Category Archives: Education

The Greatest Balancing Act

Nature and the global economy
By David Attenborough and Christine Lagarde – In nature, everything is connected. This is equally true of a healthy environment and a healthy economy. We cannot hope to sustain life without taking care of nature. And we need healthy economies to lift people out of poverty and achieve the United Nations Sustainable Development Goals.

In our current model these goals sometimes seem to collide, and our economic pursuits encroach too closely on nature. But nature—a stable climate, reliable freshwater, forests, and other natural resources—is what makes industry possible. It is not one or the other. We cannot have long-term human development without a steady climate and a healthy natural world.

The bottom line is that when we damage the natural world, we damage ourselves. The impact of our growing economic footprint threatens our own future directly. By some estimates, more than 50 percent of the world’s population is now urbanized, increasing the likelihood of people losing touch with nature.

With the projected rise in ocean levels and increase in the average temperature of the planet, large swaths of land, even whole countries, will become uninhabitable, triggering mass climate-induced migration. Never has it been more important to understand how the natural world works and what we must do to preserve it.

A necessary first step is to recognize that waste is the enemy. Wasting food, energy, or materials flies in the face of sustainability. Producing plastics fated to end up as litter is a waste, especially when these plastics pollute our oceans. If we could live by the simple injunction to “do no harm,” both individually and as businesses and economies, we could all make a difference. Overconsumption and unsustainable production have put the planet in peril.

Since the natural and economic worlds are linked, similar principles apply to both.

In the financial world, for example, we would not eat into capital to the point of depletion because that would bring about financial ruin. Yet in the natural world, we have done this repeatedly with fish stocks and forests, among many other resources—in some cases to the point of decimation. We must treat the natural world as we would the economic world—protecting natural capital so that it can continue to provide benefits well into the future. more>

Updates from McKinsey

How purpose-led missions can help Europe innovate at scale
By Ilan Rozenkopf, Pal Erik Sjatil, and Sebastian Stern – Europe is at an important economic inflection point. The continent has the required assets for future prosperity, including leading economically in worldwide sectors such as automotive and pharmaceuticals, and is making progress in important innovations that will help it compete. Nonetheless, European business faces a challenge that is eroding its economic position relative to other global powers: building new leading clusters or companies that can innovate at scale. Addressing this challenge is vital to the continent’s economic future.

We suggest building on Europe’s economic strengths and social capital to tackle the challenge. European business leaders should raise their sights and set new ambitions, both for their own organizations and for collaboration across private and public sectors on fundamentally important projects for the future. Building on a concept originally proposed by Professor Mariana Mazzucato, we call these “missions”—bold and inspirational initiatives to collaborate at scale on socially and economically important topics capable of attracting public support.

This approach can help Europe address its innovation challenge in its own distinctive way, marshalling resources and harnessing ideas and diverse cultures in a set of common ambitions. It could also compensate for structural disadvantages relative to China and the United States, such as a comparatively fragmented domestic market and a less cohesive system of government action.

In sum, missions offer a significant opportunity for European business leaders to take an even stronger lead for more innovation at scale in Europe. Fostering ambition-led collaboration enables scaling of disruptive innovation and proven ideas in a way that leverages Europe’s strength in diversity and, thus, the harmony underpinning its social market economy. more>

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Updates from Siemens

Rocket Lab to use Siemens software to explore new frontiers of space
Siemens – Rocket Lab plans to implement Siemens hi-tech industrial software to help digitally manage the lifecycle needs of the business. The software is from the Xcelerator portfolio, which is from Siemens Digital Industries Software and includes Teamcenter®, the world’s most widely used digital lifecycle management software, and NX™ software for computer-aided design (CAD) and manufacturing.

This announcement comes as Rocket Lab prepares to integrate all its design, engineering and production systems to establish an end-to-end digital thread that enables increased transparency and efficiency across various offices.

Speaking on the decision, Rocket Lab’s Vice President of Global Operations, Shaun O’Donnell, said: “As we’ve grown, so has our production capacity and the platforms associated with various products and processes. Using Teamcenter, we’ll be able to combine various aspects of data related to the same part, assembly and system to maintain a single source of truth across the life cycle of the product. Also, as we grow, NX will give our designers increased performance and stability to cope with larger assemblies.”

