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Showing posts with label Wall Street. Show all posts
Showing posts with label Wall Street. Show all posts

Friday 25 May 2012

Malaysians should take heed of the highly priced IPO!

Malaysians should take heed that IPOs don’t always make money as the Facebook fiasco has amply demonstrated.

IF you think an initial public offering (IPO) is a sure way of making money, think again – things can go seriously wrong and companies can open a lot lower than their IPO price.

If anyone has delusions about an IPO automatically making money for those fortunate enough to have obtained the shares at that stage, the recent episode with Facebook should dispel any such notion.
Barely a week into trading, Facebook is trading at an 18% discount to its IPO price at the time of writing, hardly something that inspires confidence in IPOs in this current poor market.

Like me not: A Facebook Like Button logo is displayed on a window of a store in Palo Alto, California. Facebook and its underwriters came under legal attack as investors filed lawsuits over Facebook’s flop controversy-marred IPO and have accused the company of hiding material information from investors. If anyone has delusions about an IPO automatically making money, the recent episode with Facebook should dispel any such notion. — AFP
 
Facebook was offered at US$38 per share to raise US$16bil for the vendors that included founder Mark Zuckerberg, who became a cash billionaire after the deal and whose company was valued at US$104bil based on the IPO price.

And this for a company that had earnings of less than US$1bil and revenue of US$3.7bil, giving a historical price earnings ratio (market value divided by earnings) of over 100.

But still investment bankers felt they had a deal, secured the IPO investors and then listed the stock on May 17, only to see a steep fall from the very first day of trading, which eventually saw a cut in value of almost a fifth.

That’s amazing for a stock pushed by some of the top investment firms in the US including Morgan Stanley and Goldman Sachs and a company with such a strong brand recognition too.

Now disgruntled investors are crying foul and amidst reports of selective information given to some banks by Facebook, shareholders have started suing Facebook and Zuckerberg in an embarrassing development that threatens to overturn yet again how Wall Street does business.

The entire Facebook fiasco underlines one key important lesson – ignore fundamental valuation at your own risk. True, markets have their own madness and sometimes stocks trade way above what can be considered their intrinsic value.

But they don’t stay there for long if they ever do especially if the earnings stream does not start kicking in soon. And if there are any indications of problem, one can expect no less than a collapse in share prices if valuations were excessively high in the first place.

As the Facebook saga unfolds in the US, the applications closed yesterday for Gas Malaysia’s IPO here. Those who follow the situation here closely may realise that disclosure in IPOs, while it may seem better than before, need not necessarily be so.

Try as I might I could not find a forecast for earnings for Gas Malaysia in its prospectus, a company with a blue chip reputation owned by amongst others, an MMC Holdings-Shahpadu joint venture, Petronas Gas and Tokyo Gas-Mitsui. The Petronas name attached to it gives it a certain mystic and pedigree, no doubt.

But still I could not find forecast earnings per share or dividends for this year in the thick prospectus of over 300 pages. If it was in there – and I doubt that – should it not have been highlighted? And how does one value the company without such figures?

There was a time when every IPO had forecast earnings and dividends, sometimes for more than a year. That gave retail investors a good feel for the company they were buying but apparently that’s no more the requirement. In the light of the Facebook fiasco, that’s a retrograde step.

Whether it’s in the US or here, there is a clear need to tighten up IPO procedures and disclosures so that all investors have equal access to information and are not discriminated against. That helps in the creation of a fair, orderly and clean capital market, which people can generally rely upon.

In Gas Malaysia’s case, some analysts put the forward price earnings ratio at the issue price of RM2.20 a share at 18 times and the dividend yield at 4.4%. It is academic now since applications have closed but those don’t look particularly attractive.

At 18 times, the price earnings ratio is above that of many Malaysian blue chips. The dividend yield at 4.4% look respectable but is based on 100% of earnings being paid out as dividends, which makes it equivalent to the earnings yield and also implies very little or no future growth because nothing is being retained in the business for expansion.

In that context it looks less than attractive. But the Malaysian public, perceiving IPOs as a means to make money and attracted by Gas Malaysia’s affiliations, including that with national oil corporation Petronas, might think otherwise.

One hopes not, but if the valuations turn out to be expensive, then there could be nasty surprises. To reduce the possibility of that, regulatory authorities should probably revert to older, more stringent standards for IPOs which require profit and dividend forecasts to be clearly stated and verified, subject to the usual conditions, by the merchant bankers and accountants.

That will go some way to reassure investors, and especially retail investors who are the last to know things, that there is substance in the company that supports the issue price.

We certainly don’t want a Facebook-style fiasco in Malaysia.

A Question of Business  By P. GUNASEGARAM starbiz@thestar.com.my


·Independent consultant and writer P Gunasegaram (t.p.guna@gmail.com) is not a fan of Facebook, the service or Facebook, the company.

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Facebook market makers' losses total at least $100m; Share price should trade for $13.80! 

Sunday 20 May 2012

US market ahead: major signs say ‘sell’, the Facebook effect

NEW YORK (Reuters) - Normally a big decline would set up Wall Street for a technical rebound. But that may not be the case this week, even after the market posted its worst weekly loss for the year and the S&P fell for six straight sessions.

With the corporate earnings season drawing to an end and recent U.S. economic data raising doubts about the pace of growth, the S&P 500, which is down 7.3 percent so far in May, could decline further this week as concerns about the financial health of Europe persist.

"What has changed in the world since April? We went from hearing a constant refrain that the world is awash in money and markets must go higher to hearing nobody wants to take any risk ... All in a week," said Peter Cecchini, global head of institutional equity derivatives at Cantor Fitzgerald & Co in New York.

The S&P 500 fell 4.3 percent for the week, its steepest weekly decline this year, and closed below 1,300 for the first time in four months.

The hotly awaited market debut of Facebook on Friday was marred by technology glitches on the Nasdaq in sending messages back to the brokerages that handled orders of Facebook Inc for individual, or "retail," investors. Those problems rekindled fears about the market's electronic trading system and caused some investors to stay away from equities.

Weighing on sentiment is a growing sense among investors that the euro zone debt crisis is nearing new heights, fueled by fears of the potential for a Greek euro exit and the deteriorating health of the Spanish banking system.

Solid corporate earnings and upbeat U.S. economic indicators had fueled the rally in U.S. stocks, offsetting jitters over Europe. But with earnings almost out of the way and data starting to disappoint, investors have shifted their focus back to headlines out of Europe.

Leaders of the Group of 8 major industrial economies were meeting this weekend to try to tackle the financial crisis in Europe. U.S. President Barack Obama, the G8 host, has urged European leaders repeatedly to do more to stimulate growth, fearing contagion from the euro crisis that could hurt the U.S. economy and his chances of re-election in November.

"The market is extremely oversold. Nonetheless, all major indicators remain on sell signals," Larry McMillan, president of options research firm McMillan Analysis Corp, said in a report on Friday.

"We expect a powerful but short-lived rally should be coming soon. But at this point, barring some major shifts in our indicators, it may only be a rally in a larger down-trending market," McMillian said.

THE FACEBOOK EFFECT 


Facebook, the No. 1 online social network, disappointed investors with a tepid market debut on Friday. Shares rose a scant 0.6 percent - nowhere near expectations for double-digit gains on the first trading day - and the day was marred by technical problems due to huge order volume. The stock closed at $38.23 after falling as low as $38, its initial offer price.

The disappointing debut curbed investors' appetite for other social media stocks. Hardest hit was Zynga Inc , which closed down 13.4 percent to $7.16 after falling as low as $6.40. The stock was temporarily halted twice due to sudden declines.

LinkedIn shares fell 5.7 percent to $99.02, and Groupon fell 6.7 percent to $11.58. Zynga and Groupon, both of which went public late last year, are also trading below their IPO prices.

