economy poses a problem for competition policy.

Competition is vital for boosting productivity and long-term growth because it drives out inefficient producers and stimulates innovation. Yet how can this happen when there are such dominant players?

Today’s digital behemoths provide services that people want: one recent study estimated that consumers value online search alone at a level equivalent to about half of US median income.

Economists, therefore, need to update their toolkit. Rather than assessing likely short-term trends in specific digital markets, they need to be able to estimate the potential long-term costs implied by the inability of a new rival with better technology or service to unseat the incumbent platform.

This is no easy task because there is no standard methodology for estimating uncertain, non-linear futures. Economists even disagree on how to measure static consumer valuations of free digital goods such as online search and social media.

And although the idea that competition operates dynamically through firms entering and exiting the market dates back at least to Joseph Schumpeter, the standard approach is still to look at competition among similar companies producing similar goods at a point in time. more>

Updates from ITU

Iceland’s data centers are booming—here’s why that’s a problem
By Tryggvi Adalbjornsson – The southwestern tip of Iceland is a barren volcanic peninsula called Reykjanesskagi. It’s home to the twin towns of Keflavik and Njardvik, around 19,000 people, and the country’s main airport.

On the edge of the settlement is a complex of metal-clad buildings belonging to the IT company Advania, each structure roughly the size of an Olympic-size swimming pool. Less than three years ago there were three of them. By April 2018, there were eight. Today there are 10, and the foundations have been laid for an 11th.

This is part of a boom fostered partly by something that Icelanders don’t usually rave about: the weather.

Life on the North Atlantic island tends to be chilly, foggy, and windy, though hard frosts are not common. The annual average temperature in the capital, Reykjavík, is around 41 °F (5 °C), and even when the summer warmth kicks in, the mercury rarely rises above 68. Iceland has realized that even though this climate may not be great for sunning yourself on the beach, it is very favorable to one particular industry: data.

Each one of those Advania buildings in Reykjanesskagi is a large data center, home to thousands of computers. They are constantly crunching away, processing instructions, transmitting data, and mining Bitcoin. Data centers like these generate large amounts of heat and need round-the-clock cooling, which would usually require considerable energy. In Iceland, however, data centers don’t need to constantly run high-powered cooling systems for heat moderation: instead, they can just let in the brisk subarctic air.

Natural cooling like this lowers ongoing costs. more>

Related>

Updates from Siemens

Why the aerospace industry must adopt condition-based maintenance
By Dave Chan and John Cunneen – When the aerospace industry adopts condition-based maintenance and predictive maintenance methods, the cost of owning and operating aircraft is minimized, downtime is reduced and airworthiness is easier to prove.

Unfortunately, many companies seem to simply go through the motions and use antiquated and increasingly unreliable methods to track reliability and, as a result, spend more downtime than needed conducting unnecessary maintenance. This not only increases costs but, more importantly, can put the safety of the aircraft at risk.

In our previous blogs, we discussed the cost of certification and the increasing burdens placed on aircraft companies to prove, through certification documentation, that their aircraft meet the government safety standards established in countries and regions worldwide. We also discussed some of the digital tools available to help manage this process, lower costs, decrease time-to-market and increase availability/readiness.

Digitalization can ease the burden of designing and manufacturing an aircraft, but it’s also a pivotal strategy to implement these digital tools to increase the efficiency of maintaining, repairing and operating the aircraft.

Major industries such as maritime and oil and gas are using condition-based maintenance to lower costs and reduce downtime. With the maritime industry, just like the aerospace industry, reliability, availability, maintainability, and safety (RAMS) are key in keeping a maritime fleet operational. more>

Related>

Transatlantic Relations: Difficult Decisions Ahead

By Gordon D. Sondland – The EU often espouses the rhetoric of supporting free trade, while simultaneously employing numerous non-tariff barriers to its markets. While these NTBs take many forms, prominent among them are the EU’s unjustified and trade restrictive policies with respect to agricultural and food products, notably unwarranted bans not based on science or actual risk.

