Adapting to Clean Technology

People will always tend to resist change, whether it is in their interest or not - it is just human nature. This resistance can be conscious or subconscious in that the resistance will not always be explicitly manifested in a negative manner but may be simply in the process required to adapt. Clean technology is in the interest of mankind's future but the resistance embedded in the process of adaptation means that innovative and radical new technologies may take much longer to become useful as a clean technology whereas smaller and incremental technologies will be the success stories in the short, medium and even long term.


What are the implications?
1) Cleantech companies whose products require radical changes in process, require large investments or require highly special skill-sets, regardless of how unique and valuable they are, will not yield the results or returns that might be expected.

2) There will not be a unique, innovative technological solution to the problems caused by global warming that is financially feasible in the short to medium-term, and maybe even the long term.

3) This may also mean that environmental problems will get worse before they get better as the process of adaptation may not be quick enough to reduce the impact of global warming and the factors that cause it.


What does this mean for investors?
I believe that, for example, technologies that change one component of systems such as cleaner batteries or highly efficient electrical components will quickly gain momentum while technologies that change many elements of systems or require system overhauls such as smart grid technology, while very feasible with clear benefits, will take much longer and may never provide a viable return on investment. Investors who want to make a good return on investment in clean technology should therefore focus on companies pursuing incremental technologies while governments and large corporations should focus on supporting technologies which change fundamentals.

Comments invited.

Emphasising Reputational Risk

The impact of technology on global information dynamics over the past 5-10 years has drastically changed the the reactions and consequences of events on people, business, industries and markets. The pace at which the change has occurred has not allowed business and people to adjust at the same rate. News houses must now make fundamental changes to their business models to remain viable, politicians have to devise more complex means of manipulation and businesses have to monitor the internet for user content on their products and services. But above all, as far as trust is the foundation of this clash of social influence and technology, reputation risk management needs to be greatly improved.

While individuals have quickly reacted to the need to manage reputation in this world of social media, organisations, by their very nature, have not reacted as quickly to develop risk models as complex as those used to manage financial risk or operational risk. By and large, it has been a reactionary situation in instances where bad information affects any one organisation. And in other instances, nothing is done or can be done, given existing models for managing this risk. For example, how does Toyota manage the damage to its reputation from safety defects (which is probably over-inflated)? How does Cadbury recover after fears of melamine poisoned chocolate? When these issues are born, the information multiplies globally, even to the smallest states, almost instantaneously in a manner that was impossible even 7 years ago.

This may mean that significantly more resources must be expended to manage reputation than currently. As intangible an asset that reputation is, so is the effect of the damage on future revenues at the moment in time. Might the intangible reputation and future revenue impact of Cadbury's melamine mishap allowed Kraft to acquire it a couple years later?

Comments welcomed.

Toyota - Why now?

Indeed, Toyota has had some critical quality defects in its cars but why is it now that the US is extending significant resources to bring Toyota to its knees? According to reports, these safety issues and other defects have been under investigation for nearly 7 years, since the George Bush era. But now, with the excessive pressure on the US car industry to increase market share and profits, and the fact that Toyota is one of the leading foreign sellers in the US market, might it be an opportunist reaction for a planned effort to destabilise Toyota to give the US car industry room to recover

Comments welcomed.

What is the World Economy?

Economists frequently talk about the World Economy and it's growth but in a world of fixed resources, what growth is being measured?

In a world of fixed resources, output should be balanced, that is, if the GDP of one country is increasing, the GDP of another country should be decreasing and in that sense we can talk of economic growth since one country will be using resources more efficiently than another and attracting the scarce resources available away from that other country. But to what is the world economy compared when it is said to grow by 2%? What is the change in resources that has happened to cause that 2% growth? Is it that we have removed natural resources from the ground faster than the year before and therefore increased output? If so, then at some point in the future, the resources should be removed less quickly and growth should be negative to achieve balance in a world of fixed resources.

Perhaps it might be better to talk of "wealth" when measuring global increases in productivity and outputs since the essence of progress is to ensure that everyone is better off than at some previous point in time. Global output growth of 2% does not tell us much about our progress as a race.

Flawed Economics

The subject of economics as we know it now is fundamentally flawed in my opinion. The entire premise of the discipline rests on the principle of rationality, which does not exist. Some may argue that it is a good reference point for understanding the truly irrational nature of markets but how does it equip economists to really understand markets and make optimal decisions? As the recent crisis in housing and debt markets showed, even the premise that the free market will tend to rational behaviour fails. What, then, is economics?

I believe that the entire foundation of the study of economics must be changed to be of any use in this new world where the dynamics of information has drastically changed. Economics based on rational foundations was sufficient to explain world affairs in a simpler world of even 10 years ago where people were not as connected and information was not as available. Technology and the internet has changed the dynamics of decision-making at individual and market levels. The irrational nature of humans has always existed but the new and quicker information availability globally has exaggerated this irrationality and made existing economics models virtually irrelevant.

The models put forth by Daniel Kahneman and Amos Tversky are good starting points for re-shaping university syllabi. Given the pace of technological change and the way in which technology is changing information and decision-making in the world of economics, can universities' economics courses keep up with the pace of change?

Where is the value in online social networks?

Online social networks have become very popular worldwide but are the numbers misleading? Investors have valued social networks at billions of dollars largely due to the potential for revenues generated from advertising and the potential for analysing the data being generated in these networks. Is the behaviour of the users of these online social networks really supporting these presumptions?

Can advertising really generate the required revenues to match investors' valuations of these networks? I think that hopes and expectations are hugely inflated. I believe that the premise that advertising revenue can yield large future profits is based on the models from search engines where the purpose is different - users of search engines are "looking". My belief is that users of these networks do not easily get distracted by advertisements but rather focus on their task at hand when they visit the network, whether it be looking at friends' updates, making a new business contact or updating their profile information.

Secondly, is the data being generated really so valuable as to warrant the valuations? Indeed, the data can generated a lot of useful information about behaviour and other consumer patterns as well as valuable news and insight from various stakeholders. But this happens across many similar networks around the world and therefore any one instance should not be so unique as to put such a high price on it. Even if the data may be unique, what is the cost of extracting the garbage and useless data from these enormous warehouses and databases?

I also suspect that over 80% of the users of any given network are not active enough to be of any real value to the network. As with any real life club, the membership may be very large but active participation comes from a few. Many of these sites have yet to generate a profit. Moreover, it is unlikely that any social network will begin to charge the masses for using the site since it is not difficult to switch to the next most popular free network available. Is there really value in online social networks?

Is the US dollar severely overvalued?

I think that any country faced with similar fiscal and monetary circumstances as the United States would have experienced a significant depreciation in the value of their currency many months ago. With a steadily increasing current account and trade deficit, the US Dollar should have depreciated significantly through market forces. The difference perhaps is that the US Dollar is the primary reserve currency of most countries worldwide and it is in the interest of the world that the US currency be stable, especially for China. The question is how long can this situation be maintained before the currency starts to buckle under market pressures. Already countries such as the UAE, Russia and some European countries are diversifying away from the US Dollar while the US is printing more currency to settle it's own markets. By my observation, the global supply of the US Dollar should be greater than the demand for it.

Specifically, with respect to China, the US is borrowing its own currency from China and China is replenishing its stock of USD through trade. My concern is what happens when the US borrows its own currency from China and therefore is faced with two future currency outflows:

1) Future loan interest payments of USD to China over the long-term

2) Future sustained outflows of USD to China through the trade deficit

It's a cycle of erosion in my view and perhaps it is destined for a failure that could be the catalyst for a necessary recomposition of the global financial system.