Despite the disappointing market debut and the weak performance of social media stocks, market participants are still optimistic about Facebook going forward.

"In any brand new area, social media in this case, most are going to be losers and only some are going to be winners. Yes, the IPO was disappointing, but Facebook is clearly the winner here and others aren't," said Randy Warren, chief investment strategist at Warren Financial Service.

The coming week's economic data includes April's existing home sales on Tuesday at 10 a.m. EDT (1400 GMT). Existing home sales are forecast at a 4.60 million-unit annual, up from 4.48 million in March.

New homes sales figures are due on Wednesday at 10 a.m. EDT. April's new home sales are also expected to post an increase, gaining about 7,000 units over a 328,000-unit annual rate in March.
Initial jobless claims and durable goods orders will be published on Thursday at 8:30 a.m. Consumer sentiment is due at 9:55 a.m. on Friday.

For the week, the Dow was off 3.5 percent and the Nasdaq was down 5.3 percent.

Related posts:

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Sunday 18 March 2012

Arrests at New York 'Occupy' protests

Clashes and arrests in Zuccotti Park as 'Occupy' activists mark six months since birth of anti-corporate greed movement.

Critics say the movement lacks demands and direction [GALLO/GETTY] 

Police and activists have clashed at a park in New York where hundreds of people had gathered to mark six months since the beginning of the city's Occupy Wall Street protests.

The clashes, late on Saturday, came as some activists attempted to re-occupy Zuccotti Park, which police had earlier declared closed for the evening.

The Manhattan park, close to Wall Street, was where the anti-corporate greed protest movement began in September last year. Activists spent months camping at the site, prompting similar demonstrations in other US cities and abroad.

Police began making arrests after several hundred protesters had remained there, with some erecting a makeshift tent of cardboard and tarpaulin in contravention of rules banning shelters in the park.

More than 100 police officers pushed through the park, clashing with protesters who attempted to stand their ground, The Associated Press news agency reported.

The Reuters news agency reported that dozens of protesters had been led away in handcuffs, although there has been no official word on the number of arrests.

Earlier in the day, hundreds of protesters had marched on nearby Wall Street, resulting in another unspecified number of arrests, police said.

Organisers vowed that Saturday's rally was the first of several events planned to protest against perceived economic injustice.

'We are going to take it back'

One of the activists taking part in the gathering said he hoped the park would again become a home for protesters, in defiance of a police ban on sleeping there which led to the eviction of the protest camp's occupants after two months.

In-depth coverage of the global movement
"They're hoping we'll all go away because it's cold," said Rob, 28, declining to give his last name. "The park's become the symbol both for us and for them. We are going to take it back."

Protester Paul Sylvester, 24, of Massachusetts said he was "thrilled" to be back at the park but said he hoped the movement would begin to crystallise around specific goals. "We need to be more concrete and specific," he said.

Critics say the Occupy movement lacks demands and direction and has lost momentum.

But warmer spring weather in the US has brought expectations that Occupy leaders will try to regain their momentum.

Protesters seemed invigorated by their relatively large numbers compared to the small turnouts during street demonstrations over the winter.

At the park on Saturday, street theatre troupes performed and guitar players led sing-alongs. Some protesters marched through the streets of the financial district, chanting "bankers are gangsters" and cursing at police.

Liesbeth Rapp, 27, who was performing street theatre about economic injustice, said protesters were ready to make some changes.

"I think we've learned a lot about being strategically and tactically smarter," she said. "We're learning to decentralise, and to work in smaller groups."

Source:
Agencies


Thursday 27 October 2011

David Graeber, the Anti-Leader of Occupy Wall Street



Meet the anthropologist, activist, and anarchist who helped transform a hapless rally into a global protest movement

The Guy Fawkes mask—worn by a ­protester in New York on Oct. 5—has become ­symbolic of the Occupy Wall Street movement 
The Guy Fawkes mask—worn by a ­protester in New York on Oct. 5—has become ­symbolic of the Occupy Wall Street movement Scout Tufankjian/Polaris 
 
By Drake Bennett

David Graeber likes to say that he had three goals for the year: promote his book, learn to drive, and launch a worldwide revolution. The first is going well, the second has proven challenging, and the third is looking up.

Graeber is a 50-year-old anthropologist—among the brightest, some argue, of his generation—who made his name with innovative theories on exchange and value, exploring phenomena such as Iroquois wampum and the Kwakiutl potlatch. An American, he teaches at Goldsmiths, University of London. He’s also an anarchist and radical organizer, a veteran of many of the major left-wing demonstrations of the past decade: Quebec City and Genoa, the Republican National Convention protests in Philadelphia and New York, the World Economic Forum in New York in 2002, the London tuition protests earlier this year. This summer, Graeber was a key member of a small band of activists who quietly planned, then noisily carried out, the occupation of Lower Manhattan’s Zuccotti Park, providing the focal point for what has grown into an amorphous global movement known as Occupy Wall Street.

It would be wrong to call Graeber a leader of the protesters, since their insistently nonhierarchical philosophy makes such a concept heretical. Nor is he a spokesman, since they have refused thus far to outline specific demands. Even in Zuccotti Park, his name isn’t widely known. But he has been one of the group’s most articulate voices, able to frame the movement’s welter of hopes and grievances within a deeper critique of the historical moment. “We are watching the beginnings of the defiant self-assertion of a new generation of Americans, a generation who are looking forward to finishing their education with no jobs, no future, but still saddled with enormous and unforgivable debt,” Graeber wrote in a Sept. 25 editorial published online by the Guardian. “Is it really surprising they would like to have a word with the financial magnates who stole their future?”

Graeber’s politics have been shaped by his experience in global justice protests over the years, but they are also fed by the other half of his life: his work as an anthropologist. Graeber’s latest book, published two months before the start of Occupy Wall Street, is entitled Debt: The First 5,000 Years. It is an alternate history of the rise of money and markets, a sprawling, erudite, provocative work. Looking at societies ranging from the West African Tiv people and ancient Sumer to Medieval Ireland and modern-day America, he explores the ambivalent attitudes people have always had about debt: as obligation and sin, engine of economic growth and tool of oppression. Along the way, he tries to answer questions such as why so many people over the course of history have simultaneously believed that it is a matter of morality to repay debts and that those who lend money for a living are evil.

Graeber’s arguments place him squarely at odds with mainstream economic thought, and the discipline has, for the most part, ignored him. But his timing couldn’t be better to reach a popular audience. His writing provides an intellectual frame and a sort of genealogy for the movement he helped start. The inchoate anger of the Occupy Wall Street protesters tends to cluster around two things. One is the influence of money in politics. The other is debt: mortgages, credit-card debt, student loans, and the difference in how the debts of large financial companies and those of individual borrowers have been treated in the wake of the 2008 financial crisis.

“He is a deep thinker. He’s been a student of movements and revolutions,” says Kalle Lasn, the founder of Adbusters, the Vancouver-based anticorporate magazine. “He’s the sort of guy who can say, ‘Is this thing we’re going through like 1968 or is it like the French Revolution?’ ”

As Graeber explains it, it’s all part of a larger story: Throughout history, debt has served as a way for states to control their subjects and extract resources from them (usually to finance wars). And when enough people got in enough debt, there was usually some kind of revolt.



Graeber is small-framed and fidgety, with a pale boyish face and blue eyes. He dresses like a graduate student and speaks fast, in bursts punctuated by long ums, a ragged laugh, or pauses to catch his breath. He doesn’t make much eye contact. When finishing a thought, he has a habit of ducking his head and arching his eyebrows, as if he has just heard a faint but alarming sound.