“Investing in the right digital platforms that allow us to easily scale with growth is critical to the sustainability of our business. With offices around the world, we rely heavily on the access of relevant information that impacts the efficiencies of our production processes,” said Mr. O’Donnell. more>

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Project and system

There are two ways of seeing order in the world: as a spontaneous system or as an intentional project. Which way lies freedom?
By Paul Kahn – Once we are alert to the distinction of ‘project’ and ‘system’, we see that it is by no means unique to law. These two pictures dominate our accounts of order. Traditionally, those accounts extended into the natural order: is nature God’s project or a spontaneous system? Today, the duck/rabbit problem of ‘project’ and ‘system’ presents itself whenever we give an account of the human world, from the individual to the society. Do we make ourselves according to an idea or do we realize an inner truth of ourselves?

The social sciences approach society as system; the regulatory state imagines it as project.

The picture of a project offers the simplest explanation of the origin of order. Projects can extend from an individual artisan to a creator god; they can involve objects in the world (eg, a house) or social structures (eg, a corporation).

A legislature has law-creation as its project; a people can take up the project of creating a constitution. A project has a beginning in the action of a free subject. That subject explains his project by referring to his intentions. Those intentions can reflect a well-thought-out theory or simply the agent’s interests.

Projects are the way in which a free agent occupies the world. An animal will look for food, but it will not plan its dinner. A bird might build a nest, but that is not a project because the bird could not have decided to experiment with a new design. It could not have been other than it is. That ‘might have been’ is critical to projects and thus to freedom.

In a world of projects, we are always thinking of what we might do, what we might have done, and what we might do better. Projects are successful when they meet their goals; they are redesigned when they fail. Projects then, whether of law or anything else, put at stake not just an idea of order, but also an idea of freedom. Freedom ends where projects end.

Systems have the capacity for maintenance and some ability of repair. An injured organism can heal itself; a market in disequilibrium can return to equilibrium. Of course, some systemic disturbances are beyond these capacities: systems do die.

Projects, though, ordinarily have no such capacities of repair. When a watch breaks, we take it to the watchmaker for repair. When legislation fails, we go back to the legislature for a new plan. Today, artificial intelligence is challenging that distinction precisely to the degree that we can teach machines to learn and to respond. more>

There is No Economics without Politics

Every economic model is built on political assumptions
By Anat Admati – There is absolutely no way to understand events before, during, and since the financial crisis of 2007-2009 while ignoring the powerful political forces that have shaped them. Yet, remarkably, much of the economics and finance literature about financial crises focuses on studying unspecified “shocks” to a system that it largely accepts as inevitable while ignoring critical governance frictions and failures. Removing blind spots would offer economists and other academics rich opportunities to leverage their expertise to benefit society.

The history of financial economics is revealing in this regard. By the second half of the 20th century, when modern finance emerged as part of economics, the holistic approach of early thinkers such as Adam Smith—which combined economics, moral philosophy, and politics—was long gone. Narrow social-science disciplines replaced the holistic approach by the end of the 19th century. In the 20th century, economists sought to make economics formal, precise, and elegant, similar to Newton’s 17th-century physics.

The focus in much of economics, particularly in finance, is on markets. Even when economists postulate a “social planner” and discuss policy, they rarely consider how this social planner gets to know what is needed or the process by which policy decisions are made and implemented. Collective action and politics are messy. Neat and elegant models are more fun and easier to market to editors and colleagues.

Lobbyists, who engage in “marketing” ideas to policymakers and to the public, are actually influential. They know how to work the system and can dismiss, take out of context, misquote, misuse, or promote research as needed. If policymakers or the public are unable or unwilling to evaluate the claims people make, lobbyists and others can create confusion and promote misleading narratives if it benefits them. In the real political economy, good ideas and worthy research can fail to gain traction while bad ideas and flawed research can succeed and have an impact.

Having observed governance and policy failures in banking, I realized that the focus on shareholder-manager conflicts is far too narrow and often misses the most important problems. We must also worry about the governance of the institutions that create and enforce the rules for all. How power structures and information asymmetries play out within and between institutions in the private and public sectors is critical. more>

Updates from McKinsey

Managing and supporting employees through cultural change in mergers
By Becky Kaetzler, Kameron Kordestani, Emily O’Loughlin, and Mieke Van Oostende – Mergers create vast organizational anxiety about the future: in most cases, the operating model and culture will change dramatically for one or both merging companies. These changes go far beyond a new name and senior leadership; they challenge the core of an organization’s identity, purpose, and day-to-day work. Even small tactical changes, like new expense policies or cafeteria options, can rattle employees. Anticipating and addressing these “organizational emotions” can set the foundation for seamless, effective integration. Failing to anticipate and address them can lead to poor business performance, a loss of critical talent, and the leakage of synergies.