It is not a coincidence that the United States has an agricultural trade surplus with the world of $22 billion and a deficit with the EU of $15 billion. The EU’s tariffs are also higher than the United States.

Historically, the United States has been there for Europe for more than seven decades. Our commitment to a free, prosperous and secure Europe has come in many forms, from American dollars to American lives. The United States decided to make a strategic, long-term investment in this transatlantic relationship.

Hundreds of billions of dollars have flowed into Europe, along with the incalculable investment into Europe’s security via non-obligatory defense spending. At the same time, we have opened our lucrative markets and welcomed European trade and investment throughout our economy.

Against this backdrop, I arrived in Brussels last July highly optimistic.

Fast-forward six months. I am deeply disappointed we have not seen faster, deeper progress on the wide number of areas where European rules prevent U.S. firms from fair access to European markets. This lack of demonstrable progress on real and tangible U.S. concerns presents a serious challenge to the transatlantic relationship at a time when it is more important than ever that we be working together.

Rest assured, President Trump is committed to fixing the imbalance in our trade relationship so it will not burden yet another American administration. more>

Everyone’s talking about ethics in AI. Here’s what they’re missing

By S. A. Applin – The systems we require for sustaining our lives increasingly rely upon algorithms to function. Governance, energy grids, food distribution, supply chains, healthcare, fuel, global banking, and much else are becoming increasingly automated in ways that impact all of us.

Yet, the people who are developing the automation, machine learning, and the data collection and analysis that currently drive much of this automation do not represent all of us, and are not considering all of our needs equally. We are in deep.

Most of us do not have an equal voice or representation in this new world order. Leading the way instead are scientists and engineers who don’t seem to understand how to represent how we live as individuals or in groups—the main ways we live, work, cooperate, and exist together—nor how to incorporate into their models our ethnic, cultural, gender, age, geographic or economic diversity, either.

The result is that AI will benefit some of us far more than others, depending upon who we are, our gender and ethnic identities, how much income or power we have, where we are in the world, and what we want to do.

This isn’t new. The power structures that developed the world’s complex civic and corporate systems were not initially concerned with diversity or equality, and as these systems migrate to becoming automated, untangling and teasing out the meaning for the rest of us becomes much more complicated. In the process, there is a risk that we will become further dependent on systems that don’t represent us.

Furthermore, there is an increasing likelihood that we must forfeit our agency in order for these complex automated systems to function. This could leave most of us serving the needs of these algorithms, rather than the other way around. more>

Updates from Chicago Booth

How to fight corruption—and why we should
Petty corruption was long thought to grease the wheels of business. But economists are learning how much it can hold back some companies and local economies.
By Rose Jacobs – In the oil, gas, and mining industries, the temptation to pay a bribe can be strong.

Multinational companies that dominate these industries typically agree to pay host countries for the extraction of natural resources, which involves acquiring licenses and setting up agreements that specify the terms of the process and any payments to the host country, including royalties, license fees, and bonuses.

But each company strikes its own deal with a host country, so why not just pay a bribe in exchange for a more favorable agreement? Some might see it as necessary grease in the wheels of business, the price of getting work done in countries where regulation is lax and bureaucracy the law.

However, research suggests that avoiding bribes might be a good thing—and not just because businesses could get caught and might have to pay fines, such as the $1.78 billion in penalties Brazilian oil-and-gas company Petrobras agreed to pay last year.

Starting in 2013, the European Union and Canada established rules meant to crack down on corruption in the extractive industries, requiring detailed disclosures meant to give activists and other watchdogs the ability to spot signs that corruption may have taken place. Analyzing data in the wake of the anti-corruption measures, researchers find that companies forced to increase their disclosures also increased their official payments to foreign governments, potentially making more money available to the local communities.

Academics have debated for decades whether corruption hampers economic development. In the 1960s through the ’80s, one popular notion was that corruption played a positive role, at least in the developing world. Economists such as Columbia’s Nathaniel H. Leff and political scientists such as the late Samuel P. Huntington of Harvard argued that bribes serve as a means of skirting inefficient bureaucracy, and help to promote economic growth and its many benefits. more>

Related>