For several weeks—since the fourth day of Occupy Wall Street—Graeber has been in Austin, Tex., reuniting with his girlfriend, a fellow anthropologist just back from fieldwork in Mexico. While there he has been peripherally involved with Occupy Austin, a small, fractious offshoot of the original Zuccotti Park occupation, one of many around the world.

Graeber began the summer on sabbatical, moving back to New York from London and frequenting an artists’ space called 16Beaver. It was an intellectual activist salon, located near Wall Street, the sort of place where people would discuss topics like semiotics and hacking and the struggles of indigenous peoples. Like many other American activists, Graeber had been deeply moved by the occupation of Cairo’s Tahrir Square and by the “Indignados” who had taken over central Madrid; in mid-July, he published a short piece in Adbusters asking what it would take to trigger a similar uprising in the West. For much of the summer, the discussions at 16Beaver revolved around exactly that question. When a local group called Operation Empire State Rebellion called for a June 14 occupation of Zuccotti Park, four people showed up.

On July 13, Adbusters put out its own call for a Wall Street occupation, to take place two months later, on Sept. 17. Setting the date and publicizing it was the extent of the magazine’s involvement. A group called New Yorkers Against Budget Cuts—student activists and community leaders from some of the city’s poorer neighborhoods—stepped in to execute the rest. For three weeks in June and July, to protest city budget cuts and layoffs, the group had camped out across the street from City Hall in a tent city they called Bloombergville. They liked the idea of trying a similar approach on Wall Street. After talking to Adbusters, the group began advertising a “People’s General Assembly” to “Oppose Cutbacks And Austerity Of Any Kind” and plan the Sept. 17 occupation.

The assembly was to be held in Bowling Green, the downtown Manhattan park with its famous statue of a charging bull pawing the cobblestones. Graeber had heard about the meeting at 16Beaver, and the afternoon of Aug. 2 he went to Bowling Green with two friends, a Greek artist and anarchist named Georgia Sagri and a Japanese activist named Sabu Kohso (who is also the Japanese translator of Graeber’s books).

A “general assembly” means something specific and special to an anarchist. In a way, it’s the central concept of contemporary anarchist activism, which is premised on the idea that revolutionary movements relying on coercion of any kind only result in repressive societies. A “GA” is a carefully facilitated group discussion through which decisions are made—not by a few leaders, or even by majority rule, but by consensus. Unresolved questions are referred to working groups within the assembly, but eventually everyone has to agree, even in assemblies that swell into the thousands. It can be an arduous process. One of the things Occupy Wall Street has done is introduce the GA to a wider audience, along with the distinctive sign language participants use to raise questions or express support, disapproval, or outright opposition.

When Graeber and his friends showed up on Aug. 2, however, they found out that the event wasn’t, in fact, a general assembly, but a traditional rally, to be followed by a short meeting and a march to Wall Street to deliver a set of predetermined demands (“A massive public-private jobs program” was one, “An end to oppression and war!” was another). In anarchist argot, the event was being run by “verticals”—top-down organizations—rather than “horizontals” such as Graeber and his friends. Sagri and Graeber felt they’d been had, and they were angry.

What happened next sounds like an anarchist parable. Along with Kohso, the two recruited several other people disgruntled with the proceedings, then walked to the south end of the park and began to hold their own GA, getting down to the business of planning the Sept. 17 occupation. The original dozen or so people gradually swelled, despite the efforts of the event’s planners to bring them back to the rally. The tug of war lasted until late in the evening, but eventually all of the 50 or so people remaining at Bowling Green had joined the insurgent general assembly.

“The groups that were organizing the rally, they also came along,” recalls Kohso. “Then everyone stayed very, very late to organize what committees we needed.”

While there were weeks of planning yet to go, the important battle had been won. The show would be run by horizontals, and the choices that would follow—the decision not to have leaders or even designated police liaisons, the daily GAs and myriad working-group meetings that still form the heart of the protests in Zuccotti Park—all flowed from that.

For Graeber the next month and a half was a carousel of meetings. There were the weekly GAs, the first held near the Irish Hunger Memorial in Battery Park City, the rest in Tompkins Square Park in the East Village. He facilitated some of them and spent much of the rest of his time in working group meetings in people’s apartments. (On Aug. 14 he tweeted, “I am so exhausted. My first driving lesson … then had to facilitate an assembly in Tompkins Square Park for like three hours.”) He organized legal and medical training and classes on nonviolent resistance. The group endlessly discussed what demands to make, or whether to have demands at all—a question that months later remains unresolved.

In the Sept. 10 general assembly the group picked the target for their occupation: One Chase Manhattan Plaza. They also picked several backups. So when the police fenced off Chase Plaza the night before the occupation was scheduled to start, the occupiers were prepared. On Sept. 17, barely an hour before the scheduled 3 p.m. start time, the word went out to go to Zuccotti Park instead, and 2,000 people converged on the now famous patch of stone flooring, low benches, and trees. It was a fortunate choice: Zuccotti is a privately owned park, so the city doesn’t have the right to remove the protesters. Graeber helped facilitate the GA that night in which they decided to camp out in the park rather than immediately march on Wall Street. Three days later, when he flew to Austin, the protests were still little more than a local New York story.

Graeber has been an anarchist since the age of 16. He grew up in New York, in a trade-union-sponsored cooperative apartment building in Chelsea suffused with radical politics. A precocious child, he became obsessed at 11 with Mayan hieroglyphics. (The writing had then been only partially deciphered.) He sent some of his original translations to a leading scholar in the field, who was so impressed that he arranged for Graeber to get a scholarship to Phillips Academy in Andover, Mass.

Graeber’s parents were in their 40s when they had him and had come of age in the political left of the 1930s, self-taught working-class intellectuals. Graeber’s mother had been a garment worker and, briefly, a celebrity—the female lead in a musical comedy revue put on by the International Ladies’ Garment Workers’ Union that managed to become a Broadway hit. His father worked as a plate stripper on offset printers. Originally from Kansas, he had fought for the Republicans in the Spanish Civil War. Anarchists made up one part of the fragile Republican coalition, and for a brief period they controlled Barcelona.

“Most people don’t think anarchism is a bad idea. They think it’s insane,” says Graeber. “Yeah, sure it would be great not to have prisons and police and hierarchical structures of authority, but everybody would just start killing each other. That wouldn’t work, right?” Graeber’s father, however, had seen it work. “So it wasn’t insane. I was never brought up to think it was insane.”

Years later, Graeber was a graduate student at the University of Chicago, and his field research brought him into contact with another, albeit very different, anarchic community. His dissertation was on Betafo, a rural community in Madagascar made up of the descendants of nobles and their slaves. Because of spending cuts mandated by the International Monetary Fund—the sort of structural-adjustment policies Graeber would later protest—the central government had abandoned the area, leaving the inhabitants to fend for themselves. They did, creating an egalitarian society where 10,000 people made decisions more or less by consensus. When necessary, criminal justice was carried out by a mob, but even there a particular sort of consensus pertained: a lynching required permission from the accused’s parents.

Graeber didn’t become an activist until after the massive 1999 World Trade Organization protests in Seattle. At the time an associate professor at Yale, he realized that the sort of movement he had always wanted to join had come into being while he was concentrating on his academic career. “If you’re really dedicated to this stuff, things can happen very quickly,” he says. “The first action you go to, you’re just a total outsider. You don’t know what’s going on. The second one, you know everything. By the third, you’re effectively part of the leadership if you want to be. Anybody can be if you’re willing to put in the time and energy.”

It was a particularly happy period for Graeber. In New Haven he was a scholar, and in New York, where he spent much of his time, he was an anarchist—he had found a new community among the loose coalition of activists, artists, and pranksters who called themselves the Direct Action Network. There were protests but also elaborately choreographed festivities—“reclaim the streets” parties, or nights when everyone converged on a particular subway train and rode it through the city carousing.