Merging companies must shift the day-to-day behavior and mind-sets of their employees to protect a deal’s sources of value, both financial and organizational, and to make changes sustainable.

One basic problem is management’s tendency to focus mostly on changes that would directly help to capture a deal’s value targets while largely ignoring those required to maintain and enhance the company’s health. Organizational design, for example, is always top of mind in the early stages of merger planning, but companies often sidestep cultural differences until difficult issues come to light. At that point, the base business will already have suffered, top talent may already have looked for external opportunities, and the capture of synergies may have become more difficult.

A holistic, effective integration program should proactively address the full scope of changes your employees will experience in an integration. Managing through this kind of effort involves two broad tasks: embedding cultural changes and managing operational ones. more>

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Updates from Ciena

Ciena’s role in recent 400G industry-first milestones
Are you confused about the recent 400G milestones announced and how this is different than what has been discussed for a few years?
By Helen Xenos – In recent weeks, we have seen two 400G announcements come out, the first from AT&T followed by a second from Internet2, each speaking of achieving new milestones in the industry. To the casual observer, it may not be clear what is new about these announcements. Haven’t we been talking about 400G deployments for several years now? Well, yes and no.  To understand the importance of these announcements, you need to take a closer look. With Ciena innovations playing a key role in both cases, here are some insights.

The first point to understand is that in networking, 400G can mean different things. 400G is a term loosely used to describe a communications link that can carry 400 billion bits per second, or 400 Gigabits per second (400Gb/s). There are two types of 400G connections:

1) 400G wavelength: here, 400Gb/s are carried over a single carrier in a fiber optic cable that can transport a mix of different client traffic rates (ex. 10GbE, 100GbE or 400GbE) across long distances over an optical infrastructure. A coherent optical transponder is used to aggregate client traffic and transport them over a single 400G wavelength.

Apart from Ciena’s WaveLogic Ai, coherent optical solutions capable of 400G speeds are relatively new. WaveLogic Ai is the exception, with commercial, volume shipments beginning in the fall of 2017, and the foundation for the majority of 400G deployments in the industry to date.

The key value of WaveLogic Ai is that users can double traffic carrying capacity per wavelength versus 100G/200G solutions and reduce footprint, energy consumption and cost per bit. Network providers can select capacity rates from 100G to 400G and transport traffic at 400Gb/s for 300km distances, 200Gb/s for 3000km distances and 100G for ultra-long-haul links. more>

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Updates from Chicago Booth

Does America have an antitrust problem?
Markets are becoming more concentrated—and, arguably, less competitive
By Jeff Cockrell – To those who are worried about the state of contemporary American politics—those who are concerned about the historically high levels of polarization between the two main political parties, who despair of the disappearance of anything that could be called common ground, who bristle at the apparent unwillingness of any occupant of national, state, or local office to recognize the common sense or basic human decency of any proposal coming from the opposite side of the aisle—we offer you this single harmonious word of relief: antitrust.

A vocal concern for the power held by some of the United States’ most dominant companies—especially tech giants such as Facebook, Amazon, and Google—may be the only shared material among the talking points of President Donald Trump and the Democrats vying to run against him in 2020. Trump has asserted that the US should follow the European Union’s lead in handing down large fines to big tech companies for antitrust violations, and during his presidential campaign, he charged that Amazon has a “huge antitrust problem.” A number of prominent Democrats, including Bernie Sanders and Elizabeth Warren, are on the same page, having suggested that many such companies may need to be broken up. In July, the Department of Justice (DOJ) announced that it was “reviewing whether and how market-leading online platforms have achieved market power and are engaging in practices that have reduced competition, stifled innovation, or otherwise harmed consumers.”

Concerns about competition are not unique to the tech industry. Aggregate levels of US industrial concentration—or how market share is divided among manufacturing companies—began to increase in the early 1980s after decades of relatively little change, according to research by Chicago Booth’s Sam Peltzman. The trend continued into the 21st century. Between 1987 and 2007, average concentration—as measured by the Herfindahl-Hirschman index, a commonly used gauge of market concentration—within the 386 industries included in his analysis increased by 32 percent.