It came to an end in 2005, when Yale terminated his contract before he had a chance to come up for tenure. Graeber appealed, and his case became a cause at Yale and in the broader community of academic anthropology. He maintains he was targeted at least in part because of his political activism. Others saw evidence that the modern university was exactly the sort of hierarchical organization that Graeber was philosophically opposed to and temperamentally unsuited for.

“There was an issue about his personal style, whether he was respectful enough to various senior people both in the department and at the university. He’s not someone who is known to be very pliable,” recalls Thomas Blom Hansen, an anthropology professor at Stanford who was a friend and Yale colleague of Graeber’s at the time. “I don’t think anyone doubts that he’s a major figure in his field,” he adds. “But he’s not really interested in the humdrum daily life of administration that constitutes an increasing part of our life in the academic world.”

Everyone involved in the creation of Occupy Wall Street, from Graeber to the editors of Adbusters to New Yorkers Against Budget Cuts, has been astonished by its success. The world of American left-wing activism, populated as it is by an unwieldy mix of progressives and pacifists, civil libertarians and Marxists, idealists and pragmatists, is often riven by disputes and mutual misunderstanding. What’s notable about Occupy Wall Street is that it was born not in spite of that tendency but because of it. For his part, Graeber doesn’t attribute the success of the occupation to its planners but to luck, timing, and the pervasive mood of anger and disillusionment in the country: There are few jobs, the political process has ground to a halt, and as individuals and as a nation, we’re drowning in debt.

Graeber’s problem with debt is not just that having too much of it is bad. More fundamental, he writes in his book, is debt’s perversion of the natural instinct for humans to help each other. Economics textbooks tell a story in which money and markets arise out of the human tendency to “truck and barter,” as Adam Smith put it. Before there was money, Smith argued, people would trade seven chickens for a goat, or a bag of grain for a pair of sandals. Then some enterprising merchant realized it would be easier to just price all of them in a common medium of exchange, like silver or wampum. The problem with this story, anthropologists have been arguing for decades, is that it doesn’t seem ever to have happened. “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money,” writes anthropologist Caroline Humphrey, in a passage Graeber quotes.

People in societies without money don’t barter, not unless they’re dealing with a total stranger or an enemy. Instead they give things to each other, sometimes as a form of tribute, sometimes to get something later in return, and sometimes as an outright gift. Money, therefore, wasn’t created by traders trying to make it easier to barter, it was created by states like ancient Egypt or massive temple bureaucracies in Sumer so that people had a more efficient way of paying taxes, or simply to measure property holdings. In the process, they introduced the concept of price and of an impersonal market, and that ate away at all those organic webs of mutual support that had existed before.

That’s ancient history, literally. So why does it matter? Because money, Graeber argues, turns obligations and responsibilities, which are social things, into debt, which is purely financial. The sense we have that it’s important to repay debts corrupts the impulse to take care of each other: Debts are not sacred, human relationships are.

If we understand the social origins of debt, Graeber says, we become much more willing to renegotiate debts when conditions change, whether those are mortgages, credit-card debts, student loans, or the debts of entire nations. And if the desperate response to the ongoing financial crisis has shown anything, he argues, it’s that we’re willing to forgive debts if the institution that has them is important.

“Sovereignty does ultimately belong to the people, at least in theory. You gave the bank the right to make up money that is then lent to you,” he argues. “We collectively create this stuff, and so we could do it differently.”

Graeber’s book is getting glowing praise from his fellow anthropologists, and it has gotten attention beyond that world as well. (Though according to Mandy Henk, a librarian from Indiana minding the library that has sprung up in Zuccotti Park, copies of his work there aren’t seeing a lot of use.) Few mainstream economists are familiar with his ideas. Professor Tyler Cowen of George Mason University, who happens to be a widely read blogger, is one of them. “He whacks a bit of sense into people, and I think he’s right and Adam Smith was wrong,” he says. Yet Cowen, himself a libertarian, isn’t won over to Graeber’s politics. He sees little alternative to the modern state. “Look at Somalia. If there’s a vacuum, something has to fill it.”

He might also point to the drummers of Zuccotti Park. The constant beat from drum circles there has provided the occupation’s soundtrack, but it has also elicited a steady flow of noise complaints, trying the patience of an otherwise supportive community board and elected officials. Through weeks of mediation and discussion in the general assembly, a few drummers have steadfastly defied any limits on when they can play, though organizers are hopeful an agreement hashed out on Oct. 25 will finally solve the problem.

At the end of his book, Graeber does make one policy recommendation: a Biblical-style “jubilee,” a forgiveness of all international and consumer debt. Jubilees are rare in the modern world, but in ancient Babylon, Assyria, and Egypt under the Ptolemies they were a regular occurrence. The alternative, rulers learned, was rioting and chaos in years when poor crop yields left lots of peasants in debt. The very first use in a political document of the word freedom was in a Sumerian king’s debt-cancellation edict. “It would be salutary,” Graeber writes, “not just because it would relieve so much genuine human suffering, but also because it would be our way of reminding ourselves that money is not ineffable, that paying one’s debts is not the essence of morality, that all these things are human arrangements and that if democracy is to mean anything it is the ability to all agree to arrange things in a different way.” —With reporting by Karen Weise

Bennett is a staff writer for Bloomberg Businessweek

Friday 21 October 2011

‘Occupy Wall Street’ goes global !

The corner of Wall Street and Broadway, showin...


What Are We To Do By TAN SRI LIN SEE-YAN

Movements against bailouts, cutbacks and inequality picking up stream

SINCE its obscure beginnings, the “Occupy Wall Street” (OWS) movement has spread its wings, joining the “Indignant” of Spain (a movement born on May 15 when a Madrid rally sparked a worldwide campaign focussed on outrage over high unemployment and opposition to the financial elite).



The OWS group which has camped out in lower Manhattan's Zuccotti Park (nearby Wall Street) now in its 5th week, has a valid complaint: its young social-media connected generation is losing faith in traditional structures of government and business, arguing it has been betrayed and denied opportunity. “We got sold out; banks got bailed out” was their chant as thousands marched from Wall Street to Times Square.

Inspired by these movements, rallies rippled across the globe last weekend targeting 951 cities in Europe, Africa, Asia, Australia, and North and South America to take part in the demonstration. It's unclear how long protestors plan to stay. Some fear this could only be the beginning, as the world faces a systemic rise in anger, protest and political volatility that could last for years. With Middle-east unrest stirring again, a winter of discontent looks likely. It's not easy to pinpoint the underlying cause of their woes. Checkout their websites: they seem to demonstrate against corporate greed (bank bailouts and bonuses) and income inequality (government cutbacks). Worldwide they demand for a more fair and equal society.



Since the 2008 financial crisis, US bank profits were up 136%, but bank lending, down 9%. Indeed, bank lending has fallen in 10 of the past 12 quarters. To the OWS demonstrators, banks haven't fulfilled their part of the social bargain: bailouts for Wall Street in exchange for lending on Main Street. While banks now have more capital, they still aren't lending. Lending will continue to shrink. Banks say the demand isn't there. But 73% of small businesses say they are still being affected by the credit crunch. As I see it, banks remain very much risk adverse. Unlike in medicine, banks don't have the ability to quarantine financial contagion. There is a dangerous world out there.

What also irks protestors are Wall Street bonuses which have returned while ordinary workers suffered retrenchment and job insecurity with little help from Washington. A recent New York State report predicted that the financial industry will likely lose another 10,000 jobs by end 2012. That's on top of the 4,100 jobs lost since April and 22,000 since early 2008. Overall, New York area employment in finance and insurance had declined by 8.9% since late 2006.



The OWS movement has gained widespread support and encouragement, including from economics Nobel Laureates Stiglitz: “We have too many regulations stopping democracy and not enough regulations stopping Wall Street from misbehaving. We are bearing the cost of their misdeeds. There's a system where we have socialised losses and privatised gains”; and Kurgman: “Wall Street pay has rebounded even as ordinary workers continue to suffer from high unemployment and falling real wagesAnd their outrage has found resonance with millions of Americans. No wonder Wall Street is whining.”

Harvard's historian Niall Ferguson regarded the movement “still worth taking seriously” even though he concluded: “So occupying Wall Street is not the answer to this generation's problems. The answer is to occupy the Tea Party Call it the Iced Tea Party. Way cool.” Even the in-coming president of the European Central Bank has expressed support. However, the Times of London labelled the protests “Passionate but Pointless.”



US inequality

By far, the cause of OWS's frustration and outrage is best articulated in my friend Jeffrey Sachs' (Columbia University) latest book: “The Price of Civilisation.” In the US, the top 1% of households accounted for almost 25% of all households' income. The last time this happened was in 1929. In the first 3 decades of the 20th century, rapid industrial development raised income and wealth at the top, while mass immigration set the low bar. Then came the 1929 Great Depression and the New Deal four years later which railed against “a small group (who) had concentrated into their own hands an almost complete control over other people's property, other people's money, other people's labour and other people's lives.”

But, prosperity wasn't always accompanied by large-scale inequality. The 1950s and 1960s brought about rapid economic growth and a narrowing of inequality as a result of a more robust social safety net, fresh New Deal measures, World War II (WWII), and the vigorous post-war recovery which reversed the 1920s inequalities.

Since the 1970s, the United States tasted the fury of globalised competition but failed to grapple effectively with it. The deterioration in Main Street's earning prospects was papered over for the next 20 years by debt mortgage debt and consumer credit. Bear in mind median earnings of male workers peaked way back in 1973. The United States collects less tax as a percentage of national income (25% in 2009) than most advanced European nations (40-50%).

This reflected partly the Republican's one-idea approach: cut taxes permanently and impose fiscal austerity, often at the expense of lost competitiveness (reflecting insufficient public investment in education, infrastructure and human capital). OWS young demonstrators have a valid argument to make: they are frustrated trying to find a place in an economy where there is one job for every five jobseekers, and where youth unemployment is 18%. So much for the clich of Wall Street vs Main Street; “the greedy 1% uses the hard-done-by 99%.” The wider middle-class fears its prosperity has evaporated, demanding for a way to deliver growth once more. It's about time Americans get wise to the source of their economic woes it's a few hundred miles south of Wall Street.

US poverty 

According to the US Census Bureau, there are now more poor persons in America than at any other time in the 52 years records were kept. More than 15% of US families live below the poverty line in 2010. The line is set at US$22,000 a year for a family of four. This reflected the high unemployment of 9.1% 6.5 million jobs were lost in the recent recession. An additional 3 million Americans would fall below the poverty line if not for “doubling-up”, that is, adult children who can't afford life on their own return to live with their parents.



Today marks the first time in 20 years when US employment (as a percentage of population) has fallen below the rate in advanced European nations like UK, Germany and the Netherlands. The average weekly earnings (adjusted for inflation) of a typical US blue-collar worker is lower today than in 1964. Indeed, median inflation adjusted family income rose only about a fifth as much between 1980 and 2007 as it did in the generation following WWII. The US poverty profile is unlikely to change soon. That is why people are protesting. Many believe the current anger against autocrat politicians, bankers and elites is symptomatic of fundamental shifts in the structure of US (and indeed, global) population. Already, there are strains caused by aging populations driving up budget costs, reducing growth and blocking jobs from younger people.

Coincidentally, both the Boomerang generation and the Babyboomers generation are demonstrating together in OWS as they could very well end up in a political battle for dwindling government benefits. That is, the elderly fights to keep their entitlements (social security and medicare) to ward off poverty, and the younger population pushes for spending on education and training to avoid falling into it. Demographic issues are driving much of what we see today. A win-win is to continue pressuring the richest Americans to carry a larger share of the load. Despite congressional resistance, many of the wealthy in the United States do see it's in their interest to foster a less divisive society.

Smart government

While the benefits of globalisation are clear and I think, well appreciated (especially the rapid spread of technology embodied in the Internet and mobile telephony, and reduced poverty in emerging nations), the real problems associated with it are less well understood but nevertheless need to be urgently addressed.

Globalisation has (i) raised the scope for tax evasion; (ii) led to a loss of competitiveness among the less educated in advanced nations, particularly in the United States; and (iii) fuelled contagion, especially in finance.

In his latest book, Jeff Sachs pushed hard for a highly effective government to deal with these problems. Smart public policies are needed to (a) promote high quality education; (b) raise productivity by building modern infrastructure and inculcate science and technology; and (c) co-operate globally to regulate cross-border issues (e.g. finance and environment). His proposal is controversial at this time since it calls for more government not less, especially in the United States where economic inequality has reached a high not seen since the Great Depression.

Sachs also points to growing signs world-wide that people are fed-up with governments that cater for the rich and the powerful, and ignore everyone else. They call for greater social justice (not confined to the Arab Spring; also serious protests from Tel Aviv to London to Santiago to Sydney, and all over Europe, and now, in New York); and also more inclusive politics, rather than corrupt politics.

There are even calls for higher taxes on the very rich across nations (the United States has proposed the rich to pay more taxes; several European governments have talked of a new wealth tax; the European Commission has suggested a new financial transactions tax to raise US$75bil a year). Sachs refers to the most successful well-balanced economies today being in Scandinavia using high taxes to support smart public services, balancing economic prosperity with social justice and environmental sustainability. Sachs bemoaned that for 30 years, the United States has been going “in the wrong direction, cutting the role of government in the domestic economy rather than promoting the investments needed to modernise the economy and workforce.” It all started when President Reagan declared in 1980 that “government is not the solution to our problems it is the problem.”

Today, the solution lies in how the United States is going to fund its future competitiveness through building skills and raising productivity to fight for markets in the 21st century. This is also the way to go for the euro-zone.

Historically, Americans haven't been inclined to be aggressive enough to riot, as the Europeans, over inequality (contrast the protests in Rome, Athens, Madrid and London with those in New York). But the United States is in a new situation now where protestors are getting desperate in the face of intransigency, especially the uncompromising Tea Party. It is hard to rule that out when the American Dream is very much at stake.

At worst, I think the present situation can result in an economic malaise that lasts for decades. It makes politics most unpredictable. There is already political paralysis. But dramatic shifts in policy are possible. The rise of ideologues in a modern guise is also probable as we saw in the 1930s. I am afraid this is the new reality. We have to deal with it.

> Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who now spends time writing, teaching & promoting the public interest. Feedback is most welcome; email: starbizweek@thestar.com.my 

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Occupy Wall Street booming, now Occupy London Stock Exchange!

Monday 17 October 2011

Occupy Wall Street booming, now Occupy London Stock Exchange!



Occupy Wall Street booming after one month
 AFP 
 
The month-old Occupy Wall Street movement is enjoying new momentum, with nearly $US300,000 ($A296,369) in the bank and the satisfaction of drawing global attention to what it sees as major economic inequalities.

UN Secretary-General Ban Ki-moon expressed sympathy with the protesters, and even protest-averse China said some issues raised are worth considering.
 
From a few dozen people camping out in a small Manhattan park near the rising World Trade Centre complex, the movement swelled to hundreds of thousands of people rallying around the world this weekend and numerous encampments springing up in cities large and small.