If this trend toward more-concentrated industries has been accompanied by a small number of companies expanding their market power as a result of diminished competitive pressures, the effects could be momentous. In fact, some research suggests the exercise of market power could be responsible for everything from higher prices to reduced investment to the steadily diminishing share of the US economy that’s enjoyed by the labor force. more>

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Updates from McKinsey

How smart choices on taxation can help close the growing fiscal gap
The growing fiscal gap has policy makers in a difficult position. Swift action in a few areas can help them improve the operational efficiency of fiscal systems.
By Aurélie Barnay, Jonathan Davis, Jonathan Dimson, and Marco Dondi – Governments around the world have implemented a range of fiscal and debt measures to fund policy initiatives over recent decades. As a result, tax revenues as a proportion of GDP have risen four percentage points across Organization for Economic Cooperation and Development (OECD) countries since 1980. However, many governments remain inadequately funded. Despite higher tax revenues, spending is rising faster than income, leading to widening budget deficits and higher levels of debt.

Four distinct trends are playing out: increasing automation in the workplace, leading to pressure on employment; the evolution of global trade through the proliferation of e-commerce and digital business, raising questions over cross-border taxation; rising self-employment; and an aging population. Each of these could further widen the fiscal deficit in the years ahead. Moreover, we see all four accelerating, placing policy makers in an ever-tightening fiscal bind.

Basic economics provides two options for balancing the books: either increase revenues or decrease spending.

The bottom line for governments is that there are no easy answers. Whether they seek to increase taxation or boost efficiency, they are likely to face headwinds. Still, decisive and rapid action is essential to optimize tax collections and keep pace with an inevitable rise in demand for services.

Tax revenues in OECD countries have risen slightly over the past 35 years. However, spending has risen more, leading to widening deficits that governments have bridged with debt. OECD tax revenues were 34 percent of GDP in 2017. Because of tax deficits and the effects of the 2008 financial crisis, the average ratio of gross debt to GDP rose from 66 percent of GDP in 1995 to 88 percent in 2017.

Sources of tax revenue have remained stable over time. Over three decades, personal income and consumption together accounted for 82 to 89 percent of revenues. The biggest single contributor was payroll and income tax, accounting for 50 to 55 percent of revenues (even though the contribution of personal income tax declined by nearly 7 percentage points). Consumption and excise duties remain little changed at 32 to 34 percent of revenues.

More people are working for themselves, either as a contractor to several companies or a single company. This emerging gig economy accounts for an estimated 28 percent of EU and US employment. The proportion would rise to 46 percent if everyone had their preferred working arrangement, according to MGI research.

However, the gig economy creates challenges for tax authorities. First, independent workers are generally less compliant than their employed peers, and in some countries are required to pay less taxes. Evidence from the US suggests that workers subject to limited information reporting, such as the self-employed, have an around 50 percentage point lower rate of tax compliance than traditional workers. There are also ongoing legal debates in some jurisdictions over whether gig economy workers are employees for the purposes of worker classification and social security contributions.

Governments can close the widening gap between revenues and expenditures in a variety of ways through tax revenues, nontax revenues, and spending optimization. In addition, some governments are either implementing or considering approaches based on monetary finance.

The gap between government revenues and spending has widened and is likely to continue to do so. The onus, then, is on tax authorities to act now. more>

Updates from Chicago Booth

Want to be happier? Give more to others
By Alice G. Walton – There’s scientific evidence, it turns out, to back up centuries-old religious teachings that it’s better to give than to receive. Chicago Booth’s Ed O’Brien and Northwestern PhD candidate Samantha Kassirer find that giving to others might make you happier in the long run and has staying power, whereas the joy of receiving fades quickly.

In an experiment, the researchers gave college students $5 for five days in a row and told them to spend it the same way each day. Half of the students were instructed to spend the money on themselves, say by buying a coffee daily. The other half were told to spend the money on others, for example by donating to a single charity or leaving a tip in the same coffee shop each day. Every night, the participants completed a survey in which they reported how they felt overall that day.

The happiness level of the students who spent money on themselves declined over the five days, the researchers find. But for those who donated the money, their happiness level on the fifth day was similarly high as on the first. more>

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