Hundreds of protesters on Monday mingled with bemused bank workers in a new tent camp outside London's St Paul's Cathedral. But in Seattle, police arrested people who wouldn't move their tents from a park.

The UN leader said the finance chiefs from the Group of 20 rich and developing nations, now meeting in Paris, should listen to the demonstrators. "Business as usual, or just looking at their own internal economic issues, will not give any answers to a very serious international economic crisis," Ban said.

"That is what you are seeing all around the world, starting from Wall Street, people are showing their frustrations, are trying to send a very clear and unambiguous message around the world."

The Wall Street protesters still haven't settled on a specific demand but are intent on building on momentum gained from Saturday's worldwide demonstrations, which drew hundreds of thousands of people, mostly in the US and Europe.

President Barack Obama referred to the protests during Sunday's dedication of a monument for Martin Luther King Jr, saying the civil rights leader "would want us to challenge the excesses of Wall Street without demonising those who work there".

The largest of Saturday's protests were in Europe, linking up with long-running demonstrations against government austerity measures. In Rome, hundreds of rioters infiltrated a march by tens of thousands of demonstrators, causing what the mayor estimated was at least 1 million euros ($A1.36 million) in damage. Hundreds of thousands turned out in peaceful protests across the continent, including in Spain, Germany, Switzerland, Britain, Austria and France.

Around the US, more than 350 people were arrested in a half-dozen cities during protests. On Monday, prosecutors dropped charges against civil rights activist Cornel West and 18 others who were arrested while protesting on the steps of the US Supreme Court in Washington.

Interest in the demonstrations over economic inequality even reached China, where online calls for similar protests did not appear to elicit any responses.

"We feel that there are issues here that are worth pondering," said Liu Weimin, a foreign ministry spokesman during a regular briefing in Beijing on Monday.

In New York, $US300,000 in cash has been donated through the movement's website and by visitors to the park, said Bill Dobbs, a press liaison for Occupy Wall Street.

Donated goods range from blankets and sleeping bags to cans of food and medical and hygienic supplies. Among the items are 20 pairs of swimming goggles, to shield protesters from pepper-spray attacks.

Supporters are shipping about 300 boxes a day, many with notes and letters, said Justin Strekal, a college student and political organiser who travelled from Cleveland to New York to help.

"Some are heartwrenching, beautiful," and come from people who have lost jobs and houses, he said. "So they send what they can, even if it's small."
© 2011 AFP

Occupy London Stock Exchange continues

Updated: 2011-10-17 16:17.By Liu Wei (chinadaily.com.cn)
Occupy London Stock Exchange continues
Occupy London Stock Exchange, a demonstration inspired by the Occupy Wall Street movement to protest against the wealth inequality and financial crisis, continues as more people join in and set up their tents within the vicinity of the St Paul's Cathedral. Picture taken on Oct 16, 2011 [Liu Wei/chinadaily.com.cn]

Occupy London Stock Exchange continues
Occupy London Stock Exchange, a demonstration inspired by the Occupy Wall Street movement to protest against the wealth inequality and financial crisis, continues as more people join in and set up their tents within the vicinity of the St Paul's Cathedral. Picture taken on Oct 16, 2011 [Liu Wei/chinadaily.com.cn]

Occupy London Stock Exchange continues
Occupy London Stock Exchange, a demonstration inspired by the Occupy Wall Street movement to protest against the wealth inequality and financial crisis, continues as more people join in and set up their tents within the vicinity of the St Paul's Cathedral. Picture taken on Oct 16, 2011 [Liu Wei/chinadaily.com.cn]
Occupy London Stock Exchange continues
Occupy London Stock Exchange, a demonstration inspired by the Occupy Wall Street movement to protest against the wealth inequality and financial crisis, continues as more people join in and set up their tents within the vicinity of the St Paul's Cathedral. Picture taken on Oct 16, 2011 [Liu Wei/chinadaily.com.cn]
Occupy London Stock Exchange continues
Occupy London Stock Exchange, a demonstration inspired by the Occupy Wall Street movement to protest against the wealth inequality and financial crisis, continues as more people join in and set up their tents within the vicinity of the St Paul's Cathedral. Picture taken on Oct 16, 2011 [Liu Wei/chinadaily.com.cn]

Occupy London Stock Exchange continues
Occupy London Stock Exchange, a demonstration inspired by the Occupy Wall Street movement to protest against the wealth inequality and financial crisis, continues as more people join in and set up their tents within the vicinity of the St Paul's Cathedral. Picture taken on Oct 16, 2011 [Liu Wei/chinadaily.com.cn]
Occupy London Stock Exchange continues
Occupy London Stock Exchange, a demonstration inspired by the Occupy Wall Street movement to protest against the wealth inequality and financial crisis, continues as more people join in and set up their tents within the vicinity of the St Paul's Cathedral. Picture taken on Oct 16, 2011 [Liu Wei/chinadaily.com.cn]

Occupy London Stock Exchange continues
Occupy London Stock Exchange, a demonstration inspired by the Occupy Wall Street movement to protest against the wealth inequality and financial crisis, continues as more people join in and set up their tents within the vicinity of the St Paul's Cathedral. Picture taken on Oct 16, 2011 [Liu Wei/chinadaily.com.cn]
Occupy London Stock Exchange continues
Occupy London Stock Exchange, a demonstration inspired by the Occupy Wall Street movement to protest against the wealth inequality and financial crisis, continues as more people join in and set up their tents within the vicinity of the St Paul's Cathedral. Picture taken on Oct 16, 2011 [Liu Wei/chinadaily.com.cn]

The Law of Disruption Occupies Wall Street



Larry Downes
Larry Downes Forbes Contributor
I cover the Internet industry

Day 28 Occupy Wall Street October 13 2011 Shan...From Tea Party activists to Wall Street occupiers; from the Middle East to Europe and back.  We’re seeing passionate and sometimes violent reactions to the slow pace of institutional change.

Citizens are calling foul on political and social institutions that no longer reflect their values, using technologies, tools, and devices invented in the last decade to organize, coordinate, and speak.

Video: Occupy Wall Street: Voice of the Protesters
 
Around the world, protesters are writing their manifestos on WordPress, arranging marches using Facebook, and chanting on Twitter.  Their weapons of choice are smartphone apps, mobile broadband, and social networks.  (In most cases, it’s well worth noting, these technologies were designed for entirely different purposes, or perhaps with no particular purpose in mind.)

Technology is not only the agent of change; it is also the catalyst.  Indeed, I see all of these movements as fallout from what I coined The Law of Disruption, a principle of modern life that becomes more determinative as new technologies enter the social bloodstream ever faster.  Even though I’ve been writing this column for several months, I’ve never explained what the Law of Disruption is.  Now seems like a good time to correct that failure.

The Law of Disruption can be stated simply:  Social, political, and economic systems change incrementally, but technology changes exponentially. In the widening gap between the potential change technology makes possible and the actual change existing institutions achieve, the likelihood of surprising, radical, and unintended shifts is fast increasing.



Borrowing a term from venture investing, in 1998 I called these surprises “killer apps,” a phrase I intended to be provocative.  If existing institutions didn’t learn to move faster, to adapt more quickly, to make more creative use of new technology, they stood to be victims.  Not so much of start-up businesses but of the technology itself, operating through entrepreneurs.

It was like the old joke about the two campers who hear a bear rummaging around outside their tent at night.  “Why are you putting your shoes on?” the one camper asks the other.  “You can’t outrun a bear.”  “I don’t have to outrun the bear,” the other camper replies.  “I just have to outrun you.”

After a decade of operating principally on business and economic system, the Law is now shifting its focus to law and government.  To see what’s coming in the next decade, it’s useful to begin with a review of what’s already happened in the last one.

The Persistence of “Normal Science”

The Law of Disruption (c. 1998)

Video: Occupy Wall Street: Voice of the Protesters

I first described the Law of Disruption in my 1998 book “Unleashing the Killer App.”  Reviewing dozens of early Internet start-ups who were wreaking havoc on the business models and supply chains of established “brick-and-mortar” industries, I realized that what drove the innovators most was not so much their big ideas or even their youth.  It was the accelerating pace of technological change.

The acceleration was in turn a function of Moore’s Law—Intel founder Gordon Moore’s 1965 prediction that computer power would double every 12-18 months even as price held constant.  Later work suggests Moore’s Law applies equally to other key drivers of the Internet revolution, including communications speeds and data storage.  Together, the relentless push toward the faster, cheaper, and smaller computing made change possible at an exponential pace.

So why, I wondered, did actual change occur so much more slowly?  And why, in particular, were the most entrenched institutions—including government and business—the least able to take advantage of the revolutionary potential of new technologies?

The answer, oddly enough, came from MIT historian Thomas Kuhn.  Just a few years before Gordon Moore’s first articulation of Moore’s Law, Kuhn published the first edition of his seminal work, “The Structure of Scientific Revolutions.”

Looking over the history of major changes in scientific thinking—what Kuhn coined “paradigm shifts”—it became clear that there was a pattern of resistance, counter-revolution, and finally, acceptance.

Kuhn uses the example of Copernican astronomy, which Galileo proved with his new telescope.  Astronomers (and others, including the Vatican) had a vested interest in a view of the solar system in which all solar bodies including the Sun revolved around the Earth.   Galileo’s evidence to the contrary needed to be explained away, even when doing so required revisions to the old model that eventually made it look absurd.

Scientists who had been trained as students in a particular dogma for their field—the paradigm—could not be expected to embrace a radically different paradigm even as evidence mounted of a model that better approximated reality.

That’s because what scientists are trained to do is not to think big thoughts so much as to refine the dominant paradigm—what Kuhn called “normal science.”  Look at professional journals for physicists, economists, biologists and other sciences, and you’ll quickly realize that most academic research reflects normal science—small experiments, gaps in the literature, tiny adjustments to an existing model of how some aspect of the world works.

In fact, Kuhn goes on, a true paradigm shift tends to take at least twenty years to become the new normal, even after the evidence has become overwhelming.  Why twenty years?  That’s the amount of time, Kuhn concluded, for the existing generation of practicing scientists to retire or die off.

The current generation, in other words, never make the shift to the new paradigm; it’s only when the next generation takes over the field that the old paradigm—encoded in textbooks, maps, experiments and training materials–can be discarded.

Looking at business and government reaction to technological revolutions, particularly in information technology, I came to the conclusion that Kuhn’s work had broader application than just the sciences.  CEOs, legislators, judges—all are likewise trained in the dominant paradigm of their age (increasingly at graduate business and law schools).

Like scientists, they spend their careers in the “normal science” of working within the paradigm to achieve modest improvements and relative efficiencies.  A few more percentages of market share, more focused incentives and penalties, clearer statements of rules—these are the normal science of social institutions.

The Computing Revolution’s True Nature

When revolutionary change occurs, social institutions likewise resist, struggling mightily to explain away a new reality in the language of the old way of doing things.  Take information technology.  Business computing began in 1955 with the sale of the first Univac for commercial use—a payroll system for General Electric.

Following that model, computers were long seen as tools for automating existing business practices, offering improved efficiency but not competitive advantage.  (See the wonderful commercial for Univac below.)




In the 1970’s, mainframe computers running back office accounting and manufacturing applications became a cost of doing business, a source of productivity improvement but one that was largely competed away to cost improvements enjoyed by customers.  No one saw computers as revolutionary tools for redefining customer interactions—at least, no one inside large corporations.

But something unexpected happened.  Personal computers moved from the bottom of the food chain to the front line of experimentation, pulling the information it wanted rather than pushing it back up for consolidation and summarization.  Spreadsheets and other “what if” tools became the transitional killer apps, putting computing power in the hands of users to do with what they wanted, not what they were told.

Then followed the explosive growth of the Internet, a non-proprietary data communications protocol that took full advantage of Moore’s Law.  Initially, it was ignored by business and policy leaders alike.

IT departments, well-drilled in “normal science” of incremental improvements and low-risk investing, dismissed it through the early 1990’s as an academic or at best scientific computing tool, not fit for high-volume, high-reliability transaction processing. Technically, they were right.  TCP/IP offered an inferior networking standard compared to proprietary architectures including IBM’s SNA and Digital’s DECnet.

That, of course, assumed that the purpose of computing was to codify and automate existing hierarchies and one-way communications.  As with all revolutions, the true potential of Moore’s Law wasn’t realized until a new generation of entrepreneurs, venture investors, engineers and–perhaps the first time—users began to experiment with the Internet, not as a tool for automation but as a technology first and foremost of collaboration.

The Internet, and the devices and applications that sprang up to take advantage of it, allowed for a remarkable range of new kinds of interactions in every conceivable supply chain—whether that meant product design and customer service, government transparency and accountability, or new forms of family and personal relationships embodied in social networks.

Once those new interactions were discovered, they moved quickly from the frontier back to mainstream life.  Customers now demanded access to business information.  And more, they demanded the right to express their views on how products and services performed—and how they ought to be improved.
Values of social, ecological, and open access were articulated.  Markets emerged to supply these and other aspirations; markets that might never have taken shape without disruptive technologies to help define new demands.

Shift Happened

Since the publication of “Unleashing the Killer App,” the revolutionary nature of Moore’s Law has only become more pronounced.  In good economies and bad, booming and busting stock markets, through political upheaval and social change, computing continues to drive deeper into human experience, enabling change even as it redefines the nature of interactivity.

Along the way, many paradigms have been challenged, with predictable responses from those most closely tied to their propagation.  In business, I observed CEOs frustrated both by the ability of start-ups to capture the imagination and loyalty of new customers and their own paralysis to respond, let alone initiate.  Not surprising, that frustration was particularly acute in industries that had long been stabilized by regulation (airlines, communications, utilities, financial services) or cartel (lawyers, doctors, and other professional service providers).


Even when industries were granted dramatic deregulatory freedom, the old paradigm persisted.  Ironically, one of the toughest obstacles to change were existing computer systems, which had embodied obsolete business practices and information flows in inflexible software code that no one was brave enough to hack.

In my role as shaman of the killer app religion, senior executives regularly confessed to me that they simply couldn’t change their way of looking at the business.  In the end, faced with the inevitability of disruptive change, they wanted simply to last long enough to retire and let the next generation figure out what to do.   (My advice to those executives was to retire as soon as possible, which some of them, to their credit, actually did, although never soon enough.)

Traditional businesses had many valuable assets that could be leveraged in competition with the start-ups.  That was the good news.  The bad news was that the valuable assets weren’t the physical ones that determined success in the industrial age.  Few business leaders were willing to accept that the trucks, printing presses, retail locations and other physical plant that dominated the balance sheet had become liabilities overnight.

But online commerce turned the value proposition upside down.  Shopping at home was more convenient than any retail experience, especially in an era where low unemployment translated to incompetent customer service at the point of sale.  Information goods—including news, entertainment, and money, for starters—could begin and end life as bits, traveling cheaply and instantly over phone lines.

The real value for the incumbents was trapped in what I called the “hidden balance sheet”–the transaction data, expertise, and relationships carelessly filed away in the aptly-named data warehouse.  Intelligence about customers and suppliers, deep industry expertise, and brands to which only lip service was paid were the truly valuable assets of the brick-and-mortars.

Few businesses found them in time.  Biting at the heels of every slow-moving Blockbuster was a reckless Netflix, able to cancel out the advantage (if any) of an existing customer base with the decreasing cost of new user acquisition made possible by viral marketing and cheap broadband.  And customer loyalty proved chimerical, especially when businesses tried to secure that loyalty through closed systems and product lock-in.

Either way, in some industries more than others, the paradigm shift occurred, leaving the existing participants at best reconfigured and at worst out of business.

Often, the process took a long time, but the result was never in much doubt.  When Amazon first launched in 1994, it referred to itself audaciously as the “World’s Largest Bookstore.”  Barnes & Noble sued on the ground that calling itself a “store” was false advertising, because it had no retail outlets.

That, of course, was the point of e-commerce.  But Barnes & Noble and other book retailers (like retailers in other categories) were more comfortable suing to protect the old paradigm than to find ways of leveraging their existing assets to compete in a new reality.

Here the law proved a valuable ally, to slow if not to stop the disruption.  Copyright, patent, antitrust, and other bodies of industrial law were called to duty, applied not to their traditional problems but to stop technological progress itself, by any means necessary.  Napster, MP3.com, and even Microsoft were stalled or destroyed.  But YouTube, iTunes, and Google were waiting in the wings.  Technology, as always, adapted faster than law.

Now, less than twenty years later (take that, Kuhn!), the book business has changed utterly, leaving many casualties.  Traditional publishers are still struggling to find their place in the new order, and continue to resist the move from physical to electronic—first of the distribution of books, and now the books themselves.

How do online sales fit in the making of a bestseller list?  How should e-books be priced so as not to cannibalize hardcovers?  You can hear the old heliocentric astronomers at work, tugging at their beards as they fretfully erase and redraw the orbits of the planets to avoid the reality.  There’s a new center of the universe, and it ain’t the Earth.

But, at the same time, what has emerged is a far more convenient and cost-effective experience for customers.  Both my oldest and youngest friend have each adapted quickly to the Kindle’s winning combination of low cost, light weight, readable text, and virtual library available through the Internet.  Sentiment and status attached to the physical book—an artifact of history where books were scarce and literacy a sign of wealth—are fading fast.

Amazon, meanwhile, hacked its own systems, and allowed itself to be taken by the tidal wave of change to wherever Moore’s Law led it.  The company morphed quickly from selling books in a new way to selling everything in a new way, and from there to recognizing itself as a platform—as software—that could be leveraged not just to other merchandise but to other merchants.

The company now offers cloud computing services, extending the platform beyond merchandising to any complex set of interactions.  With the breathtaking success of the Kindle and its successor products, the company has taken the next step in its accelerating evolution, becoming a platform not just for other product categories and other businesses but also for its customers.

The Policy of Disruption

Since 2007, I have been increasingly focused on applying the Law of Disruption to regulation and policy.  Business, for better or worse, is well along on the path to change.  Law is not.  Last year, I published “The Laws of Disruption,” looking at the ten most intense legal battles at the border of traditional existence and digital life.  These included privacy, copyright, antitrust, crime, patents, infrastructure and human rights.


Fights over how to rewrite these sinking bodies of industrial law for our increasingly virtual lives have only intensified in the last two years, and in many ways are converging to a general revolution.

Grumblings over one-sided terms of service, limits on remixing content, government surveillance and excessive patent protections have sharpened into movements and advocacy, including Creative Commons, the Electronic Frontier Foundation, and TechFreedom, a new policy think tank aimed at limiting all forms of regulatory interference with innovation.  (I work with TechFreedom as an adjunct fellow.)

Despite what existing governments may think, anarchy is not the only alternative to their continued monopoly.  Rather, the revolutionaries–sometimes groping, sometimes articulately—are striving for a new social contract, one based on the unique social and economic properties of information.

The problem with existing law is baked right into the founding of the modern state.  Democratic systems of government, after all, are designed to change slowly and deliberately, through separation of powers and checks and balances that ensure the passions of the day are tempered with wisdom before significant change occurs.

The business of government is truly normal science—a good day in Washington is a day in which absolutely nothing happens.  And for the most part, when it comes to the regulation of innovation, doing nothing is the best way to help.

Governments do best when they establish a healthy environment for entrepreneurs—avoiding taxation of emerging industries, establishing markets that function with minimal transaction costs, incentivizing long-term research and investment and encouraging self-regulation of dynamic industries.

Safe harbors, including a provision of U.S. law that protects online publishers from lawsuits over third party content, establish clear (or clearer) boundaries for acceptable behavior, reducing the risk of failure for new ventures.  A provision of California law that refuses to enforce most non-compete clauses allows talent to flow where it needs to go without undue friction, perhaps a key (but largely unsung) factor in the success of Silicon Valley over other high-tech geographies.

Governments do their worst when they try to intervene and micromanage fast-changing realities, especially when those realities are being shaped by technologies over which they have no experience or expertise.  For then they are fighting the Law of Disruption, asking technology to change at the pace of the modern bureaucratic state.  It’s a doomed combination, like keeping one foot on the dock and the other in a speedboat.

In the last few years, I’ve participated in dozens of hearings and meetings on Capitol Hill to talk about regulating “the Internet.”  There’s a bizarre and worrisome ritual at these meetings.  Elected officials begin the conversation by confessing they’ve never used the products and services they proceed to praise or condemn.  They feel obliged to act, they say, because they know their children are using them all the time.  Why do they take such pride in their ignorance?  And what are they really worried about?

The result isn’t surprising.  The last decade in particular is littered with failed efforts to “solve” problems of on-line life that regulators didn’t define or even understand in the first place.  At the federal, state, and international level, we have a body of worthless law aimed poorly at a range of early artifacts, including spam, spyware, identity theft, privacy, pornography, gambling, intellectual property, bullying, net neutrality.

Many of these issues turned quickly into other issues; some were solved by new technology, or by joint actions of users and providers.  Some got worse.

In every case, new laws and new regulations did nothing to help.  But they are hardly inert.  Laws and rules are fixed in time in ways that technology is not.  So even the best-intended laws can and increasingly do have unintended consequences later on, often exacerbating the very problem they intended to solve.

ECPA, a 1986 law on electronic surveillance, has never been updated, leaving most data stored in the cloud seizable without a warrant by law enforcement agents.  A statute aimed at protecting government computers from hackers has been warped to impose criminal sanctions for violating the terms of service of social networking sites.  Expect more, not fewer, of these perversions.

The Revolution Will be Tweeted

As growing resistance to today’s political institutions suggests, governments have yet to embrace the reality of technology-driven paradigm shifts.  Citizens and consumers alike are making their own rules, writing their own laws, and drafting their own constitutions for digital life.  Some are working constructively on the new; others are more focused on dismantling what they don’t like.
Elected officials would be wise to heed the lessons of history:  Don’t obsess over the speck of dust in your neighbor’s eye, when you have a log in your own.  Give evolving forms of governance the benefit of the doubt.  Embrace the change and the technology that’s causing it.  Or retire, quickly.


As economic, social, and political life migrates to the Internet, governments increasingly feel the gravitational pull to follow.  And there is a role for government in the information economy.

As our digital paradigm evolves, we’ll need wise leaders and sound law to preserve the order of digital society.  The sooner policymakers learn to stop fighting Moore’s Law and leverage their true assets, the more likely existing institutions of governance will find a meaningful place in the new reality.

That, in any case, is the common theme of the revolts and protests happening around the world this year.  Though they have different origins and different grievances, each manifests the Law of Disruption in its frustration with incremental change and unintended consequences.

The stakes are higher now than they were when I first coined the Law of Disruption.  In politics, unlike business, violent revolution is always a last resort for the wielders of killer apps.  That’s a feature we need to avoid as much as possible